Chapter

III. Main Developments in Regional Arrangements

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
September 1980
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There were important steps in regional economic cooperation during the period under review, including the establishment of new regional arrangements such as the European Monetary System (EMS), as well as the strengthening and enlargement of existing arrangements.

The entry into operation of the EMS agreement,20 which was delayed from the originally proposed date of January 1, 1979 because of continuing discussion among EC member states on the monetary arrangements of the Community’s agricultural policy, took place on March 13, 1979. The Finance Ministers of the EC completed a six-monthly review of the system on September 17, 1979, found that it was functioning smoothly, and recommended no changes. The review, which was provided for in the Resolution of the European Council of December 5, 1978, covered the operation of the divergence indicator, questions regarding imbalances accumulated by divergent creditor or debtor countries, and the composition of currencies in the ECU basket. In the communiqué issued by the Heads of State and Governments of the EC countries following their meeting in Luxembourg on April 27–28, 1980, the European Council confirmed its resolve to see the Community progress toward the objective of monetary integration and invited the relevant Community bodies to press ahead with work in order to move on to the institutional stage.

With respect to the enlargement of the EC, the Treaty of Accession of Greece was signed on May 28, 1979.21 This treaty, which would make Greece the tenth member of the EC, effective January 1, 1981, provides for a five-year transition period, during which Greece will progressively reduce to zero customs duties applied on industrial imports from the EC. In principle, quantitative restrictions and measures having equivalent effect on mutual trade in industrial products will be abolished on accession, but Greek import quotas on 14 products, which are to remain in effect, will be increased annually and abolished at the end of the transition period. With respect to the agricultural sector, customs duties will be progressively eliminated, Greek prices will be aligned with EC prices, and production aids will be extended to Greece during the transition period (which is extended to seven years in the case of tomatoes and peaches). During this period, price differentials will be offset by a system of accession compensation. From the date of accession, Greece will apply the provisions of the EC’s preferential agreements, subject to transitional exceptions. Complete freedom of movement of Greek citizens within the EC will apply after seven years from the date of accession.

Parallel to the continuing negotiations on the accession of Portugal to the EC, negotiations were held on a supplementary protocol to the 1972 Agreement between these parties and the 1978 additional protocol. The supplementary protocol, which took effect on January 1, 1980 and will be valid for two years, involves measures to improve Portugal’s balance of payments, to facilitate its economic development efforts, and to help it prepare for subsequent Community membership. The measures taken by Portugal include the suspension of scheduled tariff reductions in respect of EC products, the continuation of measures protecting emerging industries, and the promotion of investment by European car firms and of the export of locally assembled cars. In turn, the Community would reduce barriers on certain imports from Portugal. To further aid Portugal, the Commission of the EC proposed in October 1979 that the remaining amount of loan funds under the financial protocol with Portugal (EUA 120 million out of a total of EUA 200 million) be made available by October 31, 1981 rather than spread out over an additional two years.

During 1979 negotiations on the accession of Spain to the EC and reviews of the 1970 commercial agreement between the two parties took place concurrently.

The new EC Borrowing and Lending Instrument (also known as the “Ortoli Facility”) was launched on September 18, 1979, with the announcement of loans to Ireland, Italy, and the United Kingdom. These loans, amounting to EUA 231.7 million, were to finance energy and infrastructure projects and represented less than half of the authorized amount of EUA 500 million. While the Commission decides on the eligibility of projects, the loans are made and administered by the European Investment Bank (EIB).

Under the November 1978 overall Cooperation Agreements and Financial Protocols between the EC and the Maghreb countries (Algeria, Morocco, and Tunisia) and the Mashreq countries (Egypt, Jordan, Lebanon, and the Syrian Arab Republic), the EC approved on March 19, 1979 a second set of project financing. For the Maghreb and Mashreq countries as a whole, a grant of EUA 3 million (not to exceed EUA 0.5 million for each country) was earmarked for technical cooperation activities. Special loans and grants amounting to EUA 5.7 million were allocated for agricultural and training projects in Jordan, Egypt, and Tunisia. Four separate agreements between the ECSC and the Mashreq countries came into effect on January 1, 1980. The agreements involve customs duty exemptions for steel products imported from Mashreq countries, with the possibility for the ECSC to take suitable measures in case of abnormally low export prices.

The third EC-Turkey Financial Protocol took effect on May 1, 1979. Under this protocol, which expires on October 31, 1981, the EC will make available funding in the amount of EUA 310 million, of which EUA 220 million will be under concessionary conditions. On May 8, 1979, in view of the economic difficulties of Turkey, the Community agreed to certain measures within the context of the EC-Turkey Association Agreement relaxing the conditions for Turkey’s association with the Community. Difficulties in agreement upon operational guidelines have delayed the implementation of the protocol.

In June 1979 the first phase of the 1973 EC-Cyprus Association Agreement was extended for another year, until the end of 1980. Negotiations on the second stage, which envisages further liberalization of mutual trade restrictions, were scheduled to commence by June 1980.

The EC and Israel undertook a review of the 1975 agreement on economic and commercial cooperation in mid-February 1979. Among the more important issues was the possible impact on Israel’s trade of the accession of Greece and, eventually, Spain.

A cooperation agreement to replace the EC-Yugoslavia trade agreement, which has been tacitly extended since August 30, 1978, was the subject of negotiations between the two parties on July 2–3, 1979. A consensus was reached that the new agreement would contain nonreciprocal trade preferences in favor of Yugoslavia, as well as provisions for industrial, financial, and scientific cooperation.

On February 27, 1979 negotiations between the EC and Romania were opened, with a view to concluding bilateral agreements on trade in industrial products (except steel and textiles which are already covered by agreements) and on the establishment of a joint committee with competence over all bilateral agreements between the two parties.

On May 3, 1979, the EC-People’s Republic of China Joint Committee met in Beijing for the first time, under the auspices of the economic and trade cooperation agreement between the two parties. Among the topics discussed were the negotiation of a textile agreement, the inclusion of the People’s Republic of China in the Community’s Generalized System of Preferences (eventually agreed to be effective 1980), and the expansion of mutual trade.

The 1979 Lomé Convention covering the period 1980–85 was signed on October 31, 1979 by the EC and 58 African, Caribbean, and Pacific (ACP) states.22 This agreement will replace the 1975 Lomé Convention and will deal with five areas. In the field of trade cooperation, the list of ACP products eligible for duty-free entry into the EC was enlarged to cover 99.5 per cent of ACP exports. The remaining products, though not enjoying free access, would receive preferential treatment. Moreover, a special protocol guarantees ACP sugar exporters a price equivalent to that offered to EC producers. On the stabilization of export earnings, the coverage of the Stabex23 mechanism was increased from 34 to 44 basic tropical products. In the field of financial and technical cooperation, the funds available to ACP countries through the European Development Fund (EDF) or through the EIB were increased from EUA 3,457 million to EUA 5,607 million, of which EUA 280 million was earmarked for the new mineral export assistance scheme. Lastly, in respect of industrial and agricultural cooperation, efforts will be stepped up in areas such as energy prospecting, new energy sources, maritime transport, and fishing. Private investment from EC countries will receive added protection through a guarantee of equal treatment, regardless of country of origin. The resources of the Industrial Development Center, which promotes contacts between entrepreneurs, will be increased. Furthermore, a technical cooperation center in the field of agricultural and rural development will be set up.

The second conference on industrial cooperation between the EC and the Association of South East Asian Nations (ASEAN)24 was held in Jakarta on February 26–28, 1979. Sponsored by the two groups, this conference brought together representatives of the private business sector with a view to promoting investment in ASEAN countries. The latter put forward about 180 investment projects for consideration by European investors. The EC and the ASEAN countries completed negotiations on a five-year commercial and economic cooperation agreement on November 30, 1979. The agreement, which is nonpreferential in nature, provides for investment protection and promotion on a nondiscriminatory basis, most-favored-treatment of trade (with provisions taking into account that Thailand is not a contracting party to the GATT), and intensification of EC financial and technical aid, especially in the areas of food production, rural development, and regional development cooperation.

In early November 1979, discussions were held between representatives of the EC and the Andean Pact countries25 to explore the possibility of negotiating an economic cooperation agreement.

In late November 1979 officials of the EC and the Council for Mutual Economic Assistance (CMEA)26 met in Moscow to continue talks started in 1976 on a cooperation agreement.

In June 1979 the Council of the Organization for Economic Cooperation and Development (OECD)27 extended, for an additional year, the declaration of May 30, 1974 amended by the Council’s decision of June 15, 1978 which enjoined participating countries to avoid the use of trade restrictions for balance of payments purposes. In renewing the declaration, the Council called for an examination of ways and means to ensure that the objectives which lay behind the trade declaration were maintained. The examination was to be carried out in light of the results of the MTN and of developments concerning North-South trade relations, as well as other major factors which set the stage for trade policies in the 1980s.

The member countries of the European Free Trade Association (EFTA)28 and Spain signed a free trade agreement on June 26, 1979. The objective of the agreement, which took effect on January 1, 1980, is to eliminate all tariffs and other trade restrictions between the EFTA countries and Spain. The immediate effect will be the achievement of the same level of trade liberalization between the EFTA countries and Spain as applies between Spain and the EC.

At their summit meeting held in Dakar on May 28–29, 1979, the Heads of State of the Economic Community of West African States (Ecowas)29 confirmed May 28, 1979 as the beginning of a two-year period in which tariff and non-tariff barriers on mutual trade would be frozen. Furthermore, member states were invited to ratify the Protocol relating to the free movement of people within the Community. A program for the improvement of telecommunication networks was also adopted.

The Multinational Programming and Operational Center (Mulpoc) of the UN Economic Commission for Africa held a meeting in Nairobi on February 1–3, 1979 for the Finance Ministers of countries of the subregion of eastern and southern Africa.30 The meeting launched interstate negotiations on the establishment of a preferential trade area. It also proposed measures to reduce the subregion’s dependency on foreign shipping for their trade, including the establishment of a Mulpoc freight booking center. On June 12, 1979 a conference of eastern and southern African states approved three protocols on the interstate transportation of goods, simplification and harmonization of trading documents and procedures, and harmonization of trade barriers. On October 8–9, 1979 representatives of these states began formal negotiations on a draft Protocol on Clearing and Payments Arrangements covering the subregion.

The heads of state of the West African Economic Community (WAEC)31 held their fifth summit meeting at Nouakchott on October 19–20, 1979. This meeting launched the Solidarity and Intervention Fund for the Economic Development of the Community with an initial capital subscription of CFAF 1.5 billion. This Fund would act as a guarantor of loans contracted by member states.

On January 25, 1979 the Bank of Central African States (BEAC) and the Bank of Zaïre signed an agreement to establish the Central African Clearing House. On October 27, 1979 the BEAC agreed to establish a money market in member countries on February 1, 1980. It was intended that access to this market, in which the BEAC may intervene to establish certain interest rate levels, would initially be limited to banking institutions.

The Governing Council of the African Development Bank (AfDB)32 decided in May 1979 to open the capital of the institution to countries other than the 48 member African states. Two thirds of the enlarged Board of Directors (i.e., 12 out of 18 seats) would be reserved for Africans. Many non-African countries have expressed interest in subscribing.

In September 1979 Guinea announced its intention to join the Mano River Union; it was subsequently announced that its membership would take effect from October 3, 1980. Originally composed of Liberia and Sierra Leone, the Union led to the harmonization of the two countries’ tariff structures in mid-1978. In late 1979 the Union received a grant of US$2 million from the EC for the establishment of a Telecommunications and Postal Training Institute.

The Common Organization of African and Mauritian States (OCAM)33 held its tenth summit at Cotonou on June 26–27, 1979. An ad hoc commission was created to examine the question of member country subscriptions and the insufficiency of financial resources of OCAM’s 16 communal companies.

On July 3, 1979 the Gambia River Development Organization (OMVG) held a meeting in Banjul to discuss further the master development plan of the Gambia River Basin and Guinea’s forthcoming accession to membership along with The Gambia and Senegal.

At a meeting in Maputo in March 1980 the Presidents of Angola, Cape Verde, Guinea-Bissau, Mozambique, and São Tomé and Principe signed an agreement on economic cooperation. The agreement established rules for cooperation in the fields of trade, transport, finance, banking, and insurance.

The Arab Bank for Economic Development in Africa (ABEDA)34 signed a cooperation agreement in March 1979 with the West African Economic Community (WAEC). The agreement covers the exchange of manpower and information on economic development in the WAEC.

In April 1979 the Governors of the Arab Monetary Fund (AMF) approved the payment by member countries35 of an additional 25 per cent of their subscriptions by September 1979, a decision that will bring the AMF’s paid-up capital to Arab Accounting Dinars 124 million. In the same month, Egypt’s membership was suspended in the AMF, the ABEDA, the Organization of Arab Petroleum Exporting Countries, and the Arab Fund for Economic and Social Development.

On October 5, 1979 the ASEAN Food Security Agreement was signed in New York. This agreement established an emergency rice reserve with an initial allocation of 50,000 metric tons. The ASEAN Committee on Trade and Tourism implemented trade preferences on a further 1,001 items on December 10, 1979, bringing the total to 2,327 items.

The revised common external tariff of the Caribbean Community and the Caribbean Common Market (Caricom)36 became effective on January 1, 1979. On January 20, 1979 the Canada-Caricom Trade Agreement was signed. Initially to run for five years, the agreement provided for most-favored-nation treatment of mutual trade, promotion of regional programs and industrial cooperation, and the provision by Canada of financial and technical support. On April 1, 1979 the new Caricom rules of origin came into effect. More stringent than the previous system, the new rules were aimed at increasing the regional content of imported goods.

A draft agreement for the transformation of the East Caribbean Currency Authority (ECCA) into a fully-fledged central bank was prepared and circulated to ECCA members37 in early 1979. No deadline was set for the approval of this project.

On January 27, 1979 the Commission of the Andean Pact passed new regulations relating to the Andean Automotive Program with a view to facilitating the efficient development of component manufacturing through increases in scales of production. Moreover, a joint program to prevent, eradicate, and control coffee rust disease was announced. On April 6, 1979 certain products which were previously selected for industrial programming were transferred to the Program for Commercial Liberalization, thereby lowering the applicable tariff rates. On May 28, 1979 the Commission agreed to adopt joint assistance measures contributing to the solution of problems arising because of the landlocked position of Bolivia. On December 14, 1979 the twenty-eighth meeting of the Commission ended without an agreement on a common external tariff; however, negotiations would continue.

The central banks of the members of the Central American Clearing House (Costa Rica, El Salvador, Guatemala, and Honduras) and the National Bank of Panama opened lines of credit with the Central Bank of Nicaragua in September 1979. These lines of credit, amounting to nearly US$100 million, were intended to facilitate the importation by Nicaragua of urgently needed goods.

In mid-1979 Bolivia and Suriname formally ratified their participation in the Treaty of Amazonic Cooperation. Other signatories are Brazil, Colombia, Ecuador, Guyana, Peru, and Venezuela. The Treaty is aimed at achieving full cooperation for economic development of the Amazon River Basin.

In the course of 1979, several “agreements of complementation” within the framework of the Latin American Free Trade Association (LAFTA)38 were amplified in terms of country participation, product coverage, and trade concessions. On December 6, 1979 the Executive Committee of LAFTA decided to convene two conferences in 1980 (in late March and in late May) to negotiate a reorganization of LAFTA’s mechanisms of integration.

Operational aspects of the exchange rate and intervention mechanism of the EMS were described in Section I. See page 4.

Greece also acceded to the European Atomic Energy Community (Euratom) and to the European Coal and Steel Community (ECSC).

The 58 ACP states are divided into the following categories by Lomé II: (1) the least developed countries—Benin, Botswana, Burundi, Cape Verde, Central African Republic, Chad, Comoros, Djibouti, Dominica, Ethiopia, The Gambia, Grenada, Guinea, Guinea-Bissau, Kiribati, Lesotho, Malawi, Mali, Mauritania, Niger, Rwanda, St. Lucia, São Tomé and Principe, Seychelles, Sierra Leone, Solomon Islands, Somalia, Sudan, Swaziland, Tanzania, Togo, Tonga, Tuvalu, Uganda, Upper Volta, and Western Samoa; (2) the islands and landlocked countries—Bahamas, Barbados, Equatorial Guinea, Fiji, Jamaica, Madagascar, Mauritius, Papua New Guinea, Trinidad and Tobago, Zaïre, and Zambia; and (3) the others—Cameroon, Congo, Gabon, Ghana, Guyana, Ivory Coast, Kenya, Liberia, Nigeria, Senegal, and Suriname. Among these countries, St. Lucia and Kiribati became ACP states in 1979.

A system for guaranteeing the stabilization of earnings from exports to the EC by ACP countries in respect of important export commodities which are affected by fluctuations in price and quantity.

Indonesia, Malaysia, Philippines, Singapore, Thailand.

Bolivia, Colombia, Ecuador, Peru, and Venezuela.

The participants are Bulgaria, Cuba, Czechoslovakia, German Democratic Republic, Hungary, Mongolia, Poland, Romania, U.S.S.R., and Viet Nam.

The member countries are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Federal Republic of Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom, and United States.

Austria, Iceland, Norway, Portugal, Sweden, and Switzerland. Finland is an associate member.

The members are Benin, Cape Verde, The Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone, Togo, and Upper Volta.

Angola, Botswana, Comoros, Djibouti, Ethiopia, Kenya, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Seychelles, Somalia, Swaziland, Tanzania, Uganda, and Zambia.

The members are Ivory Coast, Mali, Mauritania, Niger, Senegal, and Upper Volta.

The members are Algeria, Benin, Botswana, Burundi, Cameroon, Cape Verde, Central African Republic, Chad, Comoros, Congo, Djibouti, Egypt, Equatorial Guinea, Ethiopia, Gabon, The Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Kenya, Lesotho, Liberia, Libyan Arab Jamahiriya, Madagascar, Malawi, Mali, Mauritania, Mauritius, Morocco, Mozambique, Niger, Nigeria, Rwanda, São Tomé and Principe, Senegal, Seychelles, Sierra Leone, Somalia, Sudan, Swaziland, Tanzania, Togo, Tunisia, Uganda, Upper Volta, Zaïre, and Zambia.

Benin, Central African Republic, Ivory Coast, Mauritius, Niger, Rwanda, Senegal, Togo, and Upper Volta.

The participants are Algeria, Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libyan Arab Jamahiriya, Mauritania, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Sudan, Syrian Arab Republic, Tunisia, and United Arab Emirates.

The participants are Algeria, Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libyan Arab Jamahiriya, Mauritania, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Somalia, Sudan, Syrian Arab Republic, Tunisia, United Arab Emirates, Yemen Arab Republic, and People’s Democratic Republic of Yemen.

The members are Antigua, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Kitts-Nevis-Anguilla, St. Lucia, St. Vincent, and Trinidad and Tobago.

Antigua, Dominica, Grenada, Montserrat, St. Kitts-Nevis-Anguilla, St. Lucia, and St. Vincent.

Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Venezuela.

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