Chapter

IV. Main Developments in Regional Arrangements

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
September 1981
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Most of the specific steps at fostering economic and financial cooperation during the period under review were centered on the EC and various country groupings in Africa. The EC strengthened its bilateral agreements with nonmembers and was enlarged by the accession of Greece. On the other hand, the implementation of the second, institutional stage of the EMS was postponed sine die.26

On January 1, 1981 Greece became the tenth member of the EC.27 An Agreement of Association between the EC and Greece took effect on November 1, 1962 as the first step toward eventual membership for Greece. On June 12, 1975 the Greek authorities applied for full membership in the EC, and the negotiations were formally completed on May 28, 1979 when the Treaty of Accession was signed. The Treaty of Accession allows for a transitional period of up to five years. However, a special transitional period of seven years will apply to the free movement of workers and to the treatment of certain agricultural products. In connection with the EC membership, the Greek authorities established a foreign exchange market in Athens with effect from November 12, 1980. In conformity with the EC regulations, Greece terminated all remaining bilateral payments arrangements on December 31, 1980 and initiated the phased elimination of advance import deposits on January 1, 1981. Restrictions on payments of interest and dividends were also abolished upon accession, despite the authorization for Greece to prohibit, until the end of 1983, the transfer of profits realized in the country by EC investors up to the end of 1985.

In accordance with a resolution of the European Council in December 1980, the ECU replaced the European Unit of Account (EUA) as of January 1, 1981 in all financial instruments of the EC.

The Supplementary Protocol to the Free Trade Agreement between the EC and Portugal, signed in Brussels on December 19, 1979, entered into force on January 1, 1980 for a period of two years. Throughout the year, detailed negotiations aimed at the accession of Portugal to the EC in 1983 took place. Disbursements of funds under the 1976 Financial Protocol between the EC and Portugal, which came into effect on November 1, 1978, were accelerated in January 1980 when it was decided to disburse the EUA 200 million available within a three-year period ending on October 31, 1981. In December 1980 an agreement was signed under which the EC would provide EUA 275 million of preaccession aid to Portugal to facilitate the integration of the Portuguese economy with that of the EC. This aid will take the form both of investment loans from the European Investment Bank’s own resources and of money drawn from the EC budget. The Government of Portugal has taken a first step toward freeing the movement of capital by defining certain “priority sectors” for foreign investment.

Negotiations also continued during the period with respect to the accession of Spain to the EC.

The EC and Turkey on June 30, 1980 reached agreement on a set of decisions concerning the reactivation and further development of the Association Agreement. In the agricultural sector, the Association Council decided to reduce the customs duties applicable to imports of Turkish products over a six-year period starting on January 1, 1981 and culminating in completely duty-free entry from January 1, 1987. In the social sector, the Association Council laid down the provisions to apply from December 1, 1980 to November 30, 1983 in respect of the free movement of workers. In the area of economic and technical cooperation, the main focus of attention will be the sectors of industry, energy, and training. Pending the entry into force of the fourth Financial Protocol, Turkey will receive exceptional aid in the form of grants totaling EUA 75 million. The fourth Financial Protocol, due to enter into force on October 31, 1981, will provide a total amount of EUA 600 million over a five-year period.

Under the Transitional Protocol between the EC and Cyprus, which was signed on February 7, 1980 and came into force on April 1, 1980, the first stage of the EC-Cyprus Association Agreement was initially extended from December 31, 1979 to December 31, 1980. The exploratory talks on transition to the second stage (establishment of a customs union) started on January 29, 1980. According to the terms of the Association Agreement, the customs union was to come into force in January 1981. However, at a meeting on November 24, 1980 between the EC foreign ministers and a Cypriot delegation, it was agreed to extend the present agreement until the end of 1981.

The first stage of the 1970 EC-Malta Association Agreement, which had been extended in 1977 until December 31, 1980, was extended for another six months to allow for further negotiations.

The EC and Yugoslavia signed a Cooperation Agreement and an Agreement on ECSC products in Brussels on May 6, 1980, in accordance with the Belgrade Declaration of December 2, 1976. The cooperation arrangements set up by the Agreement cover industry, science and technology, agriculture, energy, tourism, transport, the environment, fisheries, and other areas. The provisions dealing with labor are based on similar agreements with the Maghreb countries (Algeria, Morocco, and Tunisia) and with Portugal. As regards financial cooperation, the Agreement provides for the financing of investment projects valued at EUA 200 million under a five-year Financial Protocol. A further aim of the Agreement is to promote trade between the parties, due account being taken of their respective levels of development. Once the Agreement is in force, imports of Yugoslav industrial products will be free of customs duties and quantitative restrictions except for a number of sensitive products. This Agreement, like those with other Mediterranean countries, accords tariff concessions on certain agricultural exports of Yugoslavia, while Yugloslavia grants the Community most-favored-nation treatment. The Interim Agreement between the EC and Yugoslavia on trade and commercial cooperation and the Interim Protocol for the advance implementation of financial cooperation entered into force on July 1, 1980.

The Second Lomé Convention covering the period 1980-85, which was signed on October 31, 1979 by the EC and 58 African, Caribbean, and Pacific (ACP) States,28 came into force on January 1, 1981 and will remain in force until February 28, 1985.29 The ACP States that have not ratified the Convention will not be covered by the new provisions.

On February 27, 1980 St. Vincent and the Grenadines formally acceded to the Lomé Convention, bringing the number of developing countries covered by the Convention to 60 (including Zimbabwe). Zimbabwe applied for accession to the Second Lomé Convention on April 18, 1980. Without waiting for the actual membership proceedings to be completed, the EC has made provisions for advance application of the provisions governing trade (i.e., in practice, free access to the EC market for Zimbabwean products) under an Interim Agreement. This Interim Agreement came into force on January 1, 1981.

The Cooperation Agreement between the EC and the Association of South East Asian Nations (ASEAN)30 of November 1979 was formally signed by the ministers on March 8, 1980. The Agreement, renewable every two years after the first five years, covers cooperation between ASEAN and the EC in trade, economic, and development matters. It provides for the setting up of a joint cooperation committee to discuss future specific cooperation projects. The nonpreferential agreement spells out the intention of allowing better mutual access to markets.

On June 6, 1980 the EC Commission opened negotiations with India for the conclusion of an agreement on commercial and economic cooperation to replace the Commercial Cooperation Agreement of 1974.

A Framework Cooperation Agreement covering commercial and economic relations was signed on September 18, 1980 between the EC and Brazil. This five-year Agreement will replace the more limited Trade Agreement signed in December 1973.

The first meeting at ministerial level between the EC and the Andean Group 31 was held in Brussels on May 5, 1980. The talks covered a range of political and economic issues.

The first trade accord between the EC and a member country of the Council for Mutual Economic Assistance (CMEA) 32 was signed between the EC and Romania on July 28, 1980. The Agreement is a five-year Nonpreferential Pact that will cover about 85 per cent of the total trade between the two parties. An Agreement covering the establishment of a joint commission was also signed. Both Agreements came into effect on January 1, 1981. The accord follows contacts in the past that led to Romania’s participation in the EC system of generalized preferences for developing countries.

The Multilateral Free Trade Agreement between the member countries of the EFTA and Spain entered into force on May 1, 1980. On July 1, 1980 the EFTA countries reduced their import duties on most industrial products imported from Spain by 60 per cent and on some sensitive products by either 30 or 40 per cent, except for iron and steel products, which are not covered by the agreement. At the same time, Spain reduced its duties on some industrial products imported from the EFTA countries by 60 per cent and on a large number of other industrial products by 25 per cent. The Agreement provides that any future concessions on industrial products given by Spain to the EC will also be granted to the EFTA countries and that any such concessions given by the EC to Spain will likewise be granted by the EFTA countries. Thus, it prepares the way for the complete removal of industrial tariffs, which will be the consequence of the application to Spain, once it enters the EC, of the free trade agreements between the EFTA countries and the EC. Special provisions govern the trade between Portugal and Spain. The separate bilateral agricultural trade agreements between Spain and Austria, Finland, Norway, Sweden, and Switzerland entered into force on May 1, 1980.

The fifteenth session of the UN Economic Commission for Africa (ECA) and the Sixth Meeting of the Conference of Ministers were held in Addis Ababa, Ethiopia, during April 9-12, 1980. At the regional level, the Ministers recommended that efforts should be undertaken to: (1) establish subregional clearing and payments arrangements where they do not exist and strengthen existing institutions with a view to ultimately linking them with an African clearing and payments union; (2) establish an African Monetary Fund; and (3) set up an African mutual guarantee and solidarity fund.

During the Second Extraordinary Assembly of the Heads of State and Government of the Organization of African Unity (OAU) held in Lagos, Nigeria, on April 28-29, 1980, it was decided to adopt a Plan of Action for the implementation of the strategy for the economic development of Africa. Within this comprehensive Plan, targets were set aiming at strengthening existing subregional payments and clearing arrangements and establishing payments arrangements in those subregions where they do not exist. It was also decided that member countries should embark on negotiations for linking up such arrangements with a view to forming an African Payments Union before the end of the present decade. The Plan also aims at establishing an African Monetary Fund.

An intergovernmental meeting on the proposal for a regional common market covering 18 Eastern and Southern African nations33 was held in Addis Ababa, Ethiopia, from May 28 to June 7, 1980. The previous two negotiating sessions were held in Gaberone, Botswana, in January 1980 and in Luanda, Angola, in June 1979. The discussions led to the adoption of a draft treaty and accompanying protocols that would set up a preferential trade area as a first step toward a regional common market. The protocols cover reduction and elimination of trade barriers on selected commodities to be traded within the preferential trade area, re-export of goods, standardization and quality control of goods, transit trade, customs cooperation, cooperation in agricultural and industrial development, transport, and communications, rules of origin of goods, clearing and payments arrangements, simplification and harmonization of trade documents and procedures, and the special situations of Botswana, Lesotho, and Swaziland.

The fifth Summit Conference of the Economic Community of West African States (Ecowas)34 was held in Lomé, Togo, on May 27-28, 1980. At the conference the Heads of State decided that, as part of the finalization of rules of origin, industrial enterprises producing goods in the Community should have 20 per cent of their equity capital held by nationals of member states as from May 28, 1981, 35 per cent as from May 28, 1983, and 57 per cent as from May 28, 1989. Customs duties on industrial products originating in and traded within the Community would begin to be eliminated by May 28, 1981 and the process would be completed by May 28, 1989. The elimination of nontariff barriers is to begin in all member states on May 28, 1981 and should be completed in May 1985. To compensate for the loss of revenue from tariffs, it was decided that 20 per cent of contributions by the more advanced countries would be paid to the less advanced ones over an initial five-year period beginning immediately. With 8 35 of the 16 Ecowas states having ratified the Protocol on the free movement of people, the legal barrier on the movement of people across the frontiers of Ecowas member states has been removed with effect from July 24, 1980. One of the provisions of the Protocol is that Ecowas citizens have the right to enter, reside, and establish business in any Ecowas country. This right is to be accomplished in three stages, which should be completed during a maximum period of 15 years from the date the Protocol comes into effect.

The Mano River Union 36 signed an agreement with the West African Economic Community (WAEC)37 in early August 1980 designed to establish a framework for close cooperation between the two organizations. The Agreement provides for the harmonization of programs of the two organizations, exchanges of information and studies, and collaboration between experts and technical personnel, with the possibility for joint financing of projects of mutual interest. Guinea formally became a member of the Mano River Union on October 3, 1980.

In mid-1980 ASEAN economic ministers, in a move toward accelerating intra-ASEAN trade, agreed to a 20 per cent across-the-board tariff reduction on 6,188 items. This was the first such tariff reduction in ASEAN.

The Board of Directors of the Asian Clearing Union 38 (ACU) at its meeting in February 1980 revised the operating procedures of the ACU. Effective October 1980 all eligible payments between members must be channeled through the ACU. In addition, commercial banks in the region now settle individual payments through correspondent accounts maintained with each other rather than through the central banks. As a result, only the funding of such accounts or the disposal of their surplus balances need be arranged through the central banks.

In March 1981 the foreign ministers of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates agreed on the constitution of the Gulf Cooperation Council, designed to bind the six countries together in a community similar to the EC. The constitution is to be ratified by the Heads of State in May 1981.

The Latin American Integration Association (LAIA) was founded on August 12, 1980 to supersede the Latin American Free Trade Association (LAFTA)39 at the beginning of 1981. By creating LAIA the member countries abandoned the more ambitious multilateral tariff cutting framework of LAFTA in favor of a more modest institutional framework which would tailor tariff cuts to the relative strengths of its 11 member countries. Bilateral tariff cutting negotiations are encouraged under the new framework with the idea that the benefits will be extended to other members in future periodic negotiations. LAIA has three categories of members according to economic size: the large countries of Argentina, Brazil, and Mexico in one group; the intermediate group comprising Colombia, Chile, Peru, Uruguay, and Venezuela; and the group of small economies consisting of Bolivia, Ecuador, and Paraguay.

Negotiations by the Andean Group on a common external tariff and rules of origin continued during the year.

On October 23, 1980, the foreign ministers of the Amazon countries40 implemented the Amazon Cooperation Treaty, which is aimed at stimulating harmonious development and protecting the environment of the countries in the Amazon area. The countries intend to work together on joint projects—such as damming the Amazon’s tributaries—and to try to settle territorial disputes between its members. The Pact also aims to develop joint research programs, transport agreements, common health standards, and trade arrangements.

This Report centers on exchange arrangements and exchange restrictions, but it also covers other external economic policy measures and intergovernmental arrangements that may have balance of payments implications. The period covered is 1980 and, where possible, the early part of 1981.

The currencies of Belgium, Denmark, France, Federal Republic of Germany, Ireland, Italy, Luxembourg, and Netherlands.

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.

The outcome of the Tokyo Round negotiations and the various agreements were described in the Annual Report on Exchange Arrangements and Exchange Restrictions, 1980, pages 6-7.

The other members are Belgium, Denmark, France, Federal Republic of Germany, Ireland, Italy, Luxembourg, Netherlands, and United Kingdom.

Intervention in EMS currencies, which is required in unlimited amounts when bilateral limits are reached, may create claims or liabilities to the very short-term facility of the European Monetary Cooperation Fund (EMCF) which then normally must be settled by the transfer of ECUs or other reserve assets within 45 days of the end of the month in which intervention takes place. The divergence indicator is a measure of the divergence of the market rate expressed in ECU for each EMS currency from its ECU central rate. Divergence is permitted as far as the divergence thresholds, which are established for each currency, taking into account its weight in the ECU basket in such a manner that there is broadly the same degree of probability of each EMS currency reaching its threshold. When a threshold is reached, there is a presumption that the authorities concerned will correct the situation by diversified intervention, measures of domestic monetary policy, changes in central rates, or other economic policy measures.

Based on the Fund’s multilateral exchange rate model (MERM), in which the implicit weighting structure takes account of the relative importance of a country’s trading partners in its direct bilateral relationships with them, of competitive relationships with “third countries” in particular markets, and of estimated elasticities affecting trade flows. Changes in effective exchange rates derived from MERM may differ from estimated effective exchange rate changes based on changes in trade-weighted exchange rate indices for which the relative importance of the exchange rate changes of particular countries is measured in terms of these countries’ shares in bilateral trade of the country in question.

In early March 1981, however, Costa Rica re-established a dual exchange market consisting of an official market in which the colón was pegged to the U.S. dollar and a parallel market in which the colón fluctuated freely. Subsequently, in April 1981, the exchange market was reunified on the basis of a flexible exchange rate system.

No current information is available on Democratic Kampuchea.

In late January 1981 Romania lowered the premium applied to the official rate of lei 4.47 per US$1 with respect to purchases and sales of currencies from nonsocialist countries and Yugoslavia for nontrade transactions, with the result that the rate for such transactions became lei 11 per US$1 instead of lei 12 per US$1 previously.

The agreements were concluded between the following pairs of countries or territories: Austria and Hong Kong, Canada and India, Canada and Malaysia, Finland and India, Finland and Korea, Sweden and Yugoslavia, United States and Malaysia, and United States and Sri Lanka.

The People’s Republic of China and Costa Rica.

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

The basic reference prices reflect the lowest production costs in an exporting country in which normal conditions of competition are deemed to exist. Whenever import delivery prices fall below these reference prices, provisional antidumping duties may be assessed, except on products covered by bilateral agreements.

Agreements with Australia, Austria, Brazil, Bulgaria, Czechoslovakia, Finland, Hungary, Japan, Norway, Poland, Romania, Spain, and Sweden were in effect in 1980.

The “surge” mechanism operates only when U.S. industry capacity utilization is below 87 per cent. When, in addition, imports of steel products exceed 13.7 per cent of domestic consumption, the U.S. Commerce Department reviews the situation to determine if the trigger price mechanism is evaded whenever there appears to be an extraordinary increase (“surge”) in one or more steel products. If the import penetration ratio exceeds 15.2 per cent, and there appears to be a “surge” in imports, an investigation is initiated to determine the existence of dumping or subsidization.

By the end of 1980, the following 23 countries had fully accepted the Geneva Protocol: Argentina, Austria, Czechoslovakia, EC countries except Belgium (i.e., Denmark, France, Federal Republic of Germany, Ireland, Italy, Luxembourg, Netherlands, and United Kingdom), Finland, Hungary, Iceland, Jamaica, Japan, New Zealand, Norway, Romania, South Africa, Sweden, Switzerland, and United States. The following 17 countries had fully accepted the Supplementary Protocol: Australia, Dominican Republic, Egypt, EC countries (except Belgium), India, Indonesia, Malaysia, Peru, Singapore, and Uruguay.

The restrictions on grain exports to the U.S.S.R. were lifted on April 24, 1981.

Bolivia*, Central African Republic*, Chad, People’s Republic of the Congo*, Costa Rica*, Dominican Republic, The Gambia, Ghana*, Grenada*, Guinea, Guinea-Bissau, Guyana*, Jamaica*, Madagascar*, Mauritania*, Nicaragua, Senegal*, Sierra Leone*, Somalia*, Sudan*, Tanzania*, Togo*, Turkey*, Uganda*, Zaïre*, and Zambia*. In January 1981 Grenada eliminated its arrears through rescheduling. The asterisk denotes countries with a financial program supported by the use of the Fund’s resources in effect during 1980 or early 1981.

They were the Central African Republic, Chad, and the People’s Republic of the Congo from the BEAC, Senegal and Togo from the BCEAO, and Grenada from the ECCA.

That decision, No. 4083-(73/104), adopted on November 7, 1973, stated in paragraph 5 that

… no member shall permit, except as approved or authorized under Article VIII, Section 3 or Article XIV, Section 2:

a difference in excess of 2 per cent between any two buying or any two selling rates for spot exchange transactions between its currency and the currencies of other members; or

a spread in excess of 2 per cent between a buying and a selling rate for spot exchange transactions between its currency and the currency of another member.

The outcome of the 1979 review was summarized in the Annual Report on Exchange Arrangements and Exchange Restrictions, 1980, page 17.

The full text of the conclusions, which were adopted by the Executive Board on March 20, 1981 as Decision No. 6790-(81/43), is reproduced in the Annex, page 36.

Maldives, Mauritania, Morocco, Pakistan, Somalia, Uruguay, and Zaïre.

Barbados, People’s Republic of China, and Costa Rica.

Developments relating to monetary cooperation within the EMS are described in Section II, above.

In addition to the European Economic Community, Greece acceded to the European Atomic Energy Community (Euratom) and to the 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 island 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.

The main provisions of the Second Lomé Convention were described in the Annual Report on Exchange Arrangements and Exchange Restrictions, 1980, page 26.

Indonesia, Malaysia, Philippines, Singapore, and 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.

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

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.

The Gambia, Ghana, Guinea, Liberia, Niger, Nigeria, Senegal, and Togo.

The members are Liberia, Sierra Leone, and since October 1980, Guinea.

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

The members are the central banks of Bangladesh, Burma, India, Iran, Nepal, Pakistan, and Sri Lanka.

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

Bolivia, Brazil, Colombia, Ecuador, Guyana, Peru, and Suriname.

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