II. Main Developments in Restrictive Practices
- International Monetary Fund. External Relations Dept.
- Published Date:
- September 1967
Trade and Payments Restrictions
During the period under review further progress was made by many countries in the liberalization of current transactions and by a few countries in the reduction of commercial and financial arrears. Relaxation of restrictions in most cases applied to trade; in some countries there was also liberalization with respect to invisibles.
Yugoslavia introduced a major revision of its trade and payments system at the beginning of 1967 and has initiated steps to reduce its reliance on bilateral trade and payments arrangements; this took on greater significance because economic decision making within Yugoslavia has been decentralized further and made more responsive to market forces. India, by measures associated with devaluation, carried out a major simplification of export promotion measures and a substantial relaxation of restrictions on imports. Brazil took a series of steps during 1966 to reduce the scope of its severely restrictive “Special Category” for imports, and completely eliminated this category in 1967; it also substantially reduced the over-all level of tariffs through adoption of new tariff schedules early in 1967. In conjunction with a substantial adjustment in the exchange rate in March 1967, Argentina eliminated virtually all restrictions on payments; at the same time, a new tariff schedule providing for a considerable reduction in duties and a simplification of the tariff structure was adopted, and nearly all import prohibitions were eliminated. France shifted its exchange control to a “negative list” basis. As a result, all transactions are to be free except those specified as requiring approval. Moreover, a number of remaining restrictions were eliminated, among which were the surrender requirements for export proceeds and the controls over the import and export of gold.
Restrictions on imports were relaxed in other countries, including Austria, Iceland, Israel, Japan, Korea, Morocco, Rwanda, South Africa, and Uruguay. Progress in working off commercial and financial arrears occurred in several countries; particularly noteworthy were the starts made by Ghana and Indonesia. Other relaxations with respect to trade occurred within the context of regional arrangements. The liberalization taking place within the European Economic Community (EEC), the European Free Trade Association (EFTA), and other regional arrangements is summarized in Section III below. Some of the countries involved went beyond their commitments under regional arrangements and extended regional reductions in tariffs or quantitative restrictions to their trade with third countries.
Colombia and Pakistan, each having progressively liberalized through most of the year, reimposed import restrictions near the end of the year; Colombia, however, introduced new regulations in March 1967, which would permit a measure of liberalization of imports. New Zealand and the Sudan tightened their import restrictions for balance of payments reasons. Some of the less developed countries, including Jamaica, Trinidad and Tobago, Malaysia, Singapore, and Venezuela, increased the use of quantitative restrictions for protective purposes. Countries which felt constained by persistent balance of payments pressures to maintain severe restrictions throughout the period included Ceylon, Ghana, Indonesia, and the United Arab Republic.
Following a unilateral declaration of independence by Rhodesia in 1965, a large number of countries introduced or tightened their trade and payments restrictions on transactions with Rhodesia. The first series of such actions took place near the end of 1965; a second series took place a year later. The United Nations Security Council in 1966 imposed selective mandatory sanctions on Rhodesia.1
Action to reduce import discrimination against Japan was taken by Austria, France, Germany, Guyana, Kenya, Nigeria, Portugal, Spain, Tanzania, Togo, Uganda, and the United Kingdom. African countries that are part of the French Franc Area continued the process of extending to all EEC countries preferential market access formerly extended only to France. This access was granted on the basis of the reciprocity provided for in the Association Agreement. Somewhat similar arrangements were made between the EEC and other African countries. Denmark, Finland, France, Germany, Italy, Norway, Sweden, and the United Kingdom extended the liberalization of quantitative restrictions, applicable to multilateral trading areas, at least in part to state trading countries of Eastern Europe or to Mainland China. In addition, a number of Fund members strengthened their commercial relations with state trading countries in other ways, for example, through licensing arrangements and export credit facilities.
Some countries took further action to apply import restrictions on textiles to additional products and to sources not previously restricted. These actions limited access to markets for cotton textile exports from a number of the less developed countries.
Restrictions on payments for invisibles were relaxed to some extent by Ceylon, Chile, Japan, Korea, South Africa, and Yugoslavia, and were virtually eliminated by Argentina and Thailand. Controls over payments for invisibles were made generally more restrictive, however, by Laos, New Zealand, the Sudan, Tanzania, Uganda, and Zambia. Restrictions on exchange for travel were introduced by the United Kingdom and were intensified by the Dominican Republic, Greece, Guatemala, Iraq, New Zealand, and the Sudan. Colombia imposed a tax on travel and Chile increased its travel tax.
Bilateral Payments Arrangements
A number of countries concluded new bilateral payments agreements and many existing agreements were renewed. Nevertheless, there was general progress during 1966 in easing discrimination associated with bilateral payments agreements. The number of agreements which were terminated substantially exceeded the number of new agreements concluded.2 Furthermore, some agreements were amended to provide for at least partial settlement in convertible currencies at regular short-term intervals. In other cases, trade settlements were placed on a nominal convertible currency basis, but in fact still took place under reciprocal credit arrangements between the central banks of the partner countries concerned. In certain instances agreements exerted some influence even after their termination, as public entities increased their imports from state trading countries in order to use up credit balances. The trade between the less developed countries and the state trading countries continued to be conducted, to a great extent, on a bilateral payments basis.
Ghana is in the process of reviewing its bilateral agreements, and this may lead to the termination or revision of some of these. Some agreements were terminated between members of the Fund, such as some of the Nordic countries, and state trading countries of Eastern Europe.
Multiple Currency Practices and Fluctuating Exchange Rates
Systems including multiple currency practices or fluctuating rates continued in a number of countries, but simplification of complex systems was accomplished in a few important cases. Brazil removed the last of its exchange taxes on nontrade payments, stamp taxes, and the requirement of guarantee deposits in connection with the purchase of foreign exchange. India, after the devaluation, abolished a complex system of incentives for exporters in the form of import entitlements or tax credit certificates, and introduced a simpler system involving either cash subsidies or export duties according to the competitiveness of various specified export commodities at the new exchange rate. It also eliminated a bonus scheme applicable to certain receipts from invisibles. Uruguay eliminated spreads between the rates in two exchange markets, thus achieving a single free market. Indonesia and Viet-Nam simplified their exchange systems and reduced the effective spread of exchange rates. Chile effected some simplification in its system of dual exchange markets, surcharges, and advance deposit requirements in 1967. Efforts to simplify the exchange rate structure of Colombia were sustained through most of 1966. Toward the end of the year, however, the free market was closed and transactions previously effected through this market were subjected to tight control and had to be effected through the official market at the previous free market rate. This situation was reversed early in 1967 when Colombia took new steps toward simplification of the rate structure.
Ecuador, by repeated adjustments in its application of import taxes and surcharges, advance deposit requirements, export charges, and the criteria of eligibility for its different exchange markets, increased the complexity of its exchange system substantially. Both in Ecuador and the Syrian Arab Republic spreads widened between the principal exchange rates and the rates in secondary exchange markets. Costa Rica ceased to make official exchange available for a number of purposes, with the result that the free market, which was previously unified with the official market, was reactivated; a substantial spread developed between the official and the free market rate. The Sudan introduced minor stamp duties at various ad valorem rates on most foreign payments but later in the year shifted to a system of specific duties payable upon application for exchange allocations. Somalia reduced the exchange tax applied to most foreign payments.
The premiums paid in 1966 in the special capital market of the United Kingdom and the free market of Belgium increased. A secondary market for exchange transactions involving securities was eliminated, however, in the Netherlands.
Several of the African countries in the French Franc Area terminated a long-standing system of exchange retention by exporters for use in payment for imports otherwise restricted (“EFAC”). Retention facilities for exporters were also curtailed by Ecuador and Iran. Some countries, however, increased their reliance on complex export incentive schemes, and Ceylon introduced such schemes for the first time although only for a very small proportion of its total exports.
Import Surcharges and Advance Deposits
The United Kingdom and Ireland terminated their use of import surcharges during the second half of 1966. The Dominican Republic consolidated tariffs and surcharges on agricultural and industrial equipment, introducing a uniform tax on imports of such goods. Chile absorbed its import surcharges into a new customs tariff. The Sudan introduced import surcharges, Ecuador and Peru applied new surcharges, and the Dominican Republic and Paraguay increased surcharges on selected import categories. Turkey increased its stamp duty. Advance deposit requirements were modified in a number of cases, being withdrawn by Greece in respect of imports for certain public service institutions, reduced by Chile, and revised repeatedly by Ecuador. A number of countries, including the Dominican Republic, Guyana, and Libya, introduced new deposit requirements or applied such requirements more broadly (for some, the requirement related only to cash margins on letters of credit or to imports financed with suppliers’ credits).
Measures Affecting Capital
France liberalized capital controls as part of a general reform of its restrictive system, under which all exchange transactions were authorized except those specifically retained under control. Without affecting the convertibility of the franc, the following capital transactions are subject to regulation. French direct investment abroad and foreign direct investment in France have to be declared to the Ministry of Economy and Finance, which has the right to request their postponement. Borrowing abroad by French firms other than banks has to be authorized. Foreign issues on the French capital market are subject to the same regime as French issues, namely, a date for the issue must be set with the agreement of the Treasury. As a result of the measures taken by France and the elimination by the Netherlands of its free market, payments on capital transactions now are virtually unrestricted in all countries of the European Common Market, though they must take place through a free market in Belgium and Luxembourg in which the exchange rate fluctuates freely. Switzerland abolished the remaining limitations on the investment of foreign funds in enterprises in Switzerland or in Swiss securities. Capital transactions to and from Switzerland are now virtually free again from controls.
The United States maintained through 1966 its Interest Equalization Tax, and now proposes to continue the tax for a further period beyond the present expiry date in mid-1967, at the same time making the rate of tax flexible and increasing the maximum permissible rate. The United States also acted to continue and to intensify its program of voluntary restraint on foreign loans and investments. The United Kingdom introduced a program of voluntary restraint applying to direct and portfolio investment in the more developed countries of the Sterling Area and to portfolio investment in countries outside the Sterling Area. Japan introduced certain changes in the official accommodation provided to importers and in the directives governing the foreign assets and liabilities of commercial banks. Several less developed countries took steps to discourage the outflow of capital, especially by restricting or prohibiting investments in foreign mutual funds.
Resolution 232 (1966), December 16, 1966.
Countries which terminated one or more bilateral payments agreements include Brazil, Burma, Cambodia, Denmark, Finland, Greece, Iceland, Japan, Korea, Morocco, Norway, Portugal, Syrian Arab Republic, Turkey, United Arab Republic, Viet-Nam, and Yugoslavia; those that concluded new agreements include Cambodia, Costa Rica, Ecuador, Indonesia, Lebanon, Mexico, Philippines, Singapore, and United Arab Republic.