III. Other Developments
- International Monetary Fund. External Relations Dept.
- Published Date:
- September 1963
Advance Deposit Requirements
Advance deposit requirements as a prerequisite to obtaining an import license, or as a condition for obtaining exchange to pay for an import, have continued to be used in some 14 countries for at least some of their import commodities during the period under review. In Greece, Japan, and the Philippines the percentages of deposit required were reduced; in Japan the deposits required—now reduced to 5 per cent or 1 per cent—may be described as nominal. Argentina and Pakistan, both of which introduced advance deposit requirements during 1962, had abolished them by the end of the year. In Iran the percentages were increased somewhat, and in Brazil the use of advance deposits was extended to cover payments for invisibles as well as payments for most imports. In some countries, these advance deposit requirements do not apply to imports from all countries, e.g., the member countries of the Latin American Free Trade Association (see below) that have such requirements usually do not apply them to imports from the other members. In some countries the advance deposit is refunded at the time payment is made for the import; but in several others the period of retention varies between 3 and 9 months, and in one country it is 12 months for some items.
In general, the trend toward liberalization of capital movements, both for direct investment and for portfolio investment, has continued in the countries of Western Europe and certain others. Notable in this respect are measures taken by Austria, Finland, France, Italy, Japan, New Zealand, South Africa, Spain, and the Syrian Arab Republic. Although movements of capital for portfolio investment are in general not restricted, there are still limitations in most European countries on the borrowing of foreign currencies (and borrowing from nonresidents), and on certain types of direct foreign investment in these countries as well as on direct investment abroad. However, freedom to transfer capital among the member countries of the European Economic Community has been achieved for direct investments, personal transfers, short-term and medium-term commercial loans, and operations in marketable securities. For other types of capital transactions, the Community has adopted a system of conditional liberalization.
The Netherlands and the United Kingdom permit capital transactions related to dealings in foreign securities, and to dealings in domestic securities by nonresidents, to be carried out in exchange markets separated from those for current transactions. Belgium and Luxembourg permit all capital transactions to be carried out in the free market. In these markets during the past twelve months the exchange rates have not, with the exception noted below, exceeded the exchange rate margins prescribed by the Fund.
In the United Kingdom there is a market in which the foreign exchange proceeds resulting from the sale abroad of foreign currency securities owned by residents, and from the receipt from abroad by residents of certain capital funds (e.g., legacies), may be negotiated at freely determined rates, usually attracting a premium over the official market rate. For a number of years these funds have been available for reinvestment in marketable foreign currency securities, but in May 1962 the possibility was opened up for their use for approved direct investments abroad for which official exchange is not provided. From June 1962 onward there has been a more or less steady rise in the amount of the premium; at the end of March 1963 it was around 10 per cent.
The six member countries of the European Economic Community (EEC)4 made further progress toward the achievement of a customs union and the establishment of an economic union.
Quantitative restrictions on industrial goods and on a substantial volume of agricultural products have been abolished among the EEC members. Tariffs on internal trade in industrial products were reduced by 50 per cent as of July 1, 1962. It is reported that EEC members are to make further 10 per cent cuts on July 1, 1963, January 1, 1965, and January 1, 1966, and that the remaining 20 per cent might be removed by January 1, 1967. Regarding the common external tariff of the Community, a further 30 per cent adjustment of the national tariffs of the members is scheduled for July 1, 1963. The EEC members reached agreement in January 1962 on the major features of a common agricultural policy to replace the different national systems of agricultural support in the member states. This agreement calls for a uniform agricultural policy, based largely on a system of target prices and variable levies, to be established by 1970. Tariffs among EEC members on most agricultural products have already been reduced by 35 per cent.
Surinam became associated with the EEC from September 1, 1962, and Greece from November 1, 1962.
The member countries of the European Free Trade Association (EFTA),5 and Finland as an associate member, made further progress in reducing intraregional tariffs. Tariffs on internal trade in goods eligible for Area tariff treatment had been reduced for all members, including Finland, to 50 per cent of the basic rates, by January 1, 1963. The date originally fixed for this step was January 1, 1965. This acceleration has kept tariff reductions within the EFTA aligned with tariff reductions within the EEC.
The prospects for the further liberalization of world trade were enhanced by the passage of the United States Trade Expansion Act, which came into force on October 11, 1962. This Act is designed to enable the United States to bargain more effectively and comprehensively in reducing the national barriers to trade, particularly in negotiations with the EEC, in order to provide a liberal framework for expanding world trade.
The Latin American Free Trade Association (LAFTA) came into force on June 1, 1961. Trade liberalization between the member countries 6 is to be achieved within a period of 12 years, in two ways. One is through National Lists, specifying annual reciprocal concessions which each member country is ready to grant to the others. Although the annual tariff reduction agreed in the Treaty was 8 per cent, the actual reduction in tariffs in 1962 was, on the average, 27 per cent. The combined list of concessions on which tariffs and restrictions were reduced comprised some 1,500 items. The other method of liberalization is through the Common List, specifying products on which member countries collectively agree to eliminate all tariffs and trade restrictions in not more than 12 years.
The Central American Clearing House Agreement, which is one of several measures aiming at closer economic cooperation in Central America, became effective on August 12, 1961 and has since handled the major part of payments between the participating countries.7 Its stated objective is, by establishing a multilateral clearing system among the member countries, to promote the use of Central American currencies in transactions among the member countries as a means of accelerating their economic integration. Each central bank contributes an amount equivalent to US$300,000—25 per cent in U.S. dollars and 75 per cent in its own currency—to form the working capital with which the Clearing House operates.
The Treaty establishing the “African Common Market” was signed on April 1, 1962 and will take effect on July 1, 1963. The objectives of the Market are given as “(1) liberalization of trade for national commodities and products; (2) free movement of establishment rights, labor, and employment for the practice of economic activities; and (3) freedom of transport, transit, and utilization of all means of communication, ports, and civil airports.” The Contracting Parties 8 agreed to abolish all customs duties and restrictions on imports and exports gradually and within five years from the coming into force of the Treaty. The reduction of the customs duties is to be 25 per cent, based on the duties existing on March 31, 1962, during the first year. The Treaty provides for coordination of import and export policies between the members, but does not contain explicit provisions with respect to common external tariffs.