Chapter III. Other Fund Activity in the Field of Restrictions

International Monetary Fund. External Relations Dept.
Published Date:
September 1953
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1. Relations with the Contracting Parties to the GATT

(a) 1952 GATT Consultations on the Continuance of Discrimination

The requirement for consultation on the continuance of discrimination contained in Article XIV: 1(g) of the General Agreement on Tariffs and Trade, together with the Fund’s role in the 1952 consultations under this requirement, was considered in the Third Annual Report on Exchange Restrictions. During the Seventh Session of the Contracting Parties to the GATT, held in Geneva in October-November 1952, consultations were held with five countries which discriminated under those provisions of the General Agreement which require such consultations. These countries were Ceylon and the United Kingdom (which discriminated under Annex J of the GATT), and Australia, Italy, and the Netherlands (Article XIV: I (c)).

In accordance with the procedure adopted for the 1952 consultations under the General Agreement, the Fund supplied the Contracting Parties with the results of its consultations with the five countries under Article XIV of the Fund Agreement, together with background material prepared for those consultations. Representatives of the Fund participated in the discussions during the Seventh Session. At the same time, the consultations with New Zealand, Southern Rhodesia, and the Union of South Africa were postponed until a later date, in order that the Contracting Parties would have the benefit of the material to be submitted by the Fund.

The Contracting Parties discussed with consulting governments the harmful incidental economic effects of restrictions and discrimination, and, like the Fund, considered with these countries possible corrective measures designed to deal, in a fundamental way, with the persistent exchange difficulties which give rise to the widespread use of restrictions and discrimination. Considerable attention was given to the relationship between internal monetary and fiscal policies and the balance of payments position. The Contracting Parties observed that the Fund in its consultations had emphasized the importance of monetary and fiscal measures in restoring international equilibrium and had noted with satisfaction the achievements of some governments in this field, while in other cases urging that additional efforts should be made in order to improve upon the results thus far obtained.

The Contracting Parties also expressed the view that discriminatory restrictions cannot in themselves be regarded as providing a satisfactory solution to balance of payments difficulties. At most, they may prevent a further deterioration in a country’s reserve position (or in the case of a contracting party with very low monetary reserves, permit it to achieve a reasonable rate of increase in its reserves), pending the adoption of fundamental corrective action. When maintained for long periods, their effect on a country’s industry and trade may even accentuate the balance of payments difficulties and prolong them.1

(b) 1953 GATT Consultations

Like the consultations under Article XIV, Section 4, of the Fund Agreement, the consultations on the continuance of discrimination under GATT Article XIV: 1(g) are required to be held annually. At their Seventh Session, the Contracting Parties decided that the procedure for the conduct of these consultations in 1953 would be the same as the 1952 procedure, which was described in the Third Annual Report on Exchange Restrictions.

In continuing the 1952 procedure, the Contracting Parties again authorized their Executive Secretary to inform the contracting parties and the Fund of the governments which had initiated consultations and to invite the Fund to consult with the Contracting Parties in connection with these consultations under Article XV: 2 of the General Agreement. Further, they considered that these consultations could be more effectively carried out if, before the opening of the Eighth Session which is scheduled for September 17, 1953, the Fund would make available to the Contracting Parties the results of its own 1953 consultations with the same governments under Article XIV of the Fund Agreement. The staff of the Fund and the Secretariat of the Contracting Parties are in close contact with respect to these consultations.

The Third Annual Report on Exchange Restrictions also noted the requirement for consultation with the Contracting Parties by countries retaining restrictions under the provisions of Article XI of special exchange agreements which they have entered into with the Contracting Parties. These special exchange agreements, which are required of contracting parties which are not members of the Fund, require annual consultations of the same type as those under Article XIV, Section 4, of the Fund Agreement. At their Seventh Session, the Contracting Parties, after consultation with the Fund, agreed to postpone the 1952 consultation with the one contracting party which had initiated it under Article XI of its Special Exchange Agreement. They further decided to adopt the same procedure as in 1952 in connection with any such consultation that may be initiated by a contracting party in 1953. The nature of this procedure and the role of the Fund in connection with it was described in the Third Annual Report on Exchange Restrictions.

(c) Other GATT Matters

In addition to those described above, there have been a number of other Fund-GATT consultations in the past year, including those with respect to the Contracting Parties’ consultations with certain countries on the intensification or modification of their import restrictions, with respect to the dollar restrictions of Belgium, and with respect to a complaint concerning certain taxes imposed by Greece. On these and other matters, the Fund has supplied information and, where appropriate, determinations to the Contracting Parties.

Article XII:4(b) of the General Agreement provides that “The Contracting Parties may at any time invite any contracting party which is applying import restrictions under this article [i.e., to safeguard the balance of payments] to enter into . . . consultations with them, and shall invite any contracting party substantially intensifying such restrictions to consult within thirty days.” Under these provisions, consultations were held during the Seventh Session in October-November 1952 with France, Pakistan, Australia, Ceylon, and the United Kingdom. With the last three countries, the Article XII:4(b) consultations were held concurrently with the consultations under Article XIV: 1(g). With respect to all of these consultations, the Contracting Parties consulted fully with the Fund, and representatives of the Fund participated in the GATT consultations. In each case, the Contracting Parties had before them and made use of background material prepared in the Fund in connection with its consultations under Article XIV of the Fund Agreement. They also took into account the results of the Fund’s consultations with the countries concerned. Further, the Contracting Parties received from the Fund determinations in accordance with the provision of Article XV:2 that “The Contracting Parties, in reaching their final decision in cases involving the criteria set forth in paragraph 2(a) of Article XII, shall accept the determination of the Fund as to what constitutes a serious decline in the contracting party’s monetary reserves, a very low level of its monetary reserves or a reasonable rate of increase in its monetary reserves, and as to the financial aspects of other matters covered in consultation in such cases.”

During their Seventh Session, the Contracting Parties also made arrangements to carry out similar Article XII:4(b) consultations with Brazil, Chile, Finland, Sweden, New Zealand, Southern Rhodesia, and the Union of South Africa. These consultations have been initiated in accordance with the provisions of the General Agreement and will be continued by the Contracting Parties at a later date. The Fund has been invited to consult with the Contracting Parties in connection with these consultations and has accepted that invitation.

It was noted in Chapter I that, like the Fund, the Contracting Parties were considering the restrictions of Belgium and Luxembourg applying to dollar imports. In February 1952, the GATT Intersessional Committee appointed a working party to consider the matter, following a complaint under Article XXIII of the General Agreement, but agreed to delay the calling of the working party until the Fund could make available information on its consultation with Belgium under Article XIV of the Fund Agreement. This information—the results of the Fund’s consultation, as well as the background material prepared in the Fund in connection with its consultation—was. available to and was used fully by the Contracting Parties when they considered the Belgian restrictions at their Seventh Session. As also noted in Chapter I, the Belgian delegate at that Session announced that his Government intended to institute certain measures of relaxation in these restrictions. The delegates of those countries which had complained before the Contracting Parties about the Belgian-Luxembourg restrictions expressed their satisfaction with the Belgian proposals and agreed that no useful purpose would be served in exploring the problem further at the Seventh Session, pending the announcement of the details of the Belgian proposals.

The Contracting Parties also considered at their Seventh Session the complaint of the Government of France concerning a tax or “contribution” affecting certain imports which had been imposed by the Government of Greece, and in this connection addressed to the Fund certain questions concerning this measure. As noted elsewhere in this Report, the Government of Greece, after consultation with the Fund, took action to unify its exchange system, action which involved the abolition of this tax or “contribution”. This appeared to dispose of the complaint examined at the Seventh Session.

Another matter in which the Fund cooperates with the Contracting Parties in the field of restrictions concerns a requirement of the special exchange agreements under which the Contracting Parties are required to report annually on the restrictions maintained under the transitional period arrangements of these agreements. To assist the Contracting Parties in meeting this requirement, the Fund in 1952 submitted reports on the restrictions maintained by Haiti and Indonesia. The Contracting Parties adopted these reports prepared by the Fund as their reports for 1952, as required by the special exchange agreements. They have asked the Fund to furnish the same assistance in 1953 in connection with the preparation of any such report which may be required.

Close relations are maintained between the Fund staff and the Secretariat of the Contracting Parties, both in connection with such matters as have been discussed in this section and in connection with other matters of mutual interest. The Fund is pleased to be able to record the harmonious and useful relations which have developed between these two bodies whose interests are so closely associated.

2. Other Fund Activity Concerning Restrictions

During 1952, as in previous years, the Fund worked directly with several countries especially in regard to their multiple currency practices, sending missions to several countries for the study and discussion of their problems. Discussions with some of the countries with respect to changes in multiple currency practices were associated with the 1952 consultations; in a few cases, consultations were timed so as to facilitate discussion of new practices.

Throughout 1952 and early in 1953, the Fund reviewed certain specific changes or requests for the continuance of specific measures in the multiple currency practices of Brazil, Costa Rica, Ecuador, Finland, Iceland, Paraguay, the Philippine Republic, and Thailand. Missions were sent to several of these countries (Brazil, Costa Rica, Ecuador, and Paraguay) in connection with the changes being considered. The Fund also sent a fact-finding mission to Greece in connection with the study of measures for the simplification of its multiple rate structure. As mentioned above, Greece subsequently, after consultation with the Fund, made substantial changes in its exchange system. Where the situation was one of frequent change, or where the practices were viewed as of a particularly temporary or emergency nature, the Fund has continued to keep under review changes in the exchange policies and the underlying economic and financial conditions of several of its member countries with multiple currency practices.

The Fund also has continued to study and to examine changes in the general economic and financial conditions which underlie the use of restrictions by member countries. The effects and implications of these practices and possible alternative or substitute measures which might reduce reliance on restrictions have been kept under review. In this connection, the Fund has been continuing its study of the various general problems which were noted in Chapter II.

Further views of the Contracting Parties on these matters are to be found in their Third Report on the Discriminatory Application of Import Restrictions, Incorporating a Report on the Consultations in 1952 on the Continuance of Discrimination, November 1952 (Geneva, 1952).

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