III. Main Developments in Restrictive Practices
- International Monetary Fund. External Relations Dept.
- Published Date:
- September 1965
Trade and Payments Restrictions and Discrimination
Among more highly industrialized countries progress was evident during 1964-65 in the removal of remaining restrictions, which have now become largely of a “hard core” or residual nature. Quantitative restrictions were also removed from a number of commodities by some countries (e.g., Austria, Denmark, France, Japan, Pakistan, and South Africa). The elimination of quantitative restrictions and the reduction of tariffs and fiscal charges were in some instances undertaken to restrain internal upward price movements caused by domestic cost and demand factors. In addition, the industrial countries have been reducing or eliminating restrictions on imports of products originating in underdeveloped countries, in compliance with the Action Program of the GATT. However, some countries took steps to impose or extend controls over cotton textile imports in accordance with the Long-Term Cotton Textiles Arrangement.
Among some less developed countries there was a tendency toward increased restrictions, both to deal with balance of payments difficulties and to protect domestic industries. While some decided to rely only on increasing the customs tariffs, others, in addition, intensified quantitative restrictions on imports as well as on current invisibles and capital transactions. Despite a relatively good year for the primary producers taken as a group, few countries relaxed quantitative restrictions on imports.
Payments for invisibles were liberalized in a number of countries (e.g., Austria, Greece, Norway, and Spain). In other countries (e.g., Ceylon, Morocco, Sudan, and Viet-Nam) restrictions on payments for invisibles were intensified.
There was some reduction of import discrimination in the period under review, apart from that associated with regional arrangements (summarized below). Algeria and Morocco reduced preferences previously given to other members of the French Franc Area. Australia, the Benelux countries, and the Malagasy Republic disinvoked Article XXXV of the GATT in relation to Japan, thus establishing GATT relations between themselves and Japan. Import discrimination was reduced through the renegotiation by a few countries of trade agreements with Japan. The United Kingdom eliminated some minor instances of remaining discrimination against products from the dollar area; it also, for certain manufactured products, extended liberalized treatment for the first time to Eastern European countries.
Bilateral Payments Agreements
The position with respect to bilateral payments agreements did not change much over the past year, and discriminatory practices continued to result from bilateral arrangements that involved the use of exchange restrictions. There was progress in the elimination of payments agreements maintained by industrial countries, and most of the agreements still maintained by them were with countries that were not members of the Fund. However, the number of payments agreements maintained by developing countries increased. This was true particularly of the newly independent countries in Africa, some of which now settle a considerable part of their international trade through bilateral accounts. A tendency has evolved among developing countries to conclude payments agreements among themselves, even though the existing amount of trade involved may be small.
Some developing countries have used bilateral payments arrangements as a technique for obtaining wider markets for their products and for obtaining capital inflows through the bilateral accounts. In some instances, primarily where the demand for their products in their traditional markets was inelastic, such measures have obtained the desired objective. However, where there has been only a limited demand in their own market for the goods available from bilateral partners, the expansion of exports has had to be financed by extending credits. In such situations these countries have been forced to introduce or intensify discriminatory import and exchange practices in order to obtain proceeds for their exports.
Multiple Currency Practices and Fluctuating Exchange Rates
In general, there was no marked change in the degree of reliance placed on multiple currency practices by Fund members. The exchange systems in Brazil and Venezuela were simplified considerably and those in Burundi, Korea, and Pakistan showed improvement. However, some systems that were already complex, such as those of Indonesia and Uruguay, became more so. The Philippines exempted all its minor exports from the general requirement that 20 per cent of export proceeds be surrendered at the par value rather than in the free market. Viet-Nam depreciated some of its export rates. As regards fluctuating exchange rate systems, there was a substantial depreciation of the rates in Argentina, Brazil, Chile, Colombia, Indonesia, and Uruguay. Some systems designed to operate with a single fluctuating rate with freedom of trade and payments were changed to systems with two or more effective rates; in others, quantitative restrictions and discrimination were reintroduced.
Import Surcharges and Advance Deposits
Increased use of import surcharges continued. Argentina, Chile, and Uruguay each revised its system; Peru increased surcharges in February and March 1964, but in August it incorporated these rates in a new tariff schedule which simplified the system. The United Kingdom in October 1964, as one of a series of measures to deal with its balance of payments difficulties, imposed a temporary surcharge of 15 per cent on all imports (except for food and feeding stuffs, unmanufactured tobacco, fuel, and basic raw materials) from all sources. In April 1965, the surcharge was reduced to 10 per cent. On February 17, 1965 the Indian Government announced a special 10 per cent duty on all but the most essential imports.
Frequent changes were made in the requirements for advance import deposits, without any definite trend being established. Such changes were made several times in Brazil and in Chile, while in Turkey the scope of the system was extended.
Measures Affecting Capital
On the whole, restrictions imposed by European countries on outward capital transfers were further relaxed in 1964, and some countries took measures in the tax, monetary, or exchange fields to slow down the rate of inflow of capital from abroad. The Council of the Organization for Economic Cooperation and Development (OECD) adopted several measures which marked further steps toward the liberalization of capital movements. New items were added to the Code of Liberalization of Capital Movements (in force since 1959), and the liberalization of some items was extended. Loans and credits linked with commercial transactions were liberalized. In most OECD countries, direct investment (both incoming and outgoing) was completely, or almost completely, liberalized or was treated liberally in practice. The volume and variety of international investment indicated that advantage was taken of this freedom on a substantial scale in 1964-65. Portfolio investment, other than new issues of securities, also received, on the whole, liberal treatment. On the other hand, in order to reconcile national monetary policy with balance of payments objectives, credit operations of a banking character, especially short-term and medium-term loans, were still subjected to restrictions in some of these countries.
As part of a general program to correct the balance of payments position introduced at the time of the budget, the U.K. Government modified certain exchange control measures affecting the capital accounts. Regulations governing the investment currency market were changed in a number of ways which were expected to channel some of the funds previously passing through this market in such a way as to benefit the official reserves. Certain other changes were made in exchange control procedures. These included making slightly more stringent the criteria for the use of official exchange for direct investment outside the Sterling Area, and a strengthening of the controls, particularly on travel expenditure, to prevent evasion of the restrictions on capital movements.
On September 2, 1964 the U.S. Interest Equalization Tax Act became law, its provisions, with certain exceptions, being retroactive to July 19, 1963. Under the law, U.S. purchasers of foreign stocks and debt obligations with a period remaining to maturity of three years or more are subject to tax designed to raise the cost to foreign borrowers by the equivalent of approximately 1 per cent per annum. Direct investments, investments in less developed countries, and purchases from other U.S. holders are exempted. In addition, purchases of original or new Canadian issues are exempt under authority granted to the President to exempt purchases if the application of the tax would have such consequences for a foreign country as to imperil the stability of the international monetary system. The tax appears to have stimulated greater new issue activity in Europe and also a substantial increase in U.S. bank loans to foreigners. In his balance of payments message on February 10, 1965, the President announced the extension of the tax to bank loans with a maturity of one year or more made to residents of countries other than the developing countries. The tax was also extended to nonbank lending of one to three years’ maturity and is now to expire at the end of 1967. U.S. purchases up to $100 million each year of new securities issued or guaranteed by the Government of Japan were exempted from the tax.
Several developing countries (e.g., Algeria, Ceylon, Ghana, Morocco, Nigeria, and Sudan) tightened restrictions on outward capital transfers, mainly on those by residents; Argentina reintroduced such restrictions.