III. Other Developments
- International Monetary Fund. External Relations Dept.
- Published Date:
- September 1962
The use of advance deposit requirements, usually as a prerequisite for obtaining an import license or for clearing goods through customs, though sometimes as a part of the exchange system, has in the past twelve months shown no clear trend. In general, reliance on this device has not materially changed, but there were many changes in its application. Advance deposit requirements were abolished in Ethiopia and reduced in Colombia and Paraguay, but increased in Iran and Japan and newly introduced or reintroduced in Morocco, the Philippines, Tunisia, and Turkey. Fourteen countries now operate advance deposit requirements for some of their import commodities, as follows (the figures in parentheses show the percentages applied, or the range thereof, the highest usually relating to less essential commodities): Brazil (10-140), Chile (10,000—for fifteen items only), Colombia (1-500), Ecuador (25-100), Greece (50-280), Iran (25-70), Japan (1-35), Morocco (25), Nicaragua (100), Paraguay (100), the Philippines (50-150), Tunisia (25-100), Turkey (10), and Uruguay (100). In a number of cases these advance deposit requirements are not applied against imports from certain countries. In a few of these countries, the advance deposit is refunded at the time payment is made for the import, but in several others the deposits are retained for a fixed period regardless of the time of import or payment. In one country (Uruguay), the retention period for some commodities is as long as twelve months. In most of these countries, the advance deposit requirements are important in restricting the demand for imports.
In most countries, capital owned by persons not resident in those countries can be repatriated, although this repatriation is not always possible for all capital transfers through the official market and may be feasible only at some less advantageous rate, depending on the exchange control system and the exchange rate conditions in the country concerned. On the other hand, in countries which operate systems of exchange control, the freedom of residents to export their capital at the official market rate is limited to approved direct investments abroad, and portfolio investment is usually possible only to the extent that other residents of the same country are disinvesting their foreign security holdings.
Certain Western European countries permit capital transactions related to dealings in foreign securities, and to dealings in domestic securities by nonresidents, to be carried out in markets separated from those for current transactions. In these markets, the exchange rates may at times exceed the exchange rate margins permitted by the Fund. During the past twelve months, these exchange quotations remained, with minor exceptions, within these margins. In the Belgian free market, in which all capital transactions may be carried out, rates rose somewhat above parity in the beginning of 1961 and the average discount of the Belgian franc in that market reached a maximum in April. The rates then leveled off and in the last months of 1961 and the first months of 1962 they have remained stable at practically the same level as the rates in the official market. In Italy, the free market rates for capital transactions remained very close to the official market rates. In the first days of January 1962, the Italian authorities took the step of permitting freedom of transfer for Italian lire between the capital accounts and the convertible accounts of nonresidents. This had the effect of eliminating all differences in the rates of the two markets and permitted the repatriation, through the official instead of the free exchange market, of foreign capital and profits from foreign investments in excess of the limits established by a law of February 1956. Moreover, Italian residents were given freedom to purchase or subscribe to bond issues of international financial institutions of which Italy is a member; and general authority was given to financial institutions to buy or sell stocks and bonds quoted on foreign stock exchanges and issued and payable abroad, and to corporations and nonfinancial institutions domiciled in Italy to buy bonds quoted on foreign stock exchanges of companies domiciled in OECD countries and related monetary areas and issued by companies established for the same purpose as the corporation making the purchase. France announced in February 1962 the abolition of the system of devises-titres, which had involved a small premium on foreign currencies available for the purchase of foreign securities by residents. All such authorized transactions in France now take place at the official exchange market rate.
South Africa, faced with declining foreign exchange reserves, felt compelled in June 1961 to introduce restrictions on outward movements of capital. South African residents were no longer permitted to purchase South African or Rhodesian securities on the London or Bulawayo stock exchanges, and the proceeds of South African securities sold by nonresidents were blocked and could neither be transferred abroad nor transferred to other nonresidents. The authorities also withdrew the facility by which certain blocked funds of residents of countries outside the Sterling Area could be transferred to the United Kingdom for credit to a Blocked Sterling Account, where their sale to another nonresident for foreign exchange was possible. In March 1962 an improvement in reserves enabled the South African authorities to introduce certain relaxations: holders of blocked funds were permitted to subscribe to a special issue of five-year nonnegotiable government bonds, bearing interest at 5 per cent and repayable in foreign exchange in five annual installments from the date of subscription. For 1962, the amount of this issue available for subscription was fixed at R 20 million. In addition, facilities were introduced by which approved financial institutions in South Africa could purchase South African securities in London through the South African Reserve Bank as intermediary.
The six member countries2 of the European Economic Community (EEC) made further progress in the integration of their economic policies, as well as in the gradual elimination of trade barriers within the Community, as envisaged by the Treaty of Rome.
On January 14, 1962, the Council of Ministers of the EEC unanimously decided that the conditions for the beginning of the second stage of the implementation of the Treaty of Rome were fulfilled on January 1, 1962. Important consequences of this decision are that from this date internal taxes on imports from other EEC member countries must not be higher than those on similar national products, and customs duties on such imports will be further reduced. Remaining quantitative restrictions on imports from other EEC member countries are to be reduced, while taxes and quantitative restrictions on exports to them have been abolished, and further steps will have to be taken to move toward a common external tariff. In addition, a common agricultural policy is to be implemented from July 1, 1962, and a common market for agricultural products is to be fully achieved by the end of 1969.
An agreement for association between Greece and the EEC was signed in Athens on July 9, 1961. The following countries have applied for membership in the EEC: Ireland on July 31, 1961, Denmark and the United Kingdom on August 10, 1961, and Norway on May 2, 1962. Austria, Sweden, and Switzerland in December 1961, and Spain in February 1962, requested the opening of negotiations with the EEC with the object of enabling them to participate in an enlarged European market.
In March 1962, the United States announced the conclusion of tariff negotiations with the EEC, the United Kingdom, and 24 other countries. Concessions are expected to involve a 20 per cent cut in tariffs on imports of many industrial products.
The member countries3 of the European Free Trade Association (EFTA) have made further progress in reducing intraregional tariffs, as well as in increasing their remaining internal import quotas. Tariffs, mainly on industrial goods, which were reduced by 20 per cent on July 1, 1960, were cut by another 10 per cent on July 1, 1961, instead of January 1, 1962 as originally scheduled. The accelerated reduction was carried out in order to keep tariffs within the EFTA aligned with tariff developments in the EEC. Tariffs within the EFTA are now 30-40 per cent below the rates in force in July 1960, when the Stockholm Convention came into operation. On November 21, 1961, the Council of Ministers of the EFTA decided that a further reduction of tariffs by 10 per cent should be carried out on March 1, 1962 by Denmark, Portugal, Sweden, Switzerland, and the United Kingdom, and not later than September 1, 1962 by Austria and Norway. On July 1, 1961 the quotas remaining on imports within the EFTA area were increased by the EFTA countries by more than $30 million, which is nearly twice the minimum increase (20 per cent) required under the Stockholm Convention. The agreement of association between Finland and the EFTA, which was concluded on March 27, 1961, came into force on June 26, 1961.
The Organization for Economic Cooperation and Development (OECD) came into being on September 30, 1961. Its membership includes the 18 European countries which participated in the Organization for European Economic Cooperation, which the OECD replaces, together with the United States and Canada. The first meeting of the Council of Ministers of the OECD was held in Paris on November 16 and 17, 1961. During the meeting the Ministers decided, among other things, (1) to aim at increasing the real gross national product of the 20 member countries taken together by 50 per cent during the decade from 1960 to 1970; (2) to make the agricultural policies of member countries the subject of continuous consultations within the OECD, in order to ensure that industrial and agricultural production develop harmoniously; (3) to aim at the maintenance of price stability, so as to assure to their populations the full benefits of economic growth; and (4) to have the Development Assistance Committee— formerly the Development Assistance Group and now incorporated in the OECD—institute, beginning in 1962, an annual review of the efforts and policies of its members in regard to aid to the less developed countries. The OECD has among its committees a Working Party on Better Payments Equilibrium (usually referred to as Working Party No. 3), which meets periodically for the purpose of helping to coordinate the monetary and balance of payments policies of its members.
The five Nordic countries,4 in March 1962, brought into effect an agreement between their central banks on short-term credits, as proposed by the Ministerial Committee for Nordic Economic Cooperation. According to this agreement, if any one of the countries concerned encounters balance of payments difficulties of a global nature, the central bank of the country concerned can enter into swap transactions in a currency to be agreed upon, against its own currency, with the other central banks up to certain limits. Requests for swap transactions can, however, only be made after the country concerned has utilized its own holdings of foreign exchange reserves to a reasonable extent, and after the country has used the so-called gold tranche plus one credit tranche of its drawing rights in the Fund.
The Latin American Free Trade Association (LAFTA) came into force on June 1, 1961, after ratification by all the seven original signatory countries.5 In October, LAFTA began negotiations in Montevideo on the lists of goods to be proposed for tariff reductions and other preferences which member countries were prepared to grant to each other. In principle, these reductions and preferences are to remove annually 8 per cent of the existing trade barriers. The first tariff reductions, which amounted to over 12 per cent, became effective on January 1, 1962. Colombia and Ecuador have also joined the LAFTA, but too late to participate in the first round of tariff negotiations; however, in subsequent negotiations these countries have agreed to concessions of over 8 per cent.
The contracting countries6 to the General Treaty of Central American Economic Integration commenced work on the implementation of the Treaty’s provision for the establishment of a common market among themselves. Three of the countries concerned (El Salvador, Guatemala, and Nicaragua) now have a common external tariff for about one half of the tariff items that are to be equalized. In September 1961, a Subcommittee on Trade met informally in Mexico City to prepare a list of the specified commodities which are not affected by the Treaty’s provision of immediate free trade. The recommendations of the Subcommittee are subject to approval by the governments of the member countries.
On August 2, 1961, a Preferential Trade Agreement was signed by Costa Rica, Panama, and Nicaragua, providing, among other things, for free or preferential treatment of trade among the contracting parties, as well as for exemption from quantitative restrictions other than those agreed upon by the parties concerned.
Belgium, France, Federal Republic of Germany, Italy, Luxembourg, and Netherlands.
Austria, Denmark, Norway, Portugal, Sweden, Switzerland, and United Kingdom.
Denmark, Finland, Iceland, Norway, and Sweden.
Argentina, Brazil, Chile, Mexico, Paraguay, Peru, and Uruguay.
El Salvador, Guatemala, Honduras, and Nicaragua.