III. Other Developments

International Monetary Fund. External Relations Dept.
Published Date:
September 1961
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Regional Arrangements

The European Economic Community (EEC), comprising six countries,1 and the European Free Trade Association (EFTA), comprising seven countries,2 both aim at the elimination of intraregional tariffs within a period of ten years. The EEC, however, aims not only at the removal of trade barriers among its members, but also at the integration of their economic and social policies, including the establishment of a common external tariff. To achieve this result, the tariffs of Belgium, Germany, Luxembourg, and the Netherlands will generally be raised, while those of France and Italy will be reduced. The EFTA, on the other hand, has no common tariff policy against outside countries, each member being free to maintain its own tariffs against all countries not participating in the EFTA.

The member countries of the EEC have taken further steps toward removing tariffs between themselves as provided by the Treaty of Rome. On January 1, 1959, one year after the Treaty entered into effect, the first measures of tariff reduction were made effective when the six member countries granted each other a reduction of 10 per cent on their import duties. This reduction was made applicable also to other countries which are Contracting Parties to the GATT. On July 1, 1960, a further 10 per cent reduction came into effect, and this second reduction was also extended to imports from third countries within the limits of the EEC’s common external tariff. Import quota restrictions between the member countries of the EEC have also been reduced. On May 12, 1960, the Council of Ministers of the Community adopted a decision to speed up progress toward the objectives of the Treaty; as a result, a third reduction of 10 per cent in duties on imports of industrial products from other members of the EEC came into effect on January 1, 1961. For nonliberalized agricultural items the reduction was 5 per cent, but no acceleration of the program was foreseen for liberalized agricultural items. Thus, import duties within the EEC have been reduced by 30 per cent for industrial products, by 25 per cent for nonliberalized agricultural products, and by 20 per cent for liberalized agricultural products.

The program for achieving a common external tariff has also been accelerated, so that with effect from January 1, 1961, that is, one year ahead of the original program, the gap between the national tariffs existing on January 1, 1957 and those of the common customs tariff, except for agricultural products, was generally diminished by 30 per cent. It has also been decided that quantitative restrictions on imports of industrial items within the EEC shall be eliminated entirely by December 31, 1961. Quotas for imports of agricultural products from other members of the EEC were again enlarged as from January 1, 1961.

The European Free Trade Association has also been accelerating its original program. On July 1, 1960, its seven members made the first cut of 20 per cent in the tariffs levied against nonagricultural goods imported from each other. On February 16, 1961, the Council of the EFTA decided that the next cut of 10 per cent would take place on July 1, 1961, instead of January 1, 1962, and agreed to examine the possibilities of advancing the timetable of tariff reductions. Agreement has also been reached on the terms of Finland’s association with the EFTA.

The Organization for European Economic Cooperation (OEEC)3 has continued its periodic surveys of the economic situation of its members. In 1960, a charter was agreed for a new organization to take the place of the OEEC, to be known as the Organization for Economic Cooperation and Development (OECD), in which Canada and the United States would become full members. Subject to parliamentary ratification by 15 of the countries concerned, the new organization is expected to come into being by September 30, 1961. It will then extend and strengthen the OEEC practice of consultation on the economic situation and policies of its members, and will have important functions in the matter of aid to developing countries. It is proposed to include in the revised Code of Liberalization of Current Invisible Operations of the OECD a clause that its members shall endeavor to extend the benefits of liberalization to all members of the International Monetary Fund.

The Latin American Free Trade Association (LAFTA), which was created in February 1960, when the Treaty of Montevideo was signed by seven countries,4 has now been ratified by six of them, and constitutional steps have been taken by the seventh. In some respects, the LAFTA follows the pattern of the European Free Trade Association, in that each signatory retains its own tariffs on imports from outside the free trade area, while proposing to reduce barriers to imports from other members. The proposed Association has involved no special payments arrangements. The provisions of the Treaty are not yet in effect, but a provisional committee has been established to facilitate its entry into force.

The Treaty of Economic Association involving certain Central American countries has been carried a stage further by the signing of a General Treaty of Central American Economic Integration by Guatemala, El Salvador, Honduras, and Nicaragua. The General Treaty broadens the scope of the earlier Treaty, and sets up more specific means of financing economic integration. A common market is to be established among the contracting countries within five years of the entry into force of the General Treaty. The contracting countries grant one another immediate free trade for natural and manufactured products originating in their territories, except for specified items. The listed exceptions are, however, to be incorporated automatically into the free trade system not later than the end of the fifth year after the General Treaty comes into effect. A Protocol to the General Treaty details the functions of a Central American Bank for Economic Integration, to be established as provided for in the General Treaty. Costa Rica and Panama, so far not signatories, are free to adhere to this Treaty.

Advance Deposits

The past twelve months have shown evidence of a decline in the use of advance deposits as a prerequisite for obtaining import or exchange licenses or for clearing goods through customs. Bolivia, the Philippines, and Spain have abandoned this practice entirely, and Chile, Colombia, and Paraguay have reduced the percentage amounts of the deposits required. On the other hand, Ecuador reintroduced advance deposits for all imports, and Ceylon established a 50 per cent cash requirement in respect of imports of certain less essential commodities. Experience has shown that advance deposit requirements are not particularly effective in reducing the demand for imports. In any event, whatever effectiveness they may possess diminishes with the passage of time as importers adjust themselves to the additional expense involved in financing the deposits. Advance deposits exceeding 100 per cent of the value of at least some imports are now required in Chile, Colombia, Greece, Paraguay, and Uruguay.

Capital Payments

The liberalization of payments of a capital nature has continued, but since most countries had already taken substantial steps in previous years, the measures taken during the period under review for the most part represented a consolidation of existing administrative practices within the limits of the exchange control regulations. In Finland, France, Italy, the Netherlands, Norway, Pakistan, Sweden, and the United Kingdom, various measures, largely in the form of increased delegation of authority to the commercial banks in those countries, have been introduced, thus facilitating the remittance abroad of capital, particularly capital owned by nonresidents.

In Afghanistan, Chile, Morocco, and Portugal, new foreign investment laws codifying the privileges granted to foreign investments in those countries were brought into effect, with the object of further encouraging foreign investment. In Japan, controls over certain types of foreign investment have been relaxed and the terms under which the proceeds may be repatriated have been publicly announced.

Belgium, France, Federal Republic of Germany, Italy, Luxembourg, and Netherlands.

Austria, Denmark, Norway, Portugal, Sweden, Switzerland, and United Kingdom. Finland is to be associated with the EFTA on certain special conditions with effect from July 1, 1961.

Composed of Austria, Belgium, Denmark, France, Federal Republic of Germany, Greece, Iceland, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, and United Kingdom. Canada and, the United States participate as observers.

Argentina, Brazil, Chile, Mexico, Paraguay, Peru, and Uruguay.

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