II. Main Developments in Restrictive Practices
- International Monetary Fund. External Relations Dept.
- Published Date:
- September 1977
1. Imports and Import Payments
While the period covered by the Report was marked by an upturn in world trade and by a moderate improvement in the balance of payments of many countries, there appears, on balance, to have been a perceptible increase in the reliance on import restrictions by member countries. In addition, as discussed below, there has been fairly significant resort to advance import deposits, import surcharges, and exchange taxes on import payments, mainly by nonindustrial countries. On the other hand, some nonindustrial countries which had earlier imposed significant import restrictions were able to liberalize their import regimes.
Industrial countries increasingly applied quantitative limitations on imports in the form of quotas and licensing procedures, mostly on a selective, rather than an across-the-board basis; they also increasingly applied antidumping duties. These actions of the industrial countries were on the whole induced more often by specific competition and employment problems than by balance of payments pressures. The use of nonquantitative import controls by member countries, including at times limitations on the provision of foreign exchange for imports, reflected to a greater degree the response to prolonged payments pressures. A few developing countries reduced their reliance on mandatory external financing of imports. However, payments arrears continued to arise in several of these countries.
a. Quantitative Import Controls
Last year’s Report noted the increased resort by the industrialized countries to quantitative restrictions and surveillance licensing of imports during 1975, and indicated that such measures were imposed on a selective basis. In the period under review some of these restrictions were relaxed but, in general, the industrialized countries continued to apply selective import controls mainly for protective purposes.
Several member countries of the EEC maintained or introduced new quotas or licensing procedures in accordance with EEC directives or decisions, while easing some of the import restraints introduced earlier. The prohibition by the EEC on imports of cattle, beef, and veal from non-EEC (“third”) countries, which was introduced in July 1974, and eased during 1975, was further liberalized in 1976 by the linking of the issuance of licenses for imports of bovine meat to purchases from the EEC’s intervention stock, by increasing authorization of additional imports of beef and veal from specific developing countries, as well as for fattening and herd-building purposes, and by a selective reduction of the levy on such imports. However, several EEC countries, among them France, the Federal Republic of Germany, and the United Kingdom, took a number of measures to restrict imports of textiles and garments from specified countries under EEC decisions which authorized or prescribed various import control measures. In the case of textiles, such EEC action either followed bilateral agreements with other members of the GATT Arrangement Regarding International Trade in Textiles or was based on the general safeguard provisions of the Arrangement. The EEC, in addition to some of the individual industrial countries mentioned above, continued to have recourse to restraint agreements with several developing countries in respect of other exports of textiles and footwear. The EEC also authorized individual member states to exclude from Community treatment imports of certain products originating outside the EEC. Toward the end of the period discussions began between the EEC and Japan on the EEC request to Japan to take definite action to reduce its trade surplus with the Community. The automobile industry in Japan stated that, according to its estimates, exports to the United Kingdom would not exceed by much those of the previous year. The United Kingdom extended to 1977 quotas on certain clothing imports from Czechoslovakia and the German Democratic Republic and relied on export restraint agreements in respect of specified clothing and footwear imports from several Eastern European countries. The United Kingdom continued to maintain quotas on imports of spun cotton yarn from Spain, and imposed quotas on certain synthetic garments from the People’s Republic of China as well as on certain television sets from the Republic of China. The Federal Republic of Germany, however, increased quotas on imports of selected products from the member countries of the Council for Mutual Economic Assistance (CMEA)6 and from the People’s Republic of China.
Quantitative import restrictions were also more prevalent in some of the non-EEC countries of Europe. Greece prohibited imports of frozen and chilled meat, Iceland introduced surveillance licensing for certain items, and Malta introduced specific licensing for a number of products. In February 1977 Portugal applied quotas to certain import items amounting to about 6 per cent of total imports. Restrictions were also tightened by Norway (on textiles), Sweden (on textiles and footwear), and Switzerland (on textiles and wines). Norway, however, eliminated licensing of imports of sugar, while Yugoslavia maintained quotas at the same level as in the previous year on a wide range of imports.
Austria and Kenya ceased to invoke the provisions of Article XXXV of the GATT with respect to Japan.
Canada maintained and in some cases increased global and country quotas on imports of certain textiles and garments. A global quota which was applied in the period October 17–December 31, 1976 on imports of beef and veal was removed on January 1, 1977. In the United States, the International Trade Commission investigated several allegations of injury to domestic producers and dumping and in some cases of affirmative finding, the United States refrained from imposing import restrictions, preferring the provision of adjustment assistance to the affected industries. However, the United States in June 1976 established quotas over a three-year period on most types of specialty steel, and in October 1976 imposed quotas on imports of beef, veal, and mutton, thereby superseding the export restraint agreement reached in March 1976 with major meat exporting nations. On January 1, 1977 the export restraint agreement was renewed. In March 1976 the United States prohibited imports of certain mixtures of dried milk and reached agreements with Korea and the Republic of China to restrain exports to the United States of canned mushrooms. Japan subjected imports of silk yarn to prior notification and entered into an export restraint agreement with Korea in respect of such items.
Australia relaxed quota controls introduced in 1975 on certain import items, including motor vehicles, but tightened quantitative restrictions on imports of footwear, metal files and rasps, and freezers. New Zealand fixed the overall level of basic import license allocations for the fiscal year 1976/77 at the same level as in the previous year, and set the value of licenses for a few selected commodities at 75 per cent or 50 per cent of their level in the preceding year. South Africa maintained the value of import permits for consumer goods in 1976 at 70 per cent of the previous year’s level.
The developing countries which liberalized quantitative restrictions on imports included Argentina, Bangladesh, Chile, Colombia, India, Mexico, and Pakistan. In Argentina there was a significant reduction in the restrictiveness of the import regime, while in Mexico the liberalization represented a partial reversal of the significant increase in the restrictiveness of the trade system that had occurred in the preceding year. In September 1976, Chile replaced the list of permitted imports with a list of prohibited imports consisting of a few items only. On the other hand, there was a greater number of developing countries introducing new or intensifying existing quantitative import restrictions. Brazil, which had increased its reliance on import restrictions during 1975, tightened controls on imports by government departments and agencies and suspended imports of a large number of items through 1976; these suspensions, from which goods originating in member countries of the Latin American Free Trade Association (LAFTA) were exempt, were subsequently extended until the end of 1977. In conjunction with a reduction in the ceiling placed on the value of imports in 1976, Jamaica effectively prohibited a wide range of imports in July 1976. Panama established quotas for several import items and imposed restrictions on imports by public sector institutions. Peru introduced a new and more restrictive system of import licensing in January 1977. Some of the oil exporting countries were unable to maintain fully the liberalized import regimes introduced during 1974 and 1975. Iran imposed quantitative controls or prohibitions on imports of certain textiles and subjected additional items to specific licensing, and Iraq reduced the level of its annual import program. Nigeria prohibited or subjected to licensing the import of several products. Other developing countries which tightened import controls included Bolivia, Cameroon, the Dominican Republic, Ghana, Ivory Coast, Kenya, Madagascar, Malaysia, Panama, Sierra Leone, the Syrian Arab Republic, Tanzania, and Thailand.
b. Import Surcharges and Import Taxation
A few countries relaxed restrictions involving import surcharges. They included Ecuador, which reduced the rate of surcharge on luxury imports from 60 per cent to 30 per cent; Jordan, which abolished its import surcharge; and Uruguay, which exempted additional imports from the surcharge of 7 per cent first introduced in December 1975. In general, however, the use of import surcharges was more widespread than in the previous year. Although surcharges were often applied for revenue or protective purposes, there were several countries which imposed surcharges to support other forms of import restraint for balance of payments purposes.
Bolivia in February 1976 applied a surcharge of 3 per cent to most imports and raised the surtax on luxury items, and Brazil extended until December 1977 the increases of between 30 per cent and 100 per cent in customs duties applied in late 1975 to a wide range of imports. Ghana imposed a surcharge of 10 per cent on the value of all import licenses while Indonesia introduced surcharges of 300 per cent and 200 per cent on various iron and steel imports in February 1976 and July 1976, respectively. Pakistan in July 1976 applied a surcharge of 10 per cent to most imports. In October 1976 Spain introduced a surcharge of 20 per cent on the prevailing rates of customs duties; the measure applied to about 40 per cent of imports. In the same month Portugal extended the duration of the import surcharge measures introduced in 1975 until March 1977, and raised the rate of surcharge from 30 per cent to 60 per cent in respect of goods representing about 1 per cent of imports in 1975, and from 20 per cent to 30 per cent on items representing almost 30 per cent of total imports in 1975. In February 1977, Portugal extended the product coverage of items subject to the surcharge of 60 per cent. Thailand applied a surcharge of 30 per cent on imports of certain textiles and of 15 per cent and 20 per cent on a few other items. Yugoslavia extended until the end of 1977 the surcharge of 10 per cent and increased the tax equalization charge on imports from 5 per cent to 6 per cent. Other countries which introduced new or extended existing surcharges were Cameroon, Costa Rica, Israel, Malawi, Mexico, and Panama.
A number of countries, among them Argentina, Canada, Chile, and Colombia, reduced tariffs on selected imported items, while countries raising tariffs on selected commodities included The Gambia, Malaysia, Nigeria, and Yugoslavia. The EEC authorized Ireland to continue certain protective tariff measures for leather footwear. At the beginning of 1976, further tariff reductions occurred between the EEC and its new members, and between the EEC and the member countries of the European Free Trade Association (EFTA).7 However, there was some increase in the use of antidumping or countervailing import duties by the United States and the EEC countries.
There were numerous modifications in the Generalized System of Preferences (GSP) schemes of the EEC and various individual developed countries; many of these changes resulted in further import duty concessions on imports from the developing countries. The change in the GSP scheme of the EEC was to provide greater benefits to developing countries in 1977 than in 1976, with the value of imports from developing countries accorded preferential treatment expected to rise by some 40 per cent. More agricultural imports, in particular those of special interest to the least developed countries, were granted preferential treatment, and the value of a wide range of manufactured goods, excluding textiles, footwear, and some steel products, qualifying for preferential treatment in 1977 was increased. The United States modified the product coverage of its GSP scheme, added Portugal to the list of beneficiary countries, and deleted the Lao People’s Democratic Republic from the list. Australia reduced tariffs on imports of several items from developing countries and extended preferences previously granted only to Commonwealth developing countries to all developing countries. Canada and Finland added ten countries to the list of developing countries eligible to receive preferential treatment under their GSP schemes. Norway increased the product and country coverage of its GSP scheme and extended full duty-free treatment to all exports of the least developed countries. Switzerland increased the number of countries and commodities to which its GSP scheme is applicable.
c. Advance Import Deposits
There was an increase in the use of advance import deposit schemes and only a few countries which had previously introduced advance import deposit requirements were able to reduce their reliance on such measures. Thus, Finland abolished the import deposit requirement introduced in March 1975. Bolivia reduced the rate of advance import deposits on a wide range of capital and intermediate goods and exempted certain other items from the deposit requirement. Chile exempted motor vehicles from a 10,000 per cent prior deposit. In January 1976 Greece returned to their previous classification a number of import items which since March 1974 had been subject to an increased deposit requirement. Korea made a number of modifications to its import deposit scheme resulting on balance in some liberalization.
In May 1976 Italy imposed a 90-day, noninterest-bearing deposit requirement equal to 50 per cent of the amount of the transaction on purchases of foreign exchange for merchandise imports, and most other transactions not already subject to the deposit requirement applicable to outward capital transfers. The scheme was extended twice, following which the Italian authorities announced that the requirement would be gradually phased out and would be abolished in April 1977. In February 1976 New Zealand imposed a noninterest-bearing, six-month deposit requirement equal to one third of the value of a range of consumer goods representing about 7 per cent of total imports. The scheme was to be in effect for one year. In July 1976 the coverage of the scheme was reduced to approximately 5 per cent of total imports but subsequently the period of operation of the scheme was extended to August 1977. South Africa in August 1976 introduced a deposit requirement of 20 per cent of f.o.b. value applicable to most imports, but terminated the scheme in February 1977.
Argentina required importers to purchase special bonds in an amount originally equal to 100 per cent of the f.o.b. value of a large proportion of imports. The requirement was eliminated in March 1977. The scheme requiring import deposits at the rate of 40 per cent on certain goods was broadened in March 1976 but was abolished in November. Brazil maintained its 100 per cent import deposit scheme introduced at the end of 1975 although certain items were exempted during the year. In July 1976 Brazil introduced a deposit requirement, at the rate of 100 per cent of the value of the exchange operation, on the contracting of forward exchange for a wide range of imports. In February 1976 Colombia eliminated its advance import deposit scheme but in October, with the objective of accelerating payments and absorbing liquidity, introduced an advance import payment deposit for the issuance of exchange licenses for imports at the rate of 10 per cent of import value; the deposit was later increased to 30 per cent. Indonesia imposed an advance deposit requirement on imports of certain textiles. In January 1976 Mauritius required a 25 per cent prior payment on all imports. Together with the extension of its import surcharge in October 1976, Portugal introduced a 50 per cent import deposit requirement on the c.i.f. value of import items representing some 7 per cent of total imports, all of which came within the category of imports subject to the surcharge. Zaïre required prior deposits ranging from 20 per cent to 80 per cent of the c.i.f. value of imports and prohibited banks from financing importers for the purpose of meeting the deposit requirement.
d. Measures Affecting Import Payments
Numerous modifications occurred in regulations governing import payments. Measures introduced in Argentina resulted in a net liberalization of import payments. These changes included an increase from 15 per cent to 75 per cent of the value of imports of noncapital goods which could be financed for terms of less than 180 days, and an increase from US$2,000 to US$25,000 in the upper limit on imports for which there was no financing requirement. All minimum financing requirements for imports of noncapital goods were eliminated in March 1977. As noted earlier, a requirement to purchase special bonds redeemable at the time of making payments for imports, with certain exceptions, was introduced in May 1976 but was subsequently eliminated. Chile reduced from 90 or 120 days to a uniform 30 days, and subsequently eliminated altogether, the waiting period for purchases of foreign exchange for imports. Finland raised the maximum permitted period of maturity for import credits from 6 to 12 months in March 1976 but simultaneously applied a special levy on import credits of a maturity longer than 6 months. In March 1976, Zambia eliminated the requirement of endorsement of import licenses by the central bank for payments purposes. Other countries which eased the regulations governing import payments included Cyprus, Ghana, Kenya, and Malta.
Many countries tightened regulations affecting payments for imports. Belgium and Luxembourg reduced the maximum period for certain advance payments for imports without exchange control approval, tightened regulations on forward transactions, and introduced a requirement of prior examination of supporting documents for payments exceeding BF 50,000 (previously BF 10 million). In September 1976, France reduced the time limit on all forward foreign exchange purchases for imports from three months to two months and on spot currency purchases from one month to 8 days prior to planned use. Italy increased the period for prepayment of imports from 30 days to 60 days in January 1976. Italy also introduced a number of other changes relating to import payments. These measures included, in addition to the deposit requirement on foreign exchange purchases mentioned earlier, a requirement introduced in March 1976 that prepayments for imports of goods and services in excess of Lit 2 million be made with foreign currency borrowed from authorized banks. In October 1976, the period during which foreign exchange purchased with lire by importers could be held in newly established foreign currency accounts was reduced from 7 days to 2 days. The Dominican Republic announced in September 1976 that official foreign exchange would no longer be granted for imports of a number of items. Portugal imposed limits on domestic financing by commercial banks of certain imports. In March 1976 South Africa prohibited advance payments for imports except by special permission. Zaïre made numerous modifications to its import payment regulations, initially tending to liberalize the system but, toward the end of the period the degree of restrictiveness was again increased. Other countries which tightened regulations governing import payments included Ethiopia, Indonesia, Peru, Sierra Leone, and Turkey.
Arrears on current payments in respect of imports developed or increased during the period in the Dominican Republic, Egypt, Sierra Leone, Uganda, Zaïre, and Zambia.
e. State Trading
Countries which extended state trading activities during the period under review included Benin, Ivory Coast, the Libyan Arab Republic, Madagascar, the Philippines, and Saudi Arabia. Japan extended until further notice the monopoly granted to an official agency with respect to imports of raw silk. The Lao People’s Democratic Republic established a state trading corporation to handle most external trade transactions. A number of these countries have for some time reserved for state entities the responsibility for certain import as well as export transactions.
2. Exports and Export Proceeds
During the period under review export policies in many countries, both developed and developing, involved continued efforts to adapt existing export mechanisms in order to encourage export growth. These policies covered increased stimulus to export by way of special tax incentives and rebates or occasionally through the use of subsidies, as well as the provision of preferential financing facilities. There were signs that some of the industrialized countries, in order to lessen competition in this area, were moving toward a more coordinated approach on the terms on which financing for exports is provided. Measures involving quantitative limitations on exports were generally adopted for domestic supply or price purposes and were confined to a few important commodities. The previous section reported the increased recourse to export restraint agreements.
As part of a program to simplify its exchange and trade system, Argentina terminated prohibitions on exports of a large number of agricultural and manufactured products; in a few cases the prohibitions were replaced by temporary export quotas. Export prohibitions on specified commodities were also lifted in Greece, Pakistan, and Uruguay, while export licensing requirements, usually affecting a few specified items, were eased in Bangladesh, Singapore, and Spain. In October 1976 the U.S. President, through an Executive Order, maintained in effect the export control regulations under the Export Administration Act of 1969, which expired on September 30, 1976. Countries which tightened quantitative export restrictions or applied licensing to specified exports included Brazil, Guatemala, India, the Libyan Arab Republic, Mexico, and Nigeria.
In the area of fiscal incentives for exports, Argentina early in 1976 lowered export duties and subsidies on an across-the-board basis, and in some cases eliminated them, but toward the end of the year they were raised again on a number of items. Export taxes were also lowered on specified commodities in India, Indonesia, Malaysia, and Niger. Costa Rica introduced a cash bonus for exports in addition to its existing tax rebate scheme. Israel on several occasions raised the indirect tax rebates applicable to exports of goods and certain services, and in Peru tax concessions were introduced or expanded for nontraditional exports. Other forms of tax concessions for exporters were improved in Brazil, Nicaragua, and New Zealand. New Zealand also announced the extension until 1980 of existing incentives for exporters. In India, some existing cash subsidies for exports were extended until March 1979. In Mexico, indirect tax rebates on manufactured exports were suspended and ad valorem export taxes on primary products and manufactures were increased. The export taxes were later eliminated but the tax rebates, in general, remained suspended. Export taxes and duties on specified commodities were also increased in India, the Netherlands, Panama, Peru, and Trinidad and Tobago.
A number of countries sought to improve export performance through various measures affecting their systems of export financing facilities, export insurance, and guarantees. On the financing side, these measures included the creation of new or supplementary financing mechanisms, an expansion of existing credit facilities for exporters, or the easing of the terms on which export credits are made available. Additional amounts specifically earmarked for the funding of export credits were made available in Austria, Belgium, the Federal Republic of Germany, the Netherlands, and the United Kingdom. France took steps to ease the existing export procedures for small and medium-sized firms. Brazil improved the existing program of export incentives, which provided facilities for the financing of working capital requirements directly for manufacturers of export-oriented goods as well as for firms engaged in selling these products. Colombia widened access to a special fund created to assist in the financing of exports to the Andean Pact, and authorized, through a special line of credit, financing of the working capital requirements of enterprises producing, storing, and marketing major traditional exports. In Jamaica, exporters were granted special financing to assist in the purchase of local raw materials. Spain established a new buyers’ credit fund to assist in financing foreign purchases of Spanish goods. Early in 1977, Malaysia established a facility under the general direction of the Central Bank to rediscount exporters’ bills at a preferential interest rate. Other countries which improved export financing facilities included Chile, Denmark, India, and Switzerland.
In June 1976, several of the industrialized countries agreed to coordinate national regulations relating to export financing as a means of harmonizing conditions and increasing cooperation between exporting countries. Under the terms of the arrangement, and for an initial period of one year, Canada, France, the Federal Republic of Germany, Italy, Japan, the United Kingdom, and the United States made unilateral declarations establishing (1) minimum downpayments on export credits equivalent to 15 per cent of the contract; (2) maximum maturities of credits of ten years for “poor countries,” eight and a half years for “intermediate countries” and five years for “rich countries”; and (3) minimum interest rates ranging from 7¼ per cent to 8 per cent, depending on the maturity of the contract and the classification of the importing country. Adherence to these conditions would generally involve a tightening of export credit terms in those countries. In March 1977 the EEC reached agreement to standardize export credit facilities in their member countries by applying the same interest rates and repayment periods for credits granted to foreign countries purchasing their exports. In a few other countries, such as Austria, Indonesia, and Switzerland, interest rates for export credit financing were lowered. Italy and the United Kingdom adopted measures to encourage the use of foreign currencies in export financing. In Italy banks were instructed early in 1976 not to grant financing of export credits through the use of lira deposits with branches of the Bank of Italy in connection with their dollar swaps with the Ufficio Italiano dei Cambi. Furthermore, export credits of up to 120 days could be granted only if the exporter could secure foreign financing of at least 30 per cent of the export credit and with a maturity equal to the period of the deferred payment. The United Kingdom announced several measures in February 1977 aimed at encouraging exporters to switch from sterling to foreign currency financing of export credits. The Export Credits Guarantee Department indicated that it would no longer make available guaranteed sterling finance for contracts requiring the support of non-U.K. concerns and that it would underwrite large project credits only if they were financed in foreign currencies.
In the area of government guarantees and insurance on export credits, the ceilings on amounts of guarantees that could be issued were raised considerably in Austria, Norway, and Sweden. In order to adjust the coverage of export credit risks with other EEC countries, the Federal Republic of Germany reduced the banks’ share in political risks and commercial risks for insurance contracts associated with suppliers’ credits and tied buyers’ credits. Indonesia extended export credit insurance and guarantees to small and medium-sized enterprises. Malaysia instituted an export guarantee system in January 1977.
Sweden introduced an exchange rate guarantee scheme under the administration of the Export Credit Guarantee Board which came into effect in mid-1976; it was designed to provide cover for possible losses incurred in the settlement of exports in foreign currencies. The export guarantee system in the United Kingdom was enlarged to cover losses in the forward market related to default on buyers’ credits.
Regulations affecting the surrender of export proceeds were liberalized in Argentina and the Philippines but they were tightened in Sierra Leone and South Africa.
3. Current Invisibles
With the exception of Italy, none of the major industrial countries applied restrictions on current invisible payments during the period under review. Restrictions on various types of invisible payments were liberalized in several countries which in the previous year had imposed wide-ranging measures to limit the availability of foreign exchange. Several countries eased restrictions on the provision of foreign exchange for travel, the transfer of income abroad, and in some cases for personal remittances, although such measures were often designed only to maintain the real value of exchange allocations. There were a number of other countries (mainly developing countries), however, in which serious payments difficulties resulted in the imposition of stringent new restrictions, or the intensification of existing restrictions on invisibles.
In Italy, payments for invisibles were severely affected by the noninterest-bearing deposit requirement on purchases of foreign exchange mentioned earlier, and by a tax applied to purchases of foreign exchange. The exchange tax was not applied to the first Lit 100,000 of the standard travel exchange allocation of Lit 500,000. Japan, however, doubled the basic exchange allocation for travel abroad. Among nonindustrial countries, the basic travel allocations were also increased in Afghanistan, Argentina, Chile, Colombia, Cyprus, and Egypt, while the allocations for business travel were increased in Turkey and Peru. Regulations affecting the purchase of exchange for travel were tightened in Brazil, which also introduced a noninterest-bearing deposit requirement on the issuance of passports and exit visas, and made the purchase of exchange for travel conditional upon payment of the deposit. In Guyana, the exchange allocation for tourist travel, which had been suspended during January 1974–October 1975, was withdrawn again in December 1976. As part of a series of restrictive actions Israel (early in 1976) and Jamaica (during the latter part of the period) tightened restrictions on exchange for travel. Other countries reducing exchange allocations for travel included Portugal and Zaïre, while Uganda suspended allocations in March 1977. Travel taxes were also introduced, or increased, in Chile, Israel, New Zealand, and Peru, while Israel, in February 1976 also imposed a surcharge of 15 per cent on purchases of foreign exchange for various invisible payments, including exchange for travel. In February 1977 Ghana imposed a levy of 10 per cent on exchange allocations for travel.
A number of countries eased restrictions on the remittance of income abroad, including the transfer of profits and dividends. In February 1977 Argentina allowed the remittance of profits abroad; previously, profits accruing to nonresidents had to be converted into negotiable, five-year U.S. dollar denominated bonds issued by the Government. Chile simplified the rules governing profit remittances abroad, and Lesotho liberalized the regulations governing the transfer of salaries earned by temporary residents. Zambia, which had severely limited income remittances in 1975, liberalized these restrictions in January 1977 by permitting a higher proportion of invested capital or after-tax income to be remitted abroad. Limits on remittances abroad for education purposes were increased in Argentina, Chile, Malta, Pakistan, and Peru. On the other hand, Jamaica in January 1977 suspended or restricted the availability of foreign exchange for a wide range of invisible payments including remittances of income, dividends and interest, as well as payments for royalties, trademarks, and other commissions and fees. The Philippines introduced a requirement that remittances of profits and dividends in respect of foreign-owned corporate shares could be made only when the shares were directly funded by inward remittances of foreign exchange. Other countries which imposed new or tightened existing restrictions or regulations affecting remittances of specified types of income included Bangladesh, Nigeria, Sierra Leone, Tanzania, and Zaïre. South Africa tightened the supervision over transfers abroad in respect of family maintenance, gift, and study allowances.
Several countries changed the regulations governing the export and import of domestic banknotes by travelers. Afghanistan, Japan, Korea, and Yugoslavia increased the amounts which could be taken out by travelers in domestic currency, while Afghanistan and Korea also raised the amounts of domestic currency which could be brought into the country. Bangladesh and Israel liberalized the rules governing the amounts that foreign tourists were permitted to reconvert into foreign currency when leaving the country.
Arrears in respect of interest payments on external debt which arose in Sierra Leone during 1975 continued to accumulate during the period under review, while delays developed on the transfer of dividends in Madagascar. Under regulations implemented in Jamaica in January 1977, interest payments on foreign debt, which previously were payable when they accrued, became payable in the quarter following that in which they accrued.
4. Multiple Currency Practices
No new dual exchange markets were established during the period under review, while a few countries maintaining dual exchange rate systems made progress toward the unification of their systems. Frequent and substantial changes took place in the exchange rate system of Argentina, which by late 1976 had resulted in the virtual unification of exchange rates. In March 1976, the financial and special financial markets were eliminated and replaced by a single free market and a new official market. In April 1976, various mixing rates went into effect for all trade and trade-related transactions; transfers of profits and dividends continued to be made under special arrangements through the purchase of dollar-denominated bonds at effective rates which were close to the free market rates, and transactions related to travel and tourism were effected at the free market rate. In successive steps during the year, the mixing rates for export, import, and invisible transactions were depreciated and in November the exchange markets were unified at the free market exchange rate, with the sole exception of transactions relating to foreign loans covered by forward (swap) operations, approved and guaranteed by the Central Bank to which a separate exchange rate continued to apply.
During the period under review Egypt continued to depreciate the Egyptian pound in the parallel market and again expanded the scope of this market by transferring to it a number of imports payable in convertible currencies. In November 1976 a number of restrictions on the use and retention of foreign exchange were eliminated, thereby permitting private sector entities to effect a range of transactions at privately negotiated exchange rates. In Ecuador, which has maintained a dual exchange market since 1971, the authorities intervened for a time to reduce the spread between the exchange rates in the free and official markets. Exchange rates in the dual exchange markets of Iran, Peru, and the Syrian Arab Republic remained effectively unified. There were no significant changes in the dual market systems in the Belgian-Luxembourg Economic Union (BLEU), Paraguay, and Uruguay.
Among the countries which modified their multiple exchange rate systems, Afghanistan, in January 1976 allowed the commercial banks to set their exchange rates freely, rather than at the free market rates quoted by the central bank, which also discontinued its practice of following the bazaar market rate in establishing its free market rates. Later in the year, in the face of continued upward pressure on the Afghani in the bazaar market, the central bank acted to diminish the differentials between rates in that market and those established by the central bank. Brazil increased substantially the exchange taxes on proceeds from coffee exports, reflecting the sharply rising trend in world coffee prices throughout the period under review, but in other respects did not change its multiple exchange rate arrangements. In Colombia the special exchange rate for petroleum transactions was abolished in May 1976 and purchases of petroleum for domestic consumption were henceforth made at the prevailing rate of exchange in the certificate market. In January 1977 the rates of the tax credit certificates were modified for a large number of industrial and agricultural export items. Nepal modified its multiple exchange rate arrangements by changing the permissible ratios and categories of goods which can be imported by holders of export entitlements under the Exporters’ Exchange Entitlement Scheme.
A number of countries, some of which had been free of multiple currency practices, introduced measures giving rise to additional effective exchange rates. Among them was Italy, which introduced two measures involving multiple currency practices, both of which have already been dealt with briefly. In May 1976, a 90-day noninterest-bearing deposit requirement was introduced on purchases of foreign exchange and the crediting of any kind of nonresident lira accounts. The deposit was equivalent to 50 per cent of the amount of the transaction. A number of transactions were exempted from the deposit requirement, and additional exemptions were announced in June 1976. The deposit requirement was originally adopted for a period of three months but was subsequently extended on two occasions. The second extension, which was announced in September 1976, provided for the phasing out of the measure by April 15, 1977. In accordance with the announced schedule, the deposit requirement was reduced to 25 per cent on January 15, 1977, and a further reduction to 10 per cent took place on February 28, 1977. On October 4, 1976, the Italian authorities introduced a tax at a rate of 10 per cent, and for a period of 15 days, on all purchases of foreign exchange for current transactions. The tax was eliminated on October 18. On October 25, however, a new tax of 7 per cent was imposed, for a period of up to four months, on purchases of foreign exchange for most current transactions. This tax was reduced to 3.5 per cent on December 27, when it was announced that it would be gradually lowered by one half of a percentage point each week, commencing January 3, 1977. The tax was eliminated on February 13, 1977.
Among the nonindustrial countries, Burma in September 1976 established an export price equalization fund into which were paid receipts derived from taxes applied to the surplus of export earnings over domestic costs of exports, and from which were financed any losses incurred on unprofitable exports. These measures gave rise to a new multiple currency practice. In February 1976, Israel introduced a surcharge on purchases of foreign exchange for travel and certain other invisibles, thereby introducing a multiple currency practice. In Ghana, the application of a 10 per cent levy on travel exchange allocations involved a new multiple currency practice. Effective January 1, 1977, a new multiple currency practice arose in Indonesia as a result of new measures affecting exchange for imports. These measures included a 100 per cent advance deposit requirement for specified imports, payable in advance at the time of the opening of the letter of credit. In addition, the Government imposed a financial guarantee amounting to 100 per cent of the value of the letter of credit for the same imports, to be paid by the importer at the time of the opening of the letter of credit, and thereafter to be blocked until the goods were cleared through customs. Moreover, the Government introduced a requirement for the advance payment of import duties calculated on the value of and payable at the time of the opening of the letter of credit. Turkey introduced a more depreciated exchange rate for the foreign exchange proceeds of workers’ remittances.
The effective premium in the investment currency market in the United Kingdom remained at levels generally lower than those of the previous year; supervision was tightened over transactions involving investment currency and foreign currency securities, but there were no major changes in the rules governing access to the investment currency market. At the beginning of 1976, South Africa replaced its blocked rand system with a system of freely negotiable securities rand.
5. Bilateral Payments Arrangements
During the period under review further progress was achieved in the elimination of bilateral payments arrangements maintained by member countries with other Fund members and with nonmember countries, although the number of agreements terminated was appreciably less than that noted in last year’s Report. Eleven arrangements between member countries were terminated. Egypt made a further significant reduction in its reliance on bilateralism and abolished eight agreements with members (those with Algeria, Guinea, India, Morocco, Romania, Spain, Sri Lanka, and Turkey). In addition, the arrangements between Afghanistan and Yugoslavia, Algeria and Romania, and India and the Sudan expired. With the ratification of the 1975 trade agreement between Brazil and Greece, settlements between the two countries were placed on a convertible currency basis.
Ten bilateral payments arrangements between members and nonmembers were terminated. Two arrangements were eliminated by Egypt (those with Albania and Bulgaria), by Sri Lanka (with Bulgaria and North Korea), and by Bolivia (with Hungary and Poland). Cyprus and Iceland eliminated their agreements with the U.S.S.R., as did Mexico its agreement with Poland. The agreement between Guinea and the German Democratic Republic was also abolished.
Approximately 50 operative bilateral payments agreements are still maintained between members, of which the Fund has found that 5 involve bilateral payments features for one party only. The overall total would be lower had it not been necessary to reclassify, as agreements with a member country, a number of existing bilateral payments arrangements with North Viet-Nam now maintained by the Socialist Republic of Viet Nam. Some 6 agreements between members are regarded as inoperative. The number of payments arrangements between members and nonmembers has now fallen to about 145.
6. Capital Flows
Measures taken by the industrialized countries to affect capital movements did not in general signify any fundamental change in policies on capital inflows or outflows. A number of European countries in this group continued to permit and encourage large-scale borrowing abroad by the public sector. Perhaps the most noteworthy feature was the tendency among the industrialized countries to apply control and surveillance procedures in respect of short-term capital flows through banks and non-banks, as a means of monitoring more effectively and where necessary mitigating the effects of these flows on exchange rates. With the notable exception of Switzerland, policies governing inward movements of medium-term and long-term capital generally remained liberal and, in the case of several European countries, provided for further relaxations of controls on inward direct investment and foreign non-banks’ deposits with the domestic banking system. Japan was the only industrialized country which took steps to ease restrictions on capital outflows, primarily by liberalizing foreign access to the domestic bond market. In January 1977, the European Commission withdrew proposals forwarded to the Council in 1964 which foresaw a mutual opening up of the partner countries’ capital markets to foreign issuers and the partial liberalization of financial credits. More restrictive capital control measures of a specialized character were applied in Italy and the United Kingdom, reflecting the severity and the protracted nature of payments problems in these countries. In Switzerland, on the other hand, numerous steps were taken to contain capital inflows as a means of lessening recurrent upward pressures on the Swiss franc.
Among the industrialized countries of Europe other than Switzerland, controls on capital inflows through the banking system were eased in Denmark, where the ceiling on nonresidents’ deposits was raised from DKr 75,000 to DKr 200,000 with effect from January 1977. In January 1977, the Netherlands restored to the commercial banks permission to pay interest on nonresidents’ sight deposits in domestic currency, and revoked the prohibition on the establishment by nonresidents of guilder time and savings deposits. On the other hand, in order to reduce speculation in foreign exchange, banks in the BLEU were required, in April 1976, to limit their forward sales of foreign exchange in the official market with terms of less than 15 days to transactions where documentation was submitted substantiating the need for the respective payment abroad. In France, authorized banks (as well as nonbanks) were required to convert their foreign exchange receipts into local currency within eight days; previously conversion was required within one month. In August 1976 banks in the Federal Republic of Germany became subject to a reporting requirement to the Bundesbank in respect of foreign loan commitments.
Regulations governing capital inflows through non-banks were relaxed in Austria, which lifted the restrictions imposed in 1972 on inward direct investment and on inward portfolio investment in quoted and unquoted securities. In addition, all restrictions on inward commercial short-term credits were abolished and restrictions on medium-term credits (one to five years) were limited to those related to the importation of consumer goods. Furthermore, restrictions on nonresidents’ purchases of Austrian real estate for personal use were liberalized as of January 1, 1977. With respect to restraints on capital outflows, the Netherlands temporarily suspended access by nonresident borrowers to the domestic private placement market in May 1976, but revoked that measure in January 1977, permitting foreign borrowing up to f. 75 million for each placement, provided that the loans had a maturity of ten years or more, with repayments to take place in at least five equal installments. Regulations governing capital outflows, including controls on outward direct investment were modified in France. The amount of direct investment French residents could undertake abroad without prior authorization was raised from F 1 million to F 3 million. At the same time residents holding direct investments abroad became subject to a requirement to submit to the Treasury, on an annual basis, balance sheet data on foreign subsidiaries or branches. Moreover, shares in foreign companies acquired by French residents had to be repatriated or deposited abroad with a French bank. Nonresidents wishing to repatriate proceeds amounting to F 1 million or more from liquidated direct investment in a French company were required to submit documents to the Bank of France justifying the transfer. Furthermore, in September 1976 the limit applied on the purchase abroad by residents of a main and a second personal residence was reduced from F 300,000 to F 150,000. On the other hand, Norway and Sweden increased the ceilings on the amounts which could be transferred for the purchase of recreational real estate abroad for personal use.
Italy took far-reaching measures designed to alleviate the country’s foreign exchange problems. To enhance the conversion of residents’ foreign exchange holdings into lira accounts, the retention period of foreign currency in Ordinary Foreign Currency Accounts was reduced in February 1976 from an average of 45 days to 15 days and to 7 days in May 1976. As a complementary measure, authorized banks were forbidden without prior authorization to credit nonresident Foreign Currency Accounts with foreign banknotes and credit instruments expressed in foreign currency in excess of the equivalent of Lit 10 million a calendar year, unless such banknotes or credit instruments were remitted to the banks direct from abroad. In October 1976, the ceiling on banks’ forward operations in foreign exchange was reduced by 50 per cent. Illegal exports of capital were made subject to severe penalties in March 1976. An amnesty was granted for the repatriation of illegally exported capital; it was subsequently extended on two occasions. As mentioned earlier in the section on Advance Import Deposits, purchases of foreign exchange were subject for much of the period under review to a noninterest-bearing deposit requirement of 50 per cent, and a tax on foreign exchange purchases was in effect from October 1976 to February 1977. With minor exceptions, capital exports remained subject throughout to the 50 per cent deposit requirement imposed in 1973.
In the United Kingdom, measures affecting capital movements were primarily aimed at reducing the use of sterling in the financing of third country trade. Banks had previously been permitted to provide sterling finance for trade either between two Overseas Sterling Area (OSA) countries or between one OSA country and a third country. In August 1976 they were obliged to limit their arrangements for sterling finance in respect of such transactions to cases where satisfactory documentation had been submitted that such finance related to current movements of goods and that the period of credit did not exceed 180 days. From November 1976 banks were no longer permitted to provide sterling finance for any trade to which the Scheduled Territories (the United Kingdom, the Republic of Ireland, Gibraltar, the Channel Islands, and the Isle of Man) were not a party. In April 1976 certain foreign currency securities and private property abroad, acquired by U.K. residents without recourse to the investment currency market, ceased in some circumstances to be eligible for sale with the benefit of the investment currency premium.
Switzerland took numerous measures which represented a continuing effort to ensure that volatile and disruptive inflows of short-term capital did not exert excessive pressure on the Swiss franc. This objective was rendered particularly difficult in a period in which assets denominated in Swiss francs gained additional attractiveness through the weakening of some other important currencies. The Swiss authorities relied on a variety of direct and indirect controls to influence the inflow of capital via the banking system. Minimum reserve requirements on banks’ liabilities to nonresidents were increased for a three-month period around mid-1976, and further limitations were placed on interest payments on nonresidents’ savings deposits denominated in Swiss francs. Forward exchange regulations were tightened to reduce speculative transactions in Swiss francs by lowering the banks’ margin for forward sales at given maturities. Under a newly concluded gentlemen’s agreement between the Swiss National Bank and the commercial banks, the latter agreed to instruct their branches and subsidiaries abroad to refrain from speculative transactions, and waived the right to effect Euro-Swiss franc deposits or direct placements in Swiss francs for the account of or in the name of these subsidiaries or branches. Substantially enlarged reporting requirements were introduced in respect of banks’ foreign assets and liabilities positions, both spot and forward. Measures affecting outward movements of capital eased existing restrictions on access to the Swiss capital market; these measures included permission for international aid institutions to issue in Switzerland medium-term notes denominated in Swiss francs, and an increase in the ceiling on public issues by foreign borrowers denominated in Swiss francs. Restrictions on the acquisition of Swiss real estate by foreigners were intensified in November 1976.
In Japan changes in policies affecting capital movements were generally designed to liberalize existing controls and restrictions on outflows; some steps were taken, on the other hand, to affect capital flows indirectly through banks. The Finance Ministry’s instruction to commercial banks to refrain from financing nonurgent investment projects abroad was revoked in September 1976, and restrictions on medium-term and long-term loans in foreign currency granted by Japanese banks to overseas borrowers, imposed in 1974, were eased; however, approval was required for such lending. In January 1976 foreign banks operating in Japan were permitted to increase the outstanding amount of their conversions of foreign currency into yen. In April 1976 Japanese banks were informed that they should concentrate their activities abroad on providing financial and related services. In November 1976 the Bank of Japan was empowered to impose reserve requirements on foreign exchange banks’ liabilities in foreign currencies to nonresidents and on residents’ foreign currency deposits with such banks. Completion of the liberalization of inward direct investment was announced in May 1976 when controls still affecting several remaining industrial sectors were removed. Henceforth, 100 per cent foreign ownership would be permitted in all sectors, with the exception of a few specified industries. The ceiling on residents’ holdings in foreign exchange accounts was doubled from US$10,000 to US$20,000 in June 1976. The opening of new foreign exchange accounts by residents, which had been prohibited since 1974, was again permitted. Residents’ purchases and sales of unlisted securities on overseas markets were liberalized, and from October 1976 access of foreign borrowers to the Japanese capital market was granted more frequently.
Among the nonindustrialized countries there were few clearly identifiable trends in capital controls. Although a number of these countries applied restrictive policies toward foreign acquisition of domestic resources and enterprises, others, including several developing countries, provided easier access to inward foreign investment. On the other hand, the contraction of foreign financial loan obligations was restricted in a number of developing countries. Countries which removed or relaxed controls on capital inflows through the banking system included Ireland, where the Central Bank in May 1976 waived the regulation requiring Irish commercial banks to deposit with it 50 per cent of any net capital inflows, and Peru which eliminated the regulation restricting the net foreign exchange position of commercial banks. Colombia on the other hand increased the legal reserve requirement on foreign currency deposits and established an average and a marginal reserve requirement on specified foreign exchange liabilities of banks. Authorized banks in Fiji were required to obtain prior authorization from the Central Monetary Authority for the conversion of foreign currency into Fijian currency above a certain amount, and for the crediting of external accounts with Fijian currency emanating from another external account. The free swap balances of domestic branches of foreign banks in Korea were frozen at the level registered in July 1976. Foreign banking was encouraged in Tunisia and the United Arab Emirates where the establishment of offshore foreign banks and financial institutions was authorized and in Kuwait and Jordan which permitted foreign banking operations on a limited scale. Bahrain and the Philippines took measures to establish offshore banking systems with the aim of developing regional financial centers.
A number of nonindustrialized countries took measures to encourage direct investment inflows from abroad. In Argentina, a new foreign investment law provided for a widening of the scope for foreign investment, a reduction of taxes on profit and dividend remittances, and an easing of limitations on repatriation of capital. In the early part of 1976 Australia modified its policies to encourage inward direct investment, including a modification of the requirements for investment in minerals, but stipulated a minimum of 75 per cent Australian equity in uranium projects not yet in production. Chile eased restrictions on inward investment, following its withdrawal from the Andean Pact. Finland in November 1976 raised the limit on foreign participation in the share capital of Finnish holding companies from 20 per cent to 40 per cent. Israel and Jordan announced new tax benefits to foreign investors, while guarantees against nationalization of foreign investments were granted in Pakistan and Thailand. Spain authorized foreign investment in excess of Ptas 100 million, if it generated certain new employment opportunities and did not involve payments for the purchase of foreign technology. Countries which introduced measures to limit or preclude nonresident investment in selected domestic industries included Ecuador, Ghana, and Iran. Abu Dhabi, Indonesia, and Nigeria lowered the ceiling on foreign participation in domestic enterprises, and foreign investments in certain key natural resources were nationalized in Abu Dhabi, Qatar, and Venezuela.
In a number of countries controls were tightened on foreign borrowing by residents. In January 1977 Australia extended the existing embargo on foreign borrowing of less than six months’ maturity to borrowings of less than two years. For foreign borrowing abroad with maturities of two years or more Australia reintroduced a noninterest-bearing deposit requirement equal to 25 per cent of the value of the borrowing, refundable after a maximum period of three years. Overseas borrowings for capital investments in the mining and manufacturing sectors were exempt from the borrowing requirement. Colombia prohibited the taking up of foreign loans for investments in banking and insurance. Iran generally tightened its existing controls on foreign borrowing. Korea banned without special permission the contracting of foreign currency loans except to finance certain imports. Yugoslavia imposed a noninterest-bearing dinar deposit of 75 per cent for some credits contracted abroad connected with joint ventures.
Measures to liberalize capital outflows were taken in Singapore where three additional countries were included in the list of Scheduled Territories and the restrictions on investment in foreign currency deposits and securities, and in properties outside the Scheduled Territories were eased. Venezuela opened its domestic capital market to foreign public organizations in September 1976, granting them permission to float bond issues denominated either in foreign currencies or in bolívares, subject to prior authorization. Restrictions on the transfer of personal assets were eased in Malta, where the emigration allowance was increased and personal investments abroad were liberalized. A tightening of controls occurred in Jamaica, which reduced the ceiling on capital remittances for emigrants; in early 1977, Jamaica banned such transfers altogether.
7. Gold Movements
Several countries introduced new regulations affecting the export and import of gold, as well as dealings in and domestic holdings of gold. Australia in January 1976 removed all Commonwealth restrictions on the owning, buying, and selling of gold bullion and gold coins by residents. Australian residents were henceforth free to export or import gold subject to normal exchange control and customs requirements. In Chile regulations which restricted the buying and selling of gold to the Central Bank and authorized banks were abolished and individuals became free to transact in gold. Exports and imports of gold became subject to normal trade regulations. Egypt permitted authorized banks to purchase or hold abroad gold and other precious metals for the account of residents entitled to maintain Free Accounts. Portugal, however, revoked the permission of private exchange houses to deal in gold. The Federal Republic of Germany introduced regulations under which gold coins which were not legal tender in the country of issue became subject to the value-added tax, while Italy reduced from 12 per cent to zero the value-added tax on the import of refined gold. A number of countries, including Austria, the Netherlands Antilles, Seychelles, and Surinam, issued commemorative gold coins that were legal tender.
Bulgaria, Cuba, Czechoslovakia, German Democratic Republic, Hungary, Mongolia, Poland, Romania, and U.S.S.R.
The members are Austria, Finland, Iceland, Norway, Portugal, Sweden, and Switzerland.