III. Regional Arrangements

International Monetary Fund. External Relations Dept.
Published Date:
September 1970
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The 12-year transitional period of the EEC ended on schedule on December 31, 1969. Agreement has been reached to open membership negotiations with Denmark, Ireland, Norway, and the United Kingdom. While the customs union has been completed and a considerable degree of further integration has been achieved, the member states of the EEC still follow independent monetary and fiscal policies. The EEC Commission recently submitted to the Council of Ministers proposals for a plan to achieve economic and monetary union in various stages during the 1970’s.

The common external tariff was further reduced by 10 per cent on January 1, 1970 to give effect to one half of the reductions agreed in the Kennedy Round. In March 1969 directives were adopted providing for the harmonization of the customs treatment of re-exports and internal trade in agricultural products. The introduction of a value-added tax system in all member countries by January 1, 1970 was delayed until January 1, 1972 when Belgium and Italy asked for postponements of one and two years, respectively. The delegation to the Commission of the sole responsibility for the negotiation of trade agreements with third countries was also delayed; however, bilateral agreements have now become subject to approval by the Council. In December, certain common rules were agreed, with immediate effect, for imports from and exports to CMEA countries; common liberalization lists were applied to imports from each of six countries (Bulgaria, Czechoslovakia, Hungary, Poland, Rumania, and the U.S.S.R.) which include only those products that have been liberalized by all EEC member states.

The French devaluation and the German revaluation led to some strains on the common agricultural price policy. The principle of community-wide agricultural prices was temporarily waived for France and Germany. France was allowed to apply special import subsidies and export levies until the end of 1971, when franc prices of agricultural products are to have been readjusted to the common level. Germany was allowed to apply special import duties and export subsidies on farm products until the end of 1969; thereafter compensation payments financed by the German Government and partly by the Common Market farm fund were to be made to German farmers over a four-year period.

In December 1969 agreement was reached on the financing of the Community in its final stage. After January 1, 1971 the Community will have its own income from the following sources: levies jointly imposed on farm products imported from third countries, customs duties on imported industrial goods, and a direct contribution from the national budget of each member country. By 1975 the EEC Commission is to receive all agricultural levies and customs duties on industrial products that now are received by member countries, and any deficits in the EEC budget will no longer be covered by contributions from the national budgets but from value-added tax receipts. Certain temporary arrangements will be applied until January 1, 1978. For 1970, an interim financing plan for the Common Market farm fund establishing direct national contributions according to a “key” is in effect. From 1975 onward, the EEC Parliament in Strasbourg will have limited control over EEC expenditures but will not be able to increase budget revenue above the maximum approved by the Ministerial Council. The financing agreement still requires the national ratifications of the countries concerned.

On February 9, 1970 the central bank Governors of the EEC countries put into force an agreement introducing a system of mutual short-term financial assistance.

In July 1969 the second Yaoundé Convention was signed with 18 African and Malagasy States. In September, a second association agreement was also signed with Kenya, Tanzania, and Uganda, the first having been ratified but not having gone into force. Austria has requested an additional round of talks on special association with the EEC. New association agreements have been concluded with Morocco and Tunisia. Trade agreements have been concluded with Israel, Lebanon, Spain, and Yugoslavia. At the present time, talks are under way with Argentina, Malta, and the United Arab Republic concerning special trade agreements or association arrangements. The trade agreement with Iran has been extended for one year.

Iceland became the eighth member of the European Free Trade Association (EFTA)4 on March 1, 1970. At the EFTA ministerial conference in November 1969, EFTA Governments reaffirmed their readiness and desire to take part in early negotiations with the EEC with a view to arriving at comprehensive solutions on the question of European integration in which all members of EFTA would have the possibility of participating.

A draft treaty was completed by Denmark, Finland, Norway, and Sweden for a Nordic Common Market (Nordek) early in 1970. The Nordic Common Market aims among other things at the formation of a customs union, freer trade in agricultural products, and the formation of an integrated capital market. The Finnish Government, while approving the contents of the treaty, did not on the basis of the present integration policy situation consider it possible to start the process of putting this treaty into effect.

Following the slow progress that has been recorded over the past few years in establishing free trade among the Latin American Free Trade Association (LAFTA) countries, members5 agreed in December 1969 to modify the treaty of Montevideo, postponing the full implementation of freer trade from 1973 to 1980. Instead of annual average tariff cuts of 8 per cent, LAFTA members will make reductions of slightly under 3 per cent a year. A recommendation for a four-year study on a possible Latin American Common Market embracing South America and Central America was also adopted.

A subgroup of LAFTA countries, comprising Bolivia, Chile, Colombia, Ecuador, and Peru on May 26, 1969 signed an agreement to form the Andean Common Market. The agreement entered into force in October and provides for the establishment of a customs union by 1980. Each country is allowed to exempt certain items from tariff cuts. The group intends to synchronize general economic policies, in particular industrial investment policies. An Andean Development Bank is to be set up to help finance these ventures.

The Central American Common Market6 came under strains in 1969. Even so, on January 2, 1970 the Central American Fund for Monetary Stabilization came into being. Member countries subscribed initial shares of US$1 million each, with US$20 million scheduled as the Fund’s total resources. The aim of this Fund is to grant short-term assistance to member countries in balance of payments difficulties.

On May 1, 1969 import duties on trade between members of the Caribbean Free Trade Association (Carifta)7 in products included in the so-called reserve list were reduced by 20 per cent as scheduled. Carifta members are proceeding with studies on the feasibility of establishing a common external tariff and harmonizing the system of industrial investment incentives. An intraregional payments clearing system was established on December 1, 1969 for which the central banks of Guyana, Jamaica, and Trinidad and Tobago act as agents. Payments were previously cleared through the London offices of the commercial banks in the area.

On January 28, 1970 the Caribbean Development Bank came into being. Its members are Antigua, the Bahama Islands, Barbados, British Honduras, British Virgin Islands, Cayman Islands, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Kitts-Nevis-Anguilla, St. Lucia, St. Vincent, Trinidad and Tobago, and Turks and Caicos Islands, with Canada and the United Kingdom as nonregional members.

During 1969 the members of the Tripartite Agreement (India, the United Arab Republic, and Yugoslavia) agreed to extend the list of mutual special tariff concessions with effect from October 1, 1969, and moved to raise the margin of special tariff concessions from 40 per cent to 50 per cent.

Iraq, the Syrian Arab Republic, and the United Arab Republic began consultations to speed the attainment of the goals of the Arab Common Market.8 Algeria applied for membership in May 1969. In May 1969, also, an agreement was concluded between Iraq and the United Arab Republic intensifying the economic cooperation between the two countries.

The East African Community (Kenya, Tanzania, and Uganda) continued talks with Burundi, Ethiopia, Rwanda, Somalia, and Zambia on their entry into the Community.

In December 1969, a new Customs Union Agreement was signed between Botswana, Lesotho, South Africa, and Swaziland replacing a previous agreement which dated from 1910. Under the new agreement, Botswana, Lesotho, and Swaziland should receive substantially increased shares in the common pool of revenues from customs, excise, and sales taxes collected by South Africa, and may institute certain measures of protection for their domestic industries. The four countries continue to use the South African rand as their common currency.

The present members are Austria, Denmark, Iceland, Norway, Portugal, Sweden, Switzerland, and the United Kingdom. Finland is linked to EFTA by the Finland-EFTA Agreement.

Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Venezuela.

Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua.

Antigua, Barbados, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Kitts-Nevis-Anguilla, St. Lucia, St. Vincent, and Trinidad and Tobago.

Iraq, Jordan, the Syrian Arab Republic, and the United Arab Republic participate, and Kuwait participates de facto; the Yemen Arab Republic has subscribed and the Sudan during 1968 began the process of subscribing to the Agreement for Arab Economic Unity.

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