Chapter

III. Regional Arrangements

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
September 1978
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There were further important steps toward regional economic integration during the period under review, especially in Europe. Two countries applied for membership of the EEC and four additional ACP countries13 became signatories to the Lomé Convention. On the other hand, strains appeared in existing integration arrangements in some other regions.

The transition period for the customs union laid down by the Act concerning the accession of the United Kingdom, Denmark, and Ireland to the EEC ended on June 30, 1977 when the three countries removed the remaining customs duties on intra-EEC trade and implemented the last elements in the harmonization of the common customs tariff. The transitional period in the agricultural sphere ended on January 1, 1978.

The fifth and last stage in the general timetable for the removal of industrial tariffs under free trade agreements between the EEC and the EFTA countries was reached on July 1, 1977. Import duties on all goods, except certain “sensitive” industrial products which had already been reduced to 20 per cent of their initial level, were abolished. In the case of “sensitive” products, the agreements provided for further reductions of duties on January 1, 1977 and on July 1, 1977; some of these products, notably steel and pulp and paper, remained subject to tariff ceilings. For products covered by EFTA but not by free trade agreements, mainly processed agricultural goods, the duties—which had been reintroduced from the beginning of 1974 in trade among the EFTA countries and Denmark and the United Kingdom—were raised on July 1, 1977 from 80 per cent to 100 per cent of the most-favored-nation rates.

Negotiations on Greece’s membership in the European Community continued in 1977. On January 13, 1977 negotiations were concluded on a new financial protocol within the context of Greece’s current association with the Community. The protocol, which provides for budgetary assistance to Greece of European units of account (EUA) 55 million14 and for lending by the European Investment Bank (EIB) of EUA 225 million, is to expire on October 31, 1981. In preparation for EEC membership, Greece decided to replace its clearing arrangements with certain third countries by agreements, including provisions for trade without restrictions, and to limit their period of duration to 1979 so as to facilitate their eventual replacement by EEC trade agreements. On July 25, 1977, the EEC and Spain exchanged letters to inform each other of the trade arrangements to be applied in reciprocal relations during the second half of 1977. The exchange of letters specified the terms for the extension of the EEC-Spain agreements of 1970 to the enlarged EEC. In early January 1978, the EEC and Portugal extended until the end of 1978 the interim commercial agreement of September 20, 1976, while awaiting parliamentary ratification and the entry into force of the additional protocol of the same date. On March 8, 1977 and July 8, 1977, respectively, Portugal and Spain officially applied for membership in the EEC.

In the context of the EEC’s overall Mediterranean approach, preferential trade and cooperation agreements were signed with Egypt, Jordan, and the Syrian Arab Republic on January 18, 1977 and with Lebanon on May 3, 1977. The agreements provide for economic and technical assistance of EUA 300 million in total for these countries in the period to October 31, 1981. The agreements will come into force when ratified and are of indefinite duration. However, the trade provisions became effective on July 1, 1977 under interim arrangements. From that date, imports from these countries, except for products covered by the Common Agricultural Policy, enter the Community duty free. Temporary ceilings apply to petroleum products, cotton yarn, certain cotton fabrics, phosphate fertilizers, and aluminum until the end of 1979. Tariff concessions for agricultural exports to the EEC varied from 40 per cent to 80 per cent. EEC exports to these countries were given most-favored-nation treatment. On February 8, 1977 additional and financial protocols were signed with Israel to supplement the agreement on trade and commercial cooperation which came into force on July 1, 1976. The enlargement of the cooperation aspect, and the provision of EUA 30 million of financial assistance for the period until October 31, 1981, made the EEC-Israel agreement similar to those concluded with the Maghreb15 and Mashrak16 countries. On July 1, 1977, the third and last stage of the elimination of EEC tariffs in respect of imports of industrial products from Israel became effective.

Also under the EEC’s overall Mediterranean approach, negotiations between the EEC and Cyprus were concluded, which extended until the end of 1979 the trade arrangements which were due to expire on June 30, 1977, and also extended the EEC-Cyprus association to the fields of economic and financial cooperation. The additional and financial protocols were signed on September 15, 1977. The financial protocol provides for financial assistance of EUA 30 million over a five-year period. A similar agreement with Malta was initialed on July 15, 1977 extending the first phase of the EEC-Malta agreement until the end of 1980. The third financial protocol with Turkey was signed on May 12, 1977. The protocol provides for EUA 310 million of financial assistance to be committed to Turkey during the period until October 31, 1981. On July 1, 1977 the EEC preferential scheme for agricultural imports from Turkey was improved for certain products.

In the context of EEC relations with the ACP countries under the Lomé Convention, the treaties for the accession to the Convention of Cape Verde, Papua New Guinea, and São Tomé and Principe were signed on March 28, 1977. This brought the number of ACP signatory countries under the Lomé Convention to 52. The trade arrangements of the Convention came into effect for the three new signatories on May 1, 1977, prior to the ratification of the treaties of accession. In July 1977, the European Council of Ministers favorably noted the request of Djibouti, a former overseas territory, for membership to the Convention and decided to maintain for Djibouti, on a temporary basis, the status of an associated country or territory. The scheme of the Lomé Convention to stabilize the export earnings of ACP countries (Stabex) from specified commodities was modified in 1977 to expand the scheme’s product coverage and, for some ACP countries, the coverage as to destination. In addition, six countries (Cape Verde, the Comoros, Lesotho, Seychelles, Tonga, and Western Samoa) were added to the group of countries for which the scheme’s coverage extends to all exports, irrespective of destination.

On January 1, 1977 new quotas came into effect for imports by EEC countries from state trading countries. The quotas covered virtually the same range of products as the 1976 quotas, and were increased by 5 per cent for those expressed in terms of value and by 3 per cent for those expressed in terms of volume.

On January 1, 1977 Iceland reduced duties on imports from other members of the EFTA from 40 per cent to 30 per cent. On the same date, Portugal reduced duties on a number of imports from other EFTA countries from 40 per cent to 20 per cent, and Switzerland abolished duties for EFTA countries on a number of agricultural imports. The EFTA Industrial Development Fund for Portugal came into force on February 1, 1977. The Development Fund aims at furthering productive investments, especially the reconstruction or creation of small and medium-sized enterprises. In June and September 1977, multilateral negotiations with Spain took place in Geneva on reducing barriers to mutual trade; it was decided to liberalize trade in industrial goods between Spain and EFTA countries to the same extent as between Spain and the EEC. Bilateral talks were also initiated between Spain and some EFTA countries on trade in agricultural products.

The harmonization of excise duties among the Benelux countries was postponed from July 1, 1977 to January 1, 1978. Legislation provides for a gradual unification by 1984 of the taxes on beer, wine, nonalcoholic beverages, sugar, tobacco, cigarettes, and petroleum products.

France became a member of the African Development Fund (FAD)17 in December 1977. Its initial contribution is F 50 million. In July 1977, Cape Verde was admitted to the Economic Community of West African States (Ecowas).18 A meeting of finance ministers of Ecowas member countries in Lomé on July 26–28, 1977 ratified the establishment of a community fund, which is intended to finance development projects and compensate members for revenue losses suffered as tariff barriers are reduced; the fund’s capital was fixed at US$500 million. Its constituent assembly convened in Bamako on December 6, 1977. Guinea was admitted to membership of the West African Clearing House (WACH)19 at a meeting of the Committee of the Clearing House held in Monrovia, on May 9–10, 1977. At a meeting of the heads of state of the West African Economic Community (CEAO)20 in Abidjan on June 8, 1977 it was decided to establish a fund of US$20 million to aid landlocked members of the Community, and a special allocation was authorized to the CEAO secretariat to finance community projects. The fund was formally established on December 7, 1977.

In May 1977, the Governments of France and Mali concluded a new monetary agreement in advance of Mali’s eventual membership in the West African Monetary Union (UMOA).21 The agreement provided, inter alia, for the introduction in Mali of banking legislation analogous to that prevailing in member states of the Central Bank of West African States (BCEAO),22 and set the financial charges for Mali’s debtor position in the Operations Account with the French Treasury.

On February 10, 1977, at a summit meeting of the Common Organization of African and Mauritian States (OCAM)23 agreement was reached on the establishment of a cooperation and guarantee fund, with headquarters in Cotonou, Benin, to encourage the easier financing of development projects in their countries. The members also agreed formally to declare the OCAM sugar agreement void. An extraordinary conference of heads of state of the OCAM took place in Dakar on April 22, 1977 at which it was agreed that the OCAM Guarantee and Solidarity Fund should amount to CFAF 5,000 million, which would be contributed by member states in accordance with their relative financial positions. In March 1978, Seychelles announced its withdrawal from the OCAM, reducing the membership to nine countries.

On October 1, 1977, the member countries of the Mano River Union24 adopted a customs tariff covering all but a few imports, with tariff rates generally adjusted upward. In addition, protocols were signed regarding, inter alia, the harmonization of excise legislation, insurance, and transport.

In November 1977, the member states of the Economic Community of the Great Lakes Countries (CEPGL)25 established the Great Lakes States Development Bank to provide financing for the priority projects involving development of the Ruzizi River Valley and fisheries on Lake Tanganyika, and exploitation of Lake Kivu’s methane gas deposits.

An agreement establishing the Organization for the Management and Development of the Kagera River Basin (KRBDO)26 was signed on August 24, 1977 by the presidents of the member countries. The prime objective of the Organization is to conserve and regulate the Kagera waters and augment their flow into Lake Victoria, thus helping to develop irrigation, electric power, and navigation projects.

At a summit meeting held in Libreville in December 1977, the Heads of State of the Central African Customs and Economic Union (UDEAC)27 countries agreed to intensify economic integration through the establishment of a common income tax, harmonization of legislation regarding movement of persons, industrialization, and customs procedures, and administration of the waterways between Bangui (Central African Empire) and Brazzaville (the People’s Republic of the Congo) under a community arrangement.

As a result of political and financial strains among its member countries, the East African Community (EAC)28 ceased to be operational in 1977. These strains had become especially evident in the increasing financial problems of Community-wide enterprises in the fields of airlines, railways, harbors, and telecommunications. On July 2, 1977, the Vice-Presidents of Tanzania and Uganda agreed that their Governments would continue to provide funds until September 30, 1977 for general community services, including continuing capital projects, in their countries and for the headquarters in Arusha.

An African Reinsurance Corporation (ARC)29 was established on January 31, 1977 under the auspices of the African Development Bank (ADB). Membership is open to all members of the Organization of African Unity (OAU). The Corporation had its inaugural meeting in Abidjan on March 30-April 2, 1977 and was to start operations on January 1, 1978. The ARC has an authorized capital of US$15 million.

The agreement establishing the Arab Monetary Fund (AMF)30 entered into force on February 2, 1977, after it was ratified by countries whose total capital subscription was in excess of 55 per cent of the authorized capital. The first meeting of the Board of Governors was held in Abu Dhabi on April 19, 1977. By this time, members had paid the statutory 25 per cent of their share in the AMF’s capital, which initially amounts to Arab dinars 250 million.31 The AMF’s aims are to promote trade and capital movements between member states, assist member states in eliminating payments and trade restrictions, stabilize exchange rates between Arab currencies, and eventually establish a unified Arab currency. The AMF’s operations regarding the provision of balance of payments financing to its member countries are to be broadly similar to those of the IMF.

During the period under review five countries became members of the Arab Common Market (ACM).32 They were Sudan (May 1977), Mauritania, Somalia, and the People’s Democratic Republic of Yemen (August 1977), and the Libyan Arab Jamahiriya (September 1977). On August 12, 1977, a new common customs barrier was agreed upon for the ACM countries, to come into force in 1978.

On March 12, 1977 the foreign ministers of the Regional Cooperation for Development (RCD)33 signed the Treaty of Izmir which provided for the implementation of the agreements reached by the heads of state and government in April 1976 on economic, trade, cultural, and industrial cooperation.

Member countries of the Latin American Free Trade Association (LAFTA)34 adopted several agreements to reduce existing barriers to mutual trade. In February 1977, a reciprocal credit agreement for US$1 million with a margin of 20 per cent was signed between Ecuador and Uruguay under the provision of the LAFTA Multilateral Compensation and Reciprocal Credit Mechanism (Laftacu).35

At a session of the Andean Pact36 in Lima on February 14–17, 1977, decisions were adopted on modified preferential margins for Bolivia and Ecuador, a code of conduct for social security, the harmonization of national accounts, a subregional system of statistical information, a code of conduct for labor migration, and the codification of the Cartagena Agreement. In April 1977, a special program of support for Bolivia was agreed upon. The program is aimed at improving the competitiveness of Bolivian industry, the fostering of industrial projects, promoting exports, and training personnel. On August 12, 1977 a protocol formalizing Chile’s withdrawal from the Andean Development Corporation (CAF) was signed in Bogotá and the CAF repurchased Chile’s shares in the organization. The Administrative Committee of the Andean Social Security Agreement had its first meeting on August 22, 1977; on the same date, a Common Social Security System for the Andean region came into force. An Automotive Industry Program was signed in Quito on September 13, 1977; the pact is for a term of 14 years and sets production allocations for various types of vehicles and parts. In November 1977, the Colombian Congress ratified Law No. 29, authorizing Colombia to be a member of the Andean Reserve Fund; this Fund was established in November 1976 and has as its goals the harmonization of monetary and exchange policies of the members of the Andean Pact.

At a meeting of economic ministers of the member countries of the Central American Common Market (CACM)37 on January 19–21, 1977, regulations under Article IX of the General Treaty were approved. These provide that member governments will not grant duty-free treatment to imports of goods from third countries that are produced in adequate quantities in Central America and which are subject to free trade under Article III of the Treaty. The regulations entered into force on February 11, 1977.

Intraregional trade in the Caribbean Common Market (Caricom)38 declined sharply in 1977. Early in 1977, Dominica, Guyana, and Jamaica imposed restrictions for balance of payments reasons on imports originating in other member states. In September 1977, Trinidad and Tobago decided to erect a system of selective import controls on goods from those Caricom members restricting imports originating in Trinidad and Tobago. Such controls, however, have not yet been implemented. The joint regional aluminum smelter program, agreed upon in 1974 by Guyana, Jamaica, and Trinidad and Tobago, appears to have been suspended. Trinidad and Tobago is presently pursuing this project alone. A food development program, conceived as a joint Caricom venture, has not made much progress.

The River Plate Financial Fund,39 a joint development fund established by the River Plate Basin countries at the end of 1976, began operations following the first meeting of its Board of Governors in Sucre on March 31, 1977. At a conference in Asunción in December 1977, the Governors of the Financial Fund agreed that it should be the policy of this Fund to promote a harmonious development between the member countries by giving preferences to the landlocked members.

Upon the initiative of Brazil, eight countries interested in an Amazon Pact40 had preparatory meetings in Brasilia on November 28–30, 1977. The delegations considered statutes for the Pact which would aim at the common development of the Amazon region.

Central Bank governors of Latin American countries decided in Cartagena on September 20, 1977 to create an Inter-American Export Bank, the initial capital of which would be US$300 million.

On December 15, 1977, the Bahamas became the forty-first member of the Inter-American Development Bank.

Representatives of 15 international agencies and 30 governments, including 13 Caribbean governments, attended a conference in December 1977 on economic development in the Caribbean and agreed to establish early in 1978 a Caribbean Group for Economic Cooperation. The Group would be composed of IBRD member countries in the Caribbean and other member countries and international agencies interested in making substantial contributions to the economic development of the area.

On January 13, 1977, Burma became the seventh participant in the Asian Clearing Union (ACU).41 On February 10, at the fifth meeting of the Board of Directors of the Union, it was decided to extend the period of settlement of balances among the participating countries from one month to two months.

On January 18, 1977, Singapore agreed with the Philippines and Thailand to a 10 per cent across-the-board tariff cut. In Manila, on February 24, 1977, foreign ministers of the Association of South East Asian Nations (ASEAN)42 countries signed an agreement on preferential trading arrangements. Among other agreements to foster cooperation among member countries, exclusive trade preferences were accorded in 1977 for the products of joint ASEAN projects. The agreement was ratified on August 1, 1977. At a meeting of ASEAN economic ministers in Singapore on June 27-29, 1977, preferential tariff cuts of between 10 and 30 per cent were agreed on 71 goods traded between ASEAN countries. (Trade in these products amounts to about US$150 million a year or about 2.7 per cent of total intra-ASEAN trade.) Goods qualify for preference if they contain at least 50 per cent local content (40 per cent for Indonesia). It was decided to implement the cuts not later than January 1, 1978. In April 1977, the member countries agreed on an emergency petroleum sharing agreement to be activated in the event of a petroleum surplus or shortage. In early 1977, the central banks of ASEAN member countries agreed to establish a US$100 million short-term swap arrangement to help to bridge temporary liquidity problems of member countries. Each member will contribute US$20 million and will be unconditionally eligible to swap its own currency for up to US$40 million for three months, renewable for an additional three months. The arrangement is administered by Bank Indonesia. The swap arrangement was signed at the summit meeting of ASEAN countries on August 5, 1977. In July 1977, Japan decided to extend new loans amounting to US$1 billion to five major projects of ASEAN nations so as to further integration among ASEAN countries.

In April 1977, Australia and New Zealand renewed for a further six months their interim agreement guaranteeing tariff preferences in each other’s market, within the framework of the New Zealand-Australia Free Trade Agreement (NAFTA). On December 1, 1977 a Permanent Preferences Agreement between the two countries came into effect.

On February 1, 1977, the Papua New Guinea-Australia Trade and Commercial Relations Agreement entered into force. The agreement provides for the elimination of duties by Australia on 99.4 per cent of Papua New Guinea’s exports to Australia, and by Papua New Guinea on 76.9 per cent of Australia’s exports to Papua New Guinea.

The ACP countries consist of certain developing countries of Africa, the Caribbean area, and the Pacific region; the original ACP countries were Bahamas, Barbados, Benin, Botswana, Burundi, Cameroon, Central African Empire, Chad, People’s Republic of the Congo, Equatorial Guinea, Ethiopia, Fiji, Gabon, The Gambia, Ghana, Grenada, Guinea, Guinea-Bissau, Guyana, Ivory Coast, Jamaica, Kenya, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mauritius, Niger, Nigeria, Rwanda, Senegal, Sierra Leone, Somalia, Sudan, Swaziland, Tanzania, Togo, Tonga, Trinidad and Tobago, Uganda, Upper Volta, Western Samoa, Zaïre, and Zambia. The Comoros, Seychelles, and Suriname joined during 1976.

The value of the unit of account is calculated daily on the basis of a basket of the currencies of the members of the EEC.

Algeria, Morocco, and Tunisia.

Egypt, Jordan, Lebanon, and Syrian Arab Republic.

Belgium, Brazil, Canada, Denmark, Finland, Federal Republic of Germany, Italy, Japan, Kuwait, Netherlands, Norway, Saudi Arabia, Spain, Sweden, Switzerland, United Kingdom, United States, and Yugoslavia.

Benin, Cape Verde, The Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone, Togo, and Upper Volta.

Benin, The Gambia, Ghana, Guinea, Ivory Coast, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, Togo, and Upper Volta.

Ivory Coast, Mali, Mauritania, Niger, Senegal, and Upper Volta.

Benin, Ivory Coast, Niger, Senegal, Togo, and Upper Volta.

Benin, Ivory Coast, Niger, Senegal, Togo, and Upper Volta.

Benin, Central African Empire, Ivory Coast, Mauritius, Niger, Rwanda, Senegal, Seychelles, Togo, and Upper Volta.

Liberia and Sierra Leone.

Burundi, Rwanda, and Zaïre.

Burundi, Rwanda, and Tanzania.

Cameroon, Central African Empire, People’s Republic of the Congo, and Gabon.

Kenya, Tanzania, and Uganda.

Algeria, Benin, Central African Empire, Egypt, Ethiopia, Gabon, The Gambia, Ghana, Guinea, Guinea-Bissau, Libyan Arab Jamahiriya, Mali, Mauritania, Niger, Nigeria, Sierra Leone, Somalia, Swaziland, Tanzania, Togo, Tunisia, and Zaïre.

Algeria, Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libyan Arab Jamahiriya, Mauritania, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Somalia, Sudan, Syrian Arab Republic, Tunisia, United Arab Emirates, Yemen Arab Republic, and People’s Democratic Republic of Yemen.

The Arab dinar is a unit of account equivalent to SDR 3.0.

Egypt, Iraq, Jordan, Libyan Arab Jamahiriya, Mauritania, Somalia, Sudan, Syrian Arab Republic, Yemen Arab Republic, and People’s Democratic Republic of Yemen.

Iran, Pakistan, and Turkey.

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

LAFTA countries and the Dominican Republic.

Bolivia, Colombia, Ecuador, Peru, and Venezuela.

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

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

Argentina, Bolivia, Brazil, Paraguay, and Uruguay.

Bolivia, Brazil, Colombia, Ecuador, Guyana, Peru, Suriname, and Venezuela.

Bangladesh, Burma, India, Iran, Nepal, Pakistan, and Sri Lanka.

Indonesia, Malaysia, Philippines, Singapore, and Thailand.

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