II. Main Developments in Restrictive Practices
- International Monetary Fund. External Relations Dept.
- Published Date:
- September 1976
1. Restrictions on Imports and Import Payments
The balance of payments difficulties in many countries referred to in the Introduction led to a more pronounced use of import controls and restrictions, particularly in the latter part of the period under review. Most members resisted the pressures for the adoption of such measures on a large scale. The adoption of more restrictive import policies occurred in both developed and developing countries, but, in general, new or intensified restrictions were selective in their application; in only a few instances were they applied as a major instrument of balance of payments management. In many cases the use of selective import controls also appears to reflect a desire to protect certain industries from increased import competition in the prevailing conditions of weak demand. Measures to limit imports generally took the form of trade controls, including sometimes advance deposits, rather than of restrictions on the provision of exchange for imports; in a few developing countries, however, there were new arrears on import payments. Some countries revoked existing open general license arrangements, and in a number of countries there appears to have been a more rigorous enforcement of existing import regulations. Some countries which had introduced stringent new restrictions on a temporary basis during 1974 were able to revert to freer import regimes. Major import liberalization occurred mainly in a few oil exporting countries.
a. Quantitative Import Controls
The industrialized countries as a whole avoided recourse to comprehensive new import controls. Within this context, a number of countries employed controls of both a quantitative and a cost nature to a much greater extent than in recent years, while some eased certain import controls. In addition, several European countries further reduced restrictions oh imports from the member countries of the Council for Mutual Economic Assistance (CMEA),3 and Austria extended its GATT import liberalization worldwide. Japan in June 1975 lifted the suspension, imposed in 1974, on the issuance of import licenses for beef and veal, but later subjected silk products to import licensing. Canada and the United States removed their mutual quotas on imports of cattle and beef. The United Kingdom imposed quota restrictions for the first half of 1976 on specified textile products from Portugal and Spain, and for all of 1976 on woolen suits from Czechoslovakia, the German Democratic Republic, and Romania. The prohibition by the European Economic Community (EEC)4 in July 1974 of most imports of cattle, beef, and veal from non-EEC (“third”) countries was modified on several occasions. Imports of beef were authorized when linked to exports of beef to third countries; subsequently, imports were linked to purchases from the EEC’s intervention stocks. The EEC also authorized imports of young bovine animals for fattening and herd building, up to specified limits. The United States continued to rely on restraint agreements with meat exporting countries.
The EEC also authorized or prescribed various import control measures, some of which followed the conclusion of bilateral agreements between the EEC and other members of the GATT Arrangement Regarding International Trade in Textiles, while others were based on the general safeguard provisions of the Arrangement. The conclusion of the bilateral agreements sometimes was preceded by temporary unilateral action on the part of the EEC itself. Many of the measures introduced under these arrangements were of a quantitative nature, and were directed by the EEC or by individual EEC countries at limiting imports of specified textile products according to the country of origin. EEC members introducing measures, either under these arrangements or unilaterally, were the Benelux countries, France, the Federal Republic of Germany, Ireland, Italy, and the United Kingdom. Other actions by the EEC affecting imports from third countries included the authorization of the exclusion from Community treatment by specified individual member states of certain products originating outside the EEC. France imposed a tax on imports of certain Italian wines. The EEC, as well as various individual industrial countries, increased their resort to agreements on export restraint with “low-cost” producers of textiles and footwear.
Quantitative restrictions of a selective nature were also introduced or tightened in some of the non-EEC industrialized countries and in some of the more developed primary producing countries. These included the adoption of new or more restrictive controls, surveillance procedures, and/or quotas on imports of certain commodities in Austria, Canada, Iceland, Norway, and Sweden. Austria applied minimum prices to certain imported garments. Australia introduced tariff quotas on imports of specified textiles and import licensing requirements on passenger and light commercial vehicles, certain sheets and plates of iron and steel, footwear, sunglasses, and ophthalmic frames. Import licensing was also imposed on a limited range of apparel items from specified countries, but these were lifted in February 1976 and replaced with global tariff quotas. Quotas and/or licensing requirements were introduced on imports of bakery products and color television sets in Iceland, and of specified textiles in New Zealand and Portugal. New Zealand maintained the overall value of import licenses at the previous year’s level, and reduced the value of licenses for a few commodities by 25 to 50 per cent; subsequently, it introduced an import deposit scheme. Spain deliberalized some imports by transferring them from the free import list to the global quota list.
Ireland, Mauritania, Nigeria, and Senegal ceased to invoke the provisions of Article XXXV of the GATT with respect to Japan.
A number of developing countries were able to liberalize their import systems through easing or lifting quantitative restrictions. Some of the oil exporting countries which had liberalized considerably in 1974 made further progress in 1975. Little progress in relaxing restrictions on either private sector imports or invisibles was made in some of the countries that had benefited from large price increases for major exports, notably Algeria and Tunisia. A larger number of developing countries intensified quantitative import restrictions or tightened import licensing procedures. In most instances the use of these restrictive measures was confined to selected commodities. In Argentina, Brazil, Mexico, Zaïre, and Zambia, however, the measures introduced represented a significant tightening of import policy; in some of these countries imports had increased substantially. Furthermore, in a few countries, notably Sierra Leone and Zaïre, the open general license system was terminated. In Argentina, the import of a range of items was suspended until the end of 1975, biennial sectoral programs were introduced for all imports except capital goods, and imports for some 36 types of industry became subject to negotiated global quotas; the large increase of imports in value terms in 1975 and the insignificant restraining impact of these restrictions induced the authorities to eliminate them early in 1976. Brazil introduced new regulations tightening administrative procedures for the issuance of import licenses, in particular for imports of government departments and federal agencies. While the ban on imports of consumer goods by government agencies was relaxed somewhat to permit such imports when originating in member countries of the Latin American Free Trade Association (LAFTA),5 a reduction of 25 per cent in imports by government agencies was announced for 1976. In February 1976, Brazil prohibited the import of certain nonessential goods through June 30, 1976, except when of LAFTA origin. In July 1975 Mexico introduced prohibitions or quantitative restrictions on a large number of consumer goods; in some cases, import authorizations were limited to 50 per cent of 1974 authorizations. In conjunction with these measures, regulations were issued requiring licenses for all imports, although some items were later exempted. In Zaïre, only specified priority items remained freely importable and few licenses were issued during the year for items not on the new free list. Other developing countries which tightened quantitative import restrictions or import licensing procedures included Barbados, Burundi, Cameroon, the People’s Republic of the Congo, Cyprus, the Dominican Republic, Fiji, Jamaica, Ivory Coast, Korea, Malaysia, Malta, Mauritius, Panama, Peru, the Philippines, Romania, the Sudan, Tanzania, Tunisia, and Zambia. In addition, the scope of import prohibitions, in many cases applying to a few specified items, was increased in Afghanistan, the People’s Republic of the Congo, Ecuador, Fiji, Ghana, Guyana, Jordan, Mauritius, Nepal, and Nicaragua.
b. Import Surcharges and Import Taxation
A number of countries adopted new or higher import surcharges, in some cases for the specific purpose of restraining imports. In May 1975 Portugal introduced a surcharge at rates of 20 per cent or 30 per cent on nearly half of the country’s imports. Ecuador and Pakistan introduced surcharges of 30 per cent and 25 per cent, respectively, on certain imports, while Upper Volta introduced a customs stamp duty of 6 per cent and a surtax of 6 per cent on all imports. As has been its practice in the last few fiscal years, Israel further extended the import surcharge which had been due to expire on April 1, 1975. Iceland raised its import surcharge from 35 per cent to 50 per cent on motor vehicles and motorcycles, and from 20 per cent to 25 per cent on buses and heavy trucks. Yugoslavia raised the general surcharge from 6 per cent to 10 per cent in May 1975 and the preferential rate of surcharge from 2 per cent to 5 per cent; this latter rate was further raised to a range of 7 to 9 per cent in January 1976. Malaysia and Panama each raised their surtax by 1 percentage point to 5 and 7 per cent, respectively. Zambia replaced its import surcharge with a higher sales tax on imports. Uruguay imposed an import surcharge when it eliminated the advance deposit requirements on certain imports.
There were further tariff reductions between the EEC and its new members, and between the EEC and member countries of the European Free Trade Association (EFTA).6 In a few other countries (including some oil exporting countries), tariffs also were reduced on a wide range of imports. Many developing countries abolished their Commonwealth tariff preferences or other reverse preferences.7 In a number of instances, selective increases in import duties took place.
There were also many changes in import duties on exports originating in developing countries as the EEC and various individual countries introduced or modified Generalized System of Preferences (GSP) schemes. The United States implemented its GSP scheme, effective January 1, 1976, granting duty-free access for a maximum period of ten years to imports of eligible articles from specified developing countries and dependencies.8 Australia, Finland, Sweden, and Yugoslavia announced additions to their lists of beneficiary countries, while Austria put into effect the second stage of its scheme by increasing the preferential margins from 30 to 50 per cent on some products and by adding textiles to the list of eligible products. Austria and New Zealand exempted from duty some handicrafts from developing countries. Australia, however, suspended preferential treatment of some items under its GSP.
c. Advance Import Deposits
As in previous years, there were many changes in the use of advance deposit schemes. Iceland, Israel, Italy, and Yugoslavia abolished the deposit requirements that had been introduced in 1974, and Colombia terminated advance payment deposits on applications for exchange licenses. A number of other countries eased their import deposit requirements through reduction of the rates of deposit, the commodity coverage, or the length of the retention period. The rates of deposit were lowered in Colombia and Ghana. In Greece, during the period under review, those import items that were still affected by the increased deposit requirements of March 1974 were returned to their original classification. The number of items subject to prior deposit was reduced in El Salvador, while in Paraguay the retention period was shortened from 180 to 120 days. Chile published a new list of imports subject to the 10,000 per cent prior deposit requirement, and also new lists of imports for which the requirement cannot be waived or may be waived only under certain specified conditions; the coverage of these two lists was subsequently reduced. During the period various adjustments in the commodity coverage, deposit rates, and retention periods were also made in Korea, including an increase in the deposit rates required on some imports and a reduction of the rates and retention periods for imports of certain capital goods and raw materials. In Uruguay, new regulations were issued on several occasions during the year; the main effects were a liberalization of the deposit requirements for capital goods and the introduction in April 1975 of a deposit requirement for all private sector imports, which lapsed in December.
Six countries introduced advance import deposit schemes, one of which was terminated shortly after introduction. In October, Bolivia required an advance deposit of 25 per cent of the value of most import commodities for a period of 120 days. In July, Brazil established a 100 per cent prior deposit requirement affecting approximately one fifth of total 1974 imports; the coverage of the scheme was significantly expanded to about 60 per cent of imports in December, when also the length of the retention period was increased from 180 to 360 days. In Ecuador, more than one half of all import commodities became subject to a deposit requirement in September at rates of 20 per cent or 30 per cent for a period of 180 days. In Finland about 50 per cent of total merchandise imports became subject to a deposit requirement in March 1975 at rates varying from 5 per cent to 30 per cent; early in 1976, steps were taken to phase out the scheme by the end of 1976. In February 1975, Mauritius introduced a 40 per cent prior deposit requirement on most imports other than specified essential items, but the requirement was revoked within a short time. In New Zealand, in February 1976, about 7 per cent of imports became subject to a deposit requirement equivalent to one third of customs value. Among other countries with import deposit schemes, Argentina raised the deposit rate on certain nonessential imports from 40 per cent to 100 per cent in January 1975, but lowered it again to 40 per cent in June. The Argentine scheme, however, provided for exchange risk cover on all import contracts subject to advance deposits during 1975.
d. Measures Affecting Import Payments
Changes in the regulations governing payments for imports generally resulted in a liberalization rather than an intensification of restrictions, except in a few instances where the regulations were used to reinforce other restrictive measures. Bangladesh removed the deferred payment requirement for commercial imports. Brazil abolished the cash payment requirement which applied to specified imports and it allowed imports of capital goods, raw materials, and intermediate products against medium-term and long-term foreign loans. Italy removed the requirement that advance payments for imports and services of more than Lit 1 million be made with foreign currency borrowed from Italian banks. Nigeria, which previously required presentation of a customs bill of entry before exchange for imports could be allocated, allowed payment for imports prior to the arrival of the goods and abolished the requirement that capital equipment valued at more than ₦ 100,000 must be imported on specified deferred payment terms. Peru eliminated the documentary letter of credit requirement that applied to all private imports, while in Uruguay the 180-day credit requirement for private imports was abolished. Regulations affecting import payments were also eased in Greece. On the other hand, several countries tightened import payment regulations. In Argentina, most imports became subject to an exchange risk deposit system, and the provisions covering minimum payment terms were made more restrictive; these measures were, however, relaxed at the end of 1975 or early in 1976. Finland increased the number of commodities for which cash payment before customs clearance is obligatory and announced that, with effect from March 1, 1976, settlements under unauthorized credit arrangements in excess of six months would be subject to fines. Iceland no longer allowed the use of suppliers’ credit for some construction machinery, trucks, and tractors. Other countries that tightened regulations on import payments included the Dominican Republic, Malawi, Sierra Leone, and Zaïre.
During the year, arrears on current payments in respect of imports developed or increased in the Dominican Republic, Uganda, Zaïre, and Zambia.
e. State Trading
Existing state trading activities were extended in Benin, Guyana, India, Madagascar, Pakistan, the Philippines, Somalia, and Tanzania among others. Ireland announced the formation of a national foreign trading company, with 20 per cent state participation, to market Irish products abroad and to import capital equipment and raw materials for Irish industry in certain cases. Japan extended for one year the import monopoly of an official agency for raw silk.
2. Measures Affecting Exports
In 1973 and 1974 the emergence of serious shortages of basic raw materials and foodstuffs resulted in a number of countries applying measures to restrict exports of these commodities for domestic supply and price considerations. This period was also marked by efforts on the part of some primary producing countries to sustain or increase world prices for key products or to conserve resources through policies designed to reduce production or to build up stockpiles. Such policies were implemented either on a unilateral basis or in association with other producing countries. During the period under review, with the easing of demand pressures, the emphasis of policy in many countries shifted to one of providing more positive stimulus to export growth. This involved in some cases an easing of quantitative limitations and controls on exports, and a lowering of specific export taxes. Many countries also resorted to more direct measures to increase export earnings, such as incentives to exporters by way of bounties and subsidies, tax rebates or other preferential tax concessions, and the extension or improvement of preferential financing facilities, export guarantees and export credit insurance, and exchange risk guarantee schemes.
Export prohibitions on specified commodities were lifted in Greece, India, Indonesia, Peru, and Turkey. Australia eased the arrangements for the export of live cattle, and no restrictions now apply with respect to the export of stud or breeder cattle. The United Kingdom allowed the licensing requirement for exports of coal, coke, solid fuels, petroleum and petroleum products, and ferrous scrap to expire, and the United States removed export quotas and licensing requirements for exports of ferrous scrap. Controls were also eased in Greece, India, Pakistan, Rwanda, and Spain. Turkey abolished the pre-export price control system but increased the number of products for which export licenses are required. Countries that suspended exports of particular commodities, in most instances on a temporary basis, included Brazil, Guatemala, India, Mauritania, Nigeria, the Sudan, and Venezuela. Canada announced that exports of crude petroleum and natural gas would be phased out by 1981.
A few countries again adopted measures to expedite the repatriation of foreign exchange proceeds from exports, or to shorten the permissible surrender period. In Ecuador, exporters were required to repatriate proceeds from exports within a period of from 60 to 360 days, depending on the type of export. Italy reduced from 60 to 15 days the period within which exchange proceeds from exports must be offered for sale to an authorized bank.
As noted above, increased use was made of export restraint agreements by industrial nations. During the period under review several of these agreements were negotiated by the EEC involving limitations by a few developing countries on exports of textile products. The United States renegotiated most of its agreements of this kind and also negotiated export restraint agreements with a number of meat exporting countries. As part of a program for assisting the textile and footwear industries, the United Kingdom agreed in July 1975 with three Eastern European countries that they would impose restraints on exports of certain footwear. Further restraints for 1976 were subsequently agreed, as well as restraint on certain clothing exports.
As indicated above, some countries sought to encourage exports through the lowering or suspension of export duties and taxes. Afghanistan eliminated the 2 per cent export tax on all products. Bolivia exempted all agricultural and manufactured exports from the 15 per cent tax on nontraditional exports and reduced royalties on exports of mining products. Mexico in January introduced a new tax schedule that eliminated specific taxes, and removed some items from the list of taxable exports in August, when, in addition, duties were eliminated for most agricultural and semimanufactured exports. Taxes on particular export commodities were eliminated or reduced in Costa Rica, Ecuador, India, the Philippines, Spain, Sri Lanka, and Tanzania. Specific export taxes and duties were, however, introduced or increased in some other countries. Thus, Guinea introduced a tax on exports of bauxite and alumina. Countries which increased certain export taxes included Barbados, Costa Rica, Ecuador, Jordan, Malaysia, Mali, Spain, and Upper Volta. Canada adjusted export taxes on petroleum several times during 1975, but on average the tax was lower in 1975 than in 1974.
Measures to relieve the tax burden on exporters, usually in the form of tax concessions by way of rebates or remissions of indirect taxes, were adopted in Brazil, Chile, Cyprus, Israel, Mexico, Spain, and Turkey, and were extended to additional export items in India. In Bangladesh, on the other hand, the export subsidy scheme was abolished in May 1975 in connection with the unification of the exchange rate system and a depreciation of the currency.
Ceilings on various types of export credit or export credit insurance were raised in Austria, Belgium, Denmark, France, Italy, Japan, and the Netherlands. In Switzerland various measures were taken to facilitate export financing. In the United Kingdom the Export Credits Guarantee Department (ECGD) began to give guarantees to the clearing banks to facilitate the provision of working capital as preshipment finance for large export contracts, and relaxed its conditions for giving cover in support of performance bonds by exporters. In Singapore, the Monetary Authority began to provide rediscount facilities for export and pre-export usance bills, and it was announced that an export credit insurance scheme would be established. Other countries which expanded financing facilities for exports included Brazil, Chile, Colombia, Ecuador, India, Jamaica, Korea, and Turkey. New export credit facilities were also introduced in Cyprus and Denmark. France, Italy, and the United Kingdom concluded agreements providing for the extension of large volumes of export credit, at the government level, to certain Eastern European countries.
A number of countries again took steps to protect exporters against the risk of losses arising from exchange rate fluctuations. In Denmark, exchange rate insurance was made available for long-term export credits. France reduced the premium for exchange rate guarantees in respect of countries participating in the European common margins arrangement. Norway introduced a self-financing exchange risk cover scheme through the Export Credit Guarantee Institute to provide cover for exports when it was not available on reasonable terms in the forward exchange market. Switzerland expanded the currency coverage of exchange risk insurance.
In February 1976, the Federal Republic of Germany adjusted the coverage provided by state guarantees against commercial and political risks on suppliers’ credit and tied buyers’ loans. In France, the Compagnie Française d’Assurance pour le Commerce Extérieur (Coface) extended cover against political risks to the insurance sector. France also provided additional credit insurance facilities to firms exporting to countries with temporary balance of payments difficulties. In the United Kingdom, insurance was made available to exporters of capital goods to non-EEC countries, against cost inflation affecting fixed-price contracts of a specified minimum amount and duration.
3. Restrictions on Current Invisibles
Significant changes in restrictions on payments for current invisibles took place mainly in developing countries. Some increases that were granted in allocations for travel purposes and for other invisibles were intended only to offset increases in price levels or the effective depreciation of the domestic currency; such changes are not included in the following summary.
The Republic of China, Iraq, Jordan, and Korea increased the basic exchange allocations for travel; Iraq had previously, in December 1974, terminated the 10 per cent deposit requirement on travel exchange. Argentina reduced travel allowances in 1975, but increased them substantially early in 1976, when a new exchange market with freely negotiated rates was established for purchases and sales of travel exchange. Bangladesh abolished the 30 per cent tax on foreign exchange for unofficial travel abroad. Guyana reintroduced exchange allocations for tourist travel, but the limits were set lower than those that were in effect prior to January 1974, when these facilities were suspended. Chile, which had liberalized restrictions on travel exchange in 1974, reduced the allocations in January 1975 and, early in 1976, increased the tax on foreign travel. Israel raised the allowances for business travel in April 1975; in February 1976, however, the standard allowance for minors was lowered, the tax on foreign travel was increased, and a surcharge was applied to purchases of travel exchange. Peru, which had previously applied a tax on foreign travel, substituted a tax on exchange sold for trips abroad. In September 1975, Zambia withdrew all allocations for tourist travel and restricted those for business travel, thus reversing the liberalization measures introduced in 1974. Other countries which reduced the allowances or tightened controls on the provision of exchange for travel included Portugal and Turkey.
Limits on remittances abroad for education purposes were increased in Chile, the Republic of China, Jordan, and Korea, and Colombia and Jordan raised the ceiling on remittances abroad for the support of dependents. Yugoslavia raised the limits on foreign exchange that could be transferred abroad to settle court and other related fees, and for specified personal expenses. Jamaica imposed limitations on the transfer abroad of income accruing to emigrants from sources within Jamaica. Zambia intensified restrictions on the remittance of profits and dividends and reduced the allocations for leave pay due to expatriates working on a contract basis. Argentina signed an agreement with foreign-owned automobile assembly firms providing for the postponement of all payments abroad for two years, in return for certain concessions regarding domestic pricing policies and exemption from import controls.
Regulations governing the import and export of domestic currency by travelers were changed in a number of countries. Australia and Korea increased the amounts which could be taken out by travelers in domestic notes and coins. Portugal, however, reduced the limits on the export by resident travelers of both domestic and foreign currency, and other foreign means of payment, while Western Samoa and Zambia prohibited the export and import of domestic notes and coins.
During 1975 arrears in respect of interest payments on foreign debt obligations arose in Sierra Leone and Zaïre.
4. Multiple Currency Practices
No new dual exchange markets were established during the period under review. Chile and Peru each unified their dual exchange markets de facto, while Iran and the Syrian Arab Republic continued to operate unitary rate systems without formally revoking the regulations that had set up a dual exchange market. There was little or no change in the dual market systems in the Belgian-Luxembourg Economic Union (BLEU), Paraguay, and Uruguay. Egypt expanded the role of the secondary market and depreciated its currency in that market. In January 1976, Argentina introduced a new exchange market with a freely fluctuating rate applicable to travel exchange only. A simplification of multiple rate systems took place in Afghanistan, Bangladesh, Costa Rica, Guinea, and Nepal. In this group Bangladesh and Guinea unified their exchange rate structures, the latter for transactions only with countries with which no payments agreements are in force. The systems operated by Brazil and Colombia were adapted on various occasions with little net change. In February 1976, Israel introduced a multiple currency practice by applying a surcharge to foreign exchange purchases for travel and certain other invisibles. Brazil, Chile, Colombia, and Uruguay continued the practice of making frequent changes in the peg on their intervention currency, Argentina reinstituted such a regime, and Israel in August 1975 adopted a new exchange rate policy under which its currency is depreciated by small amounts at irregular intervals.
Bangladesh effected a major simplification of its exchange regime in May 1975. The 30 per cent tax on exchange for unofficial travel abroad was abolished, and the Premium Payments Scheme, under which remittances in foreign exchange by Bangladesh nationals working abroad had been converted at a considerably depreciated rate for the national currency, was terminated. In addition, the export subsidy scheme, which provided exporters with a cash subsidy of between 10 per cent and 75 per cent of the f.o.b. value of certain nontraditional exports, was abolished. In May 1975 Costa Rica eliminated the temporary multiple currency practices which had remained when the dual exchange market was unified in April 1974. There was a substantial simplification of Nepal’s exchange system during 1975. In July, Paraguay reduced the spreads between buying and selling rates in the official exchange market. In the Sudan export proceeds of gum arabic became eligible for the 15 per cent exchange subsidy; as a result, cotton remained the only export commodity whose proceeds were not settled at the depreciated rate.
In Egypt further changes took place in the regulations governing the parallel foreign exchange market. From late 1974, all nongovernmental payments for nontrade invisibles were effected through the parallel market and in February 1975 the scope of the market was increased through the inclusion of additional imports of public sector industries. The list of commodities eligible for import when no purchase of foreign exchange is involved was progressively expanded; by the end of 1975 all goods were eligible for “own exchange” importation, except for 18 essential commodities and a few other items that were restricted for security or protective reasons. Early in 1976, the Egyptian pound was depreciated in the parallel market. In January 1975, Sri Lanka made imports of tallow, palm oil, and milling copra subject to the surrender of Foreign Exchange Entitlement Certificates, thus reversing the measure taken in September 1974, which permitted payments for such imports to be effected at the official exchange rate.
The Argentine exchange system underwent a series of changes. As of April 5, 1976, there were two basic exchange markets, the official market and the free market, with mixing rates for import payments, export proceeds, and invisibles. The two markets had been instituted on March 8, 1976 and the mixing arrangements went into effect on April 5. Imports of fuels, lubricants, and newsprint, and transactions related to financial loans and interest, were settled in the official market; imports of raw materials and intermediate goods were settled 83 per cent in the official market and 17 per cent in the free market, while other imports, export proceeds, and trade-related invisibles were settled 65 per cent in the official market and the balance in the free market. Travel expenses and other invisibles were settled in the free market. Special arrangements provided that the transfer of profits and dividends must be effected through the purchase of dollar-denominated bonds.
Brazil’s system of multiple rates was changed through adjustments in the existing exchange taxes on export proceeds from coffee, cocoa and cocoa products, and quartz chips. Additional exchange rates arose from the introduction of such taxes on decaffeinated green coffee, and from the reintroduction of the tax on freeze-dried soluble coffee. There was a reduction, however, in the types of green coffee subject to exchange tax. Following the frost of July 1975, the Brazilian Coffee Institute announced sharp increases in minimum registration prices for coffee exports, and terminated its policy of granting substantial discounts to major buyers.
Chile took further measures during 1975 to simplify its exchange system. At the end of August, the spread between the exchange rates in the banking and brokers’ markets was eliminated and most transactions previously conducted in the latter market were transferred to the banking market. Brokers’ market transactions were confined to remittances of interest and profits on, and the repatriation of, foreign capital which had entered Chile through that market.
In Colombia, from July 1975, sales of foreign exchange arising from purchases of domestically produced natural gas were effected at the certificate market rate, instead of at the fixed rate which then was applied only to imports of petroleum. The latter rate was adjusted on four occasions between September 1975 and January 1976, thus reducing the spread between this rate and the certificate market rate.
In the U.K. investment currency market, the effective premium over the official market rate of exchange fluctuated extensively before ending the year marginally lower than at the start. South Africa created an investment currency market by substituting negotiable securities rand for blocked rand.
5. Bilateral Payments Arrangements
In recent years steady progress has been made in the termination of bilateral payments arrangements maintained by Fund members with other member countries and with nonmember countries. During the period under review 49 bilateral payments arrangements were terminated, 16 between member countries, and 33 between member countries and non-member countries. One new agreement between member countries was concluded, between Iran and Mexico, but it is understood that it has not as yet come into operation.
Of the agreements between member countries that expired, 6 were abolished by Romania, 4 by Yugoslavia, and 3 each by Algeria and Egypt. Sri Lanka, the Syrian Arab Republic, and Turkey terminated 3 agreements each with nonmembers, and Guinea, Morocco, Portugal, Singapore, and the Sudan, 2 each. Iceland, Iraq, and Tunisia each terminated their last payments agreements.
About 47 operative payments agreements are still maintained between members, 5 of which are regarded as involving bilateral features for one party only. In addition, some 11 inoperative agreements between members have not yet been formally terminated. The number of payments agreements between members and nonmembers stands at about 150.
6. Measures Affecting Capital
For the first time in a number of years, industrialized countries adopted relatively few major measures affecting capital movements. Last year’s Report noted the measures leading to a widespread relaxation of controls over capital inflows that were introduced by the industrial countries of Europe and by Japan toward the end of 1973 and 1974. Many of these measures coincided with the termination by the United States, in January 1974, of its controls on capital outflows. During the period under review the major European countries and Japan maintained, and in some cases extended, the existing degree of freedom of inward movements of capital; several countries took positive steps to encourage inflows through the banking system, through foreign borrowing by domestic nonbanks, and through the acquisition of securities by nonresidents. In some of the countries mentioned there was some tightening of controls on outflows. Switzerland, which had reimposed toward the end of 1974 certain controls on capital inflows, reinforced these controls during 1975, in the face of persistent upward pressure on the Swiss franc.
Adaptations of direct and indirect controls on banks by the European countries, other than Switzerland, generally followed the trend toward liberalization of inward capital movements. In Austria, the 75 per cent reserve requirement against increases in banks’ schilling liabilities to nonresidents was suspended with effect from January 1, 1975, although the banks were still required to refrain from increasing domestic liquidity through additions to these liabilities, and the Austrian National Bank retained the right to reintroduce the reserve requirements. In May 1975, Denmark raised the ceiling on the negative net commercial foreign position of authorized banks. The Federal Republic of Germany lowered in July 1975 by 10 per cent the minimum reserve requirements on domestic and foreign liabilities of banks, and in August reduced the minimum reserve ratio on foreign liabilities to about the level applied to domestic liabilities; in September, the authorities abolished the authorization requirement for the payment of interest on credit balances held by nonresidents. Italy, in June 1975, removed the ceilings on banks’ net external debtor positions; since July 1974, the banks had not been permitted to increase their net liabilities to nonresidents, both spot and forward, and in foreign and domestic currencies. In the Netherlands, the prohibition on the payment of interest on nonresident-held guilder demand deposits, as well as the prohibition on the establishment of guilder time and savings deposits in the names of nonresidents, were withdrawn from January 1, 1976. In February 1975 Turkey allowed the larger authorized banks to establish foreign currency positions, subject to a maximum of US$25 million, which was later reduced to US$5 million.
In Switzerland, in January 1975, the negative interest charge on nonresident Swiss franc deposits was increased from 3 per cent per quarter to 10 per cent per quarter; also the payment of interest on nonresident Swiss franc deposits was prohibited, irrespective of when such deposits were made. Furthermore, banks’ forward sales of Swiss francs to nonresidents were curtailed. In order to contain the expansion of domestic liquidity, the Swiss National Bank was empowered to block in noninterest-bearing deposits, and for an indefinite period, the domestic currency counterpart of its spot purchases of foreign currencies. The minimum reserve requirements against nonresident deposits were adjusted on several occasions.
Reporting requirements on banks’ foreign exchange operations were modified, and in some cases strengthened, in several European countries in 1975. The Federal Republic of Germany simplified the requirements for monthly reporting of the commercial banks’ foreign exchange positions, but the banks became subject to an end-of-month reporting requirement in respect of their credit and debit positions in gold and other precious metals. In February 1975, the Italian Exchange Office tightened the reporting requirements on banks’ overall forward exchange positions, while the reporting requirement for banks in Luxembourg was extended in February 1975, when they were required to submit quarterly returns on the maturity structure of their claims and liabilities in foreign currency. Beginning in April, commercial banks in Switzerland agreed to report on a daily basis all spot or forward exchange transactions exceeding US$5 million.
A number of European countries relaxed regulations governing capital inflows through nonbanks. In several cases, borrowing abroad by the nonbank private sector was encouraged, and considerable foreign borrowing by the public sector took place in Austria, Denmark, France, Norway, Spain, and Sweden. France in June removed certain controls introduced in 1974 on foreign currency loans contracted by French companies outside France for commercial and financial operations, but in September requested state enterprises to reduce their reliance on foreign borrowing. In the Federal Republic of Germany, the Bundesbank adopted in September a more liberal policy in respect of approval of nonresidents’ acquisition of fixed-interest securities with maturities of more than two and up to four years; permission was still withheld, however, for shorter maturities. In addition, commercial banks in the Federal Republic of Germany were allowed to place abroad a controlled amount of government promissory notes with a maturity of from two to four years. In May 1975, Italy revoked the requirement imposed in July 1973 that all advance payments for imports and services in excess of Lit 1 million be made with foreign currency borrowed from Italian banks. As noted above, several changes were later made in the regulations concerning the timing of import and export payments, in an attempt to improve control over leads and lags. Austria in June eased certain restrictions on inward direct investment and, from January 1976, further relaxed the restrictions on capital inflows introduced in 1972. The liberalization applied to inward direct investment, foreign purchases of Austrian securities, and certain short-term commercial credits. In Norway the Government was authorized to borrow abroad, or to guarantee borrowing abroad by others up to a specified amount; similar authority later was granted for 1976.
Regulations governing outflows of capital, including access by nonresidents to domestic capital markets, were tightened, early in 1975, in several European countries. Later in the year, however, some of these requirements were relaxed. In March 1975, issuing houses in the Federal Republic of Germany were requested by the Bundesbank on a voluntary basis to limit placements of foreign deutsche mark bonds by public and private borrowers. This was followed in July by a recommendation to a certain group of issuing houses not to grant deutsche mark loans to nonresidents in order to facilitate absorption by the domestic market of public authorities’ loan offerings. At the end of July the gentlemen’s agreement which had limited foreign access to the capital market in the Federal Republic of Germany to about DM 600 million a month was terminated and was replaced by a temporary ban on external deutsche mark bond issues, foreign private placements, and the placement of foreign promissory notes of DM 20 million or more on the domestic market. The ban, which initially was imposed through August 1975, subsequently was extended to the end of October 1975, when it was terminated. A temporary ban on the issuance of new bond issues by foreign public and semipublic bodies was imposed by the Swiss authorities in January 1975. In March, foreign states were again permitted to issue loans on the domestic capital market, but the prohibition on local authorities’ borrowings remained in force. The overall ceiling on capital market access subject to authorization was also raised. At the same time, private placements of notes for the purpose of refinancing maturing note issues were exempted from the ceiling, in contrast to foreign loans offered for public subscription, but were not exempted from the requirement to obtain advance approval. The ceiling on public foreign loans was raised again in May and July, after which it was maintained at a constant level for the remainder of the year. Also in May, it was announced that ceilings would no longer be imposed on capital exports in the form of medium-term private placements and credits subject to authorization. The United Kingdom obtained agreement from the EEC to continue the application of certain controls on capital transfers to other EEC countries which had been scheduled for termination, and Italy continued to apply a deposit requirement of 50 per cent on most outward transfers of capital. Ireland, on the other hand, permitted the use of official exchange rather than investment currency for all approved new direct investments in EEC countries. In June, the Netherlands, which in 1972 had opened the secondary capital market to nonresidents, reopened the guilder bond market to nonresidents.
In the United States, reporting requirements on banks’ foreign currency operations were increased and similar requirements were applied to nonbanking firms. Reporting requirements regarding operations of banks’ foreign branches were also increased. Finally, surveillance of inward foreign investment was intensified.
Regulations were issued in February 1975 requiring nonbanking firms to report foreign currency positions along the lines of existing reporting requirements for U.S. banks. In October, commercial banks became subject to more detailed reporting requirements in respect of forward foreign exchange transactions. Important foreign branches of U.S. banks were required from September to report the geographic distribution of their assets and liabilities.
In May, the Committee on Foreign Investment in the United States was created by Executive Order for the purpose of evaluating trends and significant developments in foreign investment flows, to review major individual investments and consult with foreign governments before they undertake investments in the United States, and to consider proposing new legislation. By the same order, a new Office of Foreign Investment in the United States was created in the Department of Commerce to gather and analyze information on foreign investment flows into the United States and submit reports and recommendations to the Committee on Foreign Investment. The minimum percentage of foreign ownership to be considered direct investment in the United States was lowered from 25 per cent to 10 per cent, which thus became consistent with the definition of U.S. investment abroad.
In April 1975 the U.S. Federal Reserve Board announced a reduction, from 8 per cent to 4 per cent, in the reserve requirements on foreign borrowings of member banks. The reduction also applied to the 8 per cent reserve against Euro-dollor borrowings by foreign-owned banking institutions, which had been maintained on a voluntary basis since mid-1973. Earlier, the Board had resubmitted to Congress proposed legislation to standardize the regulation of foreign banks operating in the United States on the same basis as domestic banks.
In Canada in February 1975 the authorities lifted the 1970 guideline which had requested Canadians to explore fully all available sources in the domestic market, before floating bond issues abroad. Certain withholding tax changes made subsequently further contributed to a greatly increased volume of bond issues floated abroad, some denominated in Canadian dollars. The second phase of the Foreign Investment Review Act, involving the screening of inward direct investment, came into effect in October 1975. In the field of direct investment, the Federal Republic of Germany adopted a bill establishing the legal basis for the registration of the amount of foreign direct investment in the Federal Republic of Germany and of German direct investment abroad. On the basis of this law, mandatory reporting requirements were introduced in April 1976 by Ordinance.
Japan eased the restrictions on both inflows and outflows of capital and in 1975 followed a basically neutral capital flows policy. On the one hand, a large volume of impact loans 9 and external bond issues was authorized. On the other hand, the domestic capital market was reopened to yen bond issues by foreign governments and international institutions, and the request to banks and securities dealers not to encourage investment in foreign securities was revoked. During 1975, Japanese banks were authorized to issue certificates of deposit in Singapore and the United States. Inward direct investment was further liberalized.
Measures to influence capital movements introduced in countries other than those mentioned above were in general directed at the encouragement of inward movements of funds through the banking system. An increasing number of countries, including some of the developing countries, endeavored to facilitate inflows through the domestic banking system and through foreign borrowing, particularly by the public sector. In January 1975, the Australian authorities reduced from two years to six months the minimum acceptable period for nonresident deposits with financial institutions. South Africa permitted authorized banks to apply for permission to raise funds abroad in their own name for the financing of foreign trade, and in August 1975 eased exchange controls on other forms of capital inflow. Banks in Bolivia were authorized to accept foreign currency deposits at freely negotiable interest rates, and in Korea the facilities for foreign currency deposits were improved. Chile permitted commercial banks to establish lines of credit with foreign correspondent banks without prior authorization. Iran, however, raised from 15 per cent to 30 per cent the reserve requirement on net short-term foreign borrowing by commercial banks; long-term borrowings by specialized banks remained exempt from the deposit requirement. Thailand introduced new regulations governing the net foreign exchange position of banks. In Turkey the banks were permitted again to establish convertible lira accounts, mainly for nonresidents.
Measures to facilitate offshore banks were taken in several countries, including Bahrain, Lebanon, Singapore, and the United Arab Emirates. Outside the industrialized countries, measures reducing restrictions on capital inflows through nonbanks were taken in Australia, where the period to maturity for new or existing issues of fixed-interest securities that could be purchased by nonresidents was reduced from two years to six months, and in Brazil, which for the first time admitted foreign portfolio investment to the country’s stock exchanges. In August, however, Brazil revoked the temporary reduction in the withholding tax on interest payments on foreign currency loans. In May 1975, Chile reduced from 18 months to 6 months the minimum period following the initial investment during which capital could be repatriated. South Africa permitted enterprises to apply for permission to borrow abroad for periods of not less than 6 months, except for property development or consumer credit.
In February 1976 Singapore liberalized its exchange control regulations and added Indonesia, the Philippines, and Thailand to the list of Scheduled Territories; transfers of funds to and from these countries could henceforth be made freely. In addition, the limits on investments by Singapore residents in foreign currency deposits and properties outside the Scheduled Territories were raised.
A number of nonindustrialized countries took further measures to inhibit or regulate foreign ownership or control of domestic enterprises and resources. Australia introduced new legislation to regulate foreign take-overs and adopted new guidelines on inward investment. Ecuador introduced regulations prohibiting the participation of foreign capital in the financial and insurance sectors but later relaxed some of these measures. Regulations tightening controls on foreign ownership were also introduced in Ghana and Zambia. The previously noted trend toward partial or total nationalization of foreign-owned or foreign-controlled enterprises continued in 1975. In many cases these measures were directed at firms operating in the petroleum or related sectors. Countries taking such actions included Bahrain, Madagascar, Malaysia, Qatar, Saudi Arabia, the United Arab Emirates, Upper Volta, and Venezuela. In addition, Benin, Ethiopia, Mozambique, and Portugal announced the nationalization of various industries.
The United Kingdom tightened its regulations governing gold coins, medals, and medallions in April 1975. Under new exchange control regulations, U.K. residents other than authorized dealers in gold holding a license could no longer import gold coins minted after 1837 and gold medals and medallions manufactured after 1837, while the manufacture of gold medals and medallions would not normally be permitted. Any post-1837 gold coins purchased in future by authorized dealers from persons resident outside the United Kingdom could not be resold to U.K. residents. Furthermore, the export of gold bullion and of post-1837 gold coins to Gibraltar and the Republic of Ireland was not normally permitted except with the approval of the local control authorities. The Bank of England discontinued its sales of gold sovereigns to residents of the Scheduled Territories (the United Kingdom, Ireland, and Gibraltar). The holding by, and buying, selling, borrowing, and lending between, residents of the United Kingdom, of post-1837 gold coins and gold medals and medallions that were already in the United Kingdom remained unrestricted. At the same time, Ireland made the purchase of gold coins outside the country subject again to specific exchange control permission; such permission was henceforth normally given only for numismatic purposes. In January 1976, Australia lifted all Commonwealth restrictions on the owning, buying, and selling of gold bullion and gold coins by residents. Henceforth, Australian residents were free to export or import gold subject to normal exchange control and customs requirements. Many countries again issued legal tender gold coins, sometimes with high face values. South Africa increased the production capacity for Krugerrand coins and the U.S.S.R. began to market a 10-ruble gold coin abroad. The United States twice sold limited quantities of gold at auctions.
Bulgaria, Cuba, Czechoslovakia, German Democratic Republic, Hungary, Mongolia, Poland, Romania, and U.S.S.R.
The members are Belgium, Denmark, France, Federal Republic of Germany, Ireland, Italy, Luxembourg, Netherlands, and United Kingdom.
Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Venezuela.
The members are Austria, Finland, Iceland, Norway, Portugal, Sweden, and Switzerland.
Preferences granted by less developed countries to the products of industrialized countries.
A number of countries are specifically excluded: Algeria, Cambodia, Ecuador, Gabon, Greece, Indonesia, Iran, Iraq, Kuwait, Lao People’s Democratic Republic, Libyan Arab Republic, Nigeria, Portugal, Qatar, Saudi Arabia, Spain, Uganda, United Arab Emirates, Venezuela, Viet-Nam, and People’s Democratic Republic of Yemen.
Untied loans from nonresidents to resident nonbank firms for conversion into yen.