Chapter

CHAPTER 16 Collaborating with the GATT

Author(s):
International Monetary Fund
Published Date:
February 1996
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Author(s)
Margaret G. de Vries

WHEN THE FUND WAS PLANNED it was expected that there would be some international body responsible for trade relations. Resolution VII passed at Bretton Woods recommended to the governments participating in the Conference that they seek to reach agreement as soon as possible on ways and means to reduce obstacles to international trade and in other ways to promote mutually advantageous international commercial relations.1 Originally it had been thought that the Fund and the proposed International Trade Organization (ITO) would have a common membership.

Thereafter—in the planning for an ITO, in the provisions of the General Agreement on Tariffs and Trade (GATT), and in the GATT’s subsequent activities—the Fund has continuously and overtly recognized that it has a vital stake in the regulation of barriers to world trade in any form. The attainment of the Fund’s own objectives has been regarded as intertwined with the successful operation of some international mechanism for achieving the same freedom from restrictions in relation to international trade as the Fund seeks to achieve with respect to international payments. In its relations with the GATT, therefore, the Fund has been guided by a conviction that the freeing of trade and the freeing of exchange are complementary, if not interdependent, objectives.

The GATT provides that any contracting party to it that is not a member of the Fund must enter into a Special Exchange Agreement with the Fund so that the Fund can, for those countries, fulfill its responsibilities to the GATT. Such Special Exchange Agreements were used for a time for one or two countries, notably for New Zealand until that country joined the Fund in 1961. More recently, contracting parties to the GATT that are not Fund members have been given waivers of the applicability of the relevant provisions of the GATT, and have agreed to provide the Fund with the information and documentation necessary for the Fund to make its presentation to the GATT, should such presentation be required.

FUND PARTICIPATION IN SETTING UP THE GATT

Meetings for the proposed ITO

Shortly after its establishment, the Fund participated in the meetings which were called by the United Nations in 1946 to plan for the ITO. The Preparatory Committee for an International Conference on Trade and Employment had two meetings, one in London from October 15, 1946 to November 20, 1946, and a second in Geneva from April 10, 1947 to August 25, 1947. Between these periods a drafting committee met in Washington from January 20 to February 25, 1947. In the following winter a third session of the Preparatory Committee was held in Havana.

The Fund’s acute interest in whatever plans were drawn up was immediately made clear by the Executive Directors. The field of activity of the proposed ITO would, at the least, run parallel to that of the Fund. It might even be so formulated as to encroach upon the Fund’s responsibilities; indeed, the rules of the ITO might provide for its members a means of escape from the jurisdiction of the Fund. In either case, the Fund’s influence would be impaired. How to prevent this formed a major preoccupation of the Executive Directors as they considered the Fund’s participation in the Preparatory Committee’s sessions. The Directors were especially mindful of the wide differences in attitude among the major countries planning the trade organization. While the United States sought, for example, the outright prohibition of trade restrictions, especially discriminatory ones, except when members had large or prolonged balance of payments deficits, the United Kingdom and Australia were less desirous of erecting a strong trade organization. At the same time, the Executive Board wished to assert the Fund’s right under its Articles to supervise any issues pertaining to exchange rates, multiple rates, exchange restrictions, or exchange controls, regardless of the purpose for which they were used.

At the first session of the Preparatory Committee in London, the Fund’s representative, Mr. Luthringer (United States), Alternate to Mr. White, made several suggestions: that in the charter being drafted the use of quantitative restrictions under the ITO should be subject to provisions similar to those of Article XIV of the Fund Agreement; that the charter should seek, once the transitional period had been passed, to limit the use of quantitative restrictions to circumstances in which other techniques had been exhausted; and that, in these conditions, the ITO should request the Fund to make a finding as to whether the member’s foreign exchange reserves warranted the imposition of the proposed restrictions, and should subsequently consult the Fund on the possibilities for the progressive removal of restrictions that had been authorized.

At the session in Geneva, the Fund’s representative, Mr. Saad (Egypt), saw to it that the provisions concerning multiple exchange rates and control of capital movements which were in the draft ITO charter were in accord with the Fund Agreement, and that the draft charter for the ITO provided for close coordination of policy between the two organizations, both on exchange questions and on quantitative restrictions. The activities of the Fund’s representatives at these preparatory sessions helped to ensure that the charter of the ITO would be compatible with the Fund’s interests.

Following the Havana Conference of 1947–48, Mr. Saad emphasized to the Fund’s Board that the interdependence of the roles of the Fund and the ITO made it imperative that there should be full cooperation between the two bodies. He suggested that the Fund’s Board should immediately consider the terms of a possible agreement for cooperation with the ITO. Hence, in July 1948 a Committee of Directors on Liaison with the ITO, with Mr. Saad as its first chairman, was formed. When the ITO failed to materialize, this committee was reconstituted as the Committee on Liaison with the Contracting Parties to the GATT, and in that form has continued to be one of very few standing committees of the Executive Board.

The GATT emerges

Pending action by the prospective members of the ITO, a multilateral trade agreement, called the General Agreement on Tariffs and Trade, which had been agreed at the second session in Geneva, was put into provisional application during the summer of 1948. Fortunately for the Fund, many of the relationships with the Fund that had been so carefully defined for the proposed ITO were contained in the GATT.

The GATT consists of tariff provisions and of regulations concerning general commercial policy. A multilateral trade agreement of such comprehensive scope, covering not only tariffs but also the general principles of commercial policies, is without precedent. The participating governments deliberately avoided the traditional pattern of an international organization; they merely established contractual relations among themselves. The participants in the GATT attempt to achieve their purpose of reducing excessive trade barriers through a number of consultative arrangements.2 In September 1948, the Board of the Fund approved proposals by the Chairman of the Contracting Parties for informal cooperation between the GATT and the Fund. Between 1948 and 1950 thirty-one countries, most of which were members of the Fund, became contracting parties to the GATT.

PROVISIONS OF THE GATT RELATING TO THE FUND

The Fund’s close ties with the GATT are made explicit by three basic provisions contained in Article XV of the GATT. Paragraph 1 provides:

  • The Contracting Parties shall seek co-operation with the International Monetary Fund to the end that the Contracting Parties and the Fund may pursue a co-ordinated policy with regard to exchange questions within the jurisdiction of the Fund and questions of quantitative restrictions and other trade measures within the jurisdiction of the Contracting Parties.

The first sentence of paragraph 2 states:

  • In all cases in which the Contracting Parties are called upon to consider or deal with problems concerning monetary reserves, balances of payments or foreign exchange arrangements, they shall consult fully with the International Monetary Fund.

Later in the same paragraph the Contracting Parties are required

in cases involving the criteria set forth in paragraph 2(a) of Article XII or in paragraph 9 of Article XVIII [to] accept the determination of the Fund as to what constitutes a serious decline in the contracting party’s monetary reserves, a very low level of its monetary reserves or a reasonable rate of increase in its monetary reserves, and as to the financial aspects of other matters covered in consultation in such cases.

In sum, the general effect of the GATT is that countries are to coordinate their exchange policies (under the jurisdiction of the Fund) and their trade policies (under the jurisdiction of the GATT). The Contracting Parties must consult the Fund on all matters dealing with reserves and balances of payments and must accept the Fund’s findings. The Contracting Parties themselves, of course, determine whether or not the subject with which they are dealing involves monetary problems, and consequently whether consultations with the Fund are required. Legal opinion is that, in the final analysis, the GATT is sovereign in these matters. Moreover, the Fund’s findings are only part of the material on which the GATT’s decisions are taken.3

The provisions of the GATT relating to the Fund are the more significant because the GATT bases any permission given to a contracting party to institute or maintain import restrictions on the state of that country’s reserve and balance of payments positions. The specific provisions of the GATT governing the use of import restrictions were revised in 1954–55 during a Review Session of the Contracting Parties; the improvement in the balances of payments of most countries by the mid-1950’s had produced a desire to put an end to the provisional character of the GATT and to transform it into a permanent international organization.4 It is the revised rules, operative since October 1957, to which we refer in this chapter.5

All restrictions are subject to a system of periodic consultations, based on a detailed examination by the Contracting Parties of the level, methods, and effects on trade of the restrictions in use by the various countries. The General Agreement also makes the purpose of these consultations fairly explicit. The Contracting Parties, finding that a country’s restrictions are inconsistent with the provisions of the GATT, can advise that the restrictions be suitably modified. They can even make appropriate recommendations for securing conformity with GATT provisions within a specified period, and sanctions against noncompliance with such recommendations are provided for in the form of a suspension of obligations by any adversely affected contracting party.

More specifically, provision is made for the introduction or maintenance of restrictions to safeguard a contracting party’s balance of payments at two points—in Article XII, and in Section B of Article XVIII, the latter applying to less developed countries. By paragraph 2 (a) of Article XII, import restrictions imposed by a contracting party under that Article may not exceed those necessary

(i) to forestall the imminent threat of, or to stop, a serious decline in its monetary reserves, or

(ii) in the case of a contracting party with very low monetary reserves, to achieve a reasonable rate of increase in its reserves.

Paragraphs 9 and 11 of Article XVIII:B provide broadly the same facilities, but with some changes in phraseology, such as the elimination of the word “imminent” from clause (i), and the replacement of “very low” in clause (ii) by the word “inadequate.”

The two Articles go on to provide for consultations on restrictions imposed or maintained. The text in Article XII is:

4. (a) Any contracting party applying new restrictions or raising the general level of its existing restrictions by a substantial intensification of the measures applied under this Article shall immediately after instituting or intensifying such restrictions (or, in circumstances in which prior consultation is practicable, before doing so) consult with the Contracting Parties as to the nature of its balance of payments difficulties, alternative corrective measures which may be available, and the possible effect of the restriction on the economies of other contracting parties.

(b) On a date to be determined by them, the Contracting Parties shall review all restrictions still applied under this Article on that date. Beginning one year after that date, contracting parties applying import restrictions under this Article shall enter into consultations of the type provided for in sub-paragraph (a) of this paragraph with the Contracting Parties annually.

Similar provisions are included in Article XVIII: 12 (relevant to less developed countries), except that the consultations provided for in subparagraph (b) are to take place at intervals of two years instead of annually.

QUESTIONS CONCERNING THE FUND’S ROLE

At first the Executive Directors had doubts about the precise way in which the Fund should implement the provisions called for by the GATT. In May 1949 South Africa sought approval under the GATT for some new import restrictions, and the Contracting Parties consulted the Fund on the question whether these restrictions were justified by South Africa’s balance of payments. The request for the Fund’s advice led some Executive Directors to inquire into the extent of the Fund’s responsibility. Specifically, the question was raised whether the Fund should merely report facts to the GATT, or whether the Fund should also provide an evaluation of the facts. Mr. Southard (United States) thought that full consultation, such as the agreement with the GATT visualized, necessarily implied an evaluation. On the other hand, Mr. McFarlane (Australia), who had been elected by South Africa, suggested that only the GATT could decide on the implications of import restrictions for its other members; the Fund should not risk an independent opinion which might clash with that of the GATT.

Since the exact nature of the South African proposals was not made clear at first, and since the issue of discriminatory restrictions was involved and several Directors doubted whether enough data was available to conclude that discrimination was justified, the issue was not really resolved. Rather, it was decided to transmit to the GATT a staff study of the balance of payments of South Africa, which justified import restrictions, but to omit the last paragraph of the study, which would have advised the GATT that some discrimination was not unreasonable.

Something of a major conflict on these issues was still to come. Mr. McFarlane continued to urge that the Board should be very cautious in such matters. As the representative of Australia, he stated that his Government had understood when joining the Fund that the Fund would not intervene in matters of import restrictions. But Mr. Saad, who had been representing the Fund at the consultations with the GATT, pointed out that, where import restrictions were imposed for balance of payments reasons, the responsibilities of the Fund and the GATT were necessarily interlocked. No final decision on this issue was reached during the year, and the discussion was resumed in 1950, when further restrictions were submitted by South Africa for approval under the GATT and a fresh consultation took place.

There were various reasons why countries, such as Australia, that were apprehensive about subjecting their import restrictions to international review tended to fear the Fund’s scrutiny more than they did that of the Contracting Parties to the GATT. For one thing, the Fund had a large professional staff to prepare for consultations whereas the GATT did not. For another, since the Board of the Fund was in continuous session, while the Contracting Parties met only periodically in General Session, the Fund’s Directors had frequent opportunity to review and comment on the restrictions of its members. More importantly, the Fund’s system of weighted voting gave such countries less of a vote in the decision-making process than did the GATT’s one country, one vote system. Finally, until the GATT was revised in the middle 1950’s, its powers were clearly less than those of the Fund: no provision was made in the GATT for the organization to make representations to its members and it had no financial resources of which to dispose. After all, the GATT had come into being because countries had not been able to agree on an international trade organization. For all these reasons, the GATT was less able than the Fund to take action against the restrictions of its members. There were some observers who went even further, believing that the role of the Fund as a fact-finding agency for the GATT would have little influence on the attitudes of the Contracting Parties.6

CONTROVERSY AT TORQUAY

The controversies concerning the Fund’s role in the consultations under the GATT came to a head in 1950, when several countries in the sterling area undertook such consultations. In July 1949 the Commonwealth Finance Ministers had agreed that, because of a continuing and growing drain on the dollar reserves of the sterling area,7 each member of the sterling area would reduce its dollar expenditures by 25 per cent of their total in calendar 1948. The GATT permitted contracting parties temporarily to intensify restrictions—including making their restrictions more discriminatory—in order to forestall or stop a serious decline in monetary reserves or to permit a reasonable rate of increase in reserves; consultations were, however, required. The Contracting Parties, therefore, in accordance with Article XV of the GATT, invited Australia, Ceylon, India, New Zealand, Pakistan, South Africa, Southern Rhodesia, and the United Kingdom (as well as Chile, which had also intensified its restrictions) to consult. The Fund was invited by the GATT to take part in these consultations, which took place at the Fifth Session held at Torquay, England, in the autumn of 1950.

Debates within the Fund

As the Fund’s staff began to prepare the documentation for these consultations, the deep differences of opinion among the Executive Directors on just what the Fund should submit to the GATT came to the surface. Should the Fund’s documentation focus only on the justification for the restrictions when they were initially imposed—that is in July 1949—or should emphasis be placed on the need for the restrictions at the time of the consultations, that is, late in 1950? (Since the devaluations of September 1949 had occurred in the meantime, and presumably alleviated the need for some of the restrictions, the difference in the date to be used was significant.) Should the Fund supply to the GATT only facts, especially statistical material, or should an evaluation and conclusions, particularly conclusions passed by the Fund’s Board, be transmitted as well?

Eventually these questions had to be answered by vote.8 The Board decided that the Fund was to supply to the GATT not only relevant statistical data but also conclusions as to the current need for restrictions. The information supplied to the GATT on behalf of the Fund thus covered the restrictive systems and the balance of payments and presented analyses of the causes and effects of the import restrictions in the light of the existing situation. Separate reports to the GATT contained the Fund’s conclusions with respect to the import restrictions of each country. The results of the Fund’s analyses varied from case to case. For some countries, balance of payments conditions did not seem to warrant further relaxation of import restrictions. For others, the conclusion was that circumstances were such that a progressive relaxation of discriminatory import restrictions could begin, having due regard to the uncertainties of the situation.

That separate reports and conclusions were prepared for each country was significant in itself. By judging the need for restrictions of each sterling area country in the light of its own balance of payments situation, the Fund was in effect challenging the principles by which the sterling area hung together. The two basic tenets of the sterling area were the institution of common policies by all its members and the combining of dollar reserves in a central pool, regardless of the balance of payments position of the individual sterling area member. Sterling area members, especially the United Kingdom, were anxious to preserve the sterling area for both economic and political reasons. For all members it provided a sheltered export market; for the United Kingdom it helped to provide non-sterling earnings, and for the “outer sterling area,” easy access to the London capital market. In addition, the sterling area preserved political ties within the British Commonwealth. The Fund’s position was the same as it was later to take in its own consultations, as regards members both of the sterling area and of the EPU—namely, that groupings of these types were not members of the Fund or of the GATT, and that each member of these groupings as a member of the Fund (or a contracting party to the GATT) was individually responsible for its international commitments.

Deliberations at Torquay

Mr. Saad led the Fund’s delegation to Torquay. The actual consultations with the GATT were protracted and at times acrimonious. The method, the findings, and the recommendations of the Fund were supported in the GATT by the delegates of Belgium, Cuba, Canada, and the United States—mainly nations whose exports were the subject of discrimination. But the Fund’s findings were bitterly contested by representatives of the United Kingdom, Australia, and New Zealand. They argued that the Fund had to recognize the existence of the sterling area and that it was unrealistic and unhelpful to look at individual nations apart from their membership in the regional system. Beyond this, they asserted that the discrimination resulting from the dollar pool was defensible because such discrimination enhanced the hard currency reserves of the sterling area and thereby helped to create conditions under which sterling could be made convertible and discrimination eventually eliminated. Australia also continued to argue, with considerable acerbity, that the Fund’s concern was exclusively with exchange and other financial matters, and not at all with import restrictions or trade controls; that the Fund’s advice should have been directed only to the need for intensifying restrictions at the time that the step was taken and not with the current position; and that the Fund’s contribution to GATT consultations should be limited to detailed factual information.

Gradually, debates over these issues tended to subside, especially after the Fund began its own annual consultations program in March 1952. The Fund continued to be concerned that temporary regional arrangements, such as the sterling area and the EPU, might not be the road to convertibility and might become permanent economic blocs, but it confined itself to pointing out the dangers, such as prolonged inconvertibility, that could result from regional arrangements and to urging countries individually to reduce their restrictions. The Australian representatives did not push their position as strongly as before. A working party set up in Geneva in October 1951, under Australian chairmanship, to draft a procedure for consultations in and after March 1952 recommended only that a consultation under the GATT should not take place until the Fund had completed its consultation under Article XIV with the same country, and that the Fund should make available to the Contracting Parties the results of its consultation with that member. In later years, in recognition of Australia’s interest in GATT matters, the Australian Executive Director was appointed chairman of the Fund’s Board Committee on Liaison with the Contracting Parties to the GATT.

THE PROCEDURES REGULARIZED

Over time a regular procedure emerged for the Fund’s participation in the GATT’s consultations. Significantly, one of the reasons why the Fund wished to retain annual consultations with its members even after they had given up Article XIV of the Fund Agreement was that the Fund could implement its responsibilities to the Contracting Parties to the GATT. Moreover, the Fund’s decision of 1960 on the transition from Article XIV to Article VIII had a fourth paragraph concerning the Fund’s coordination with the GATT.9 In the interest of Fund-GATT collaboration, those Fund members which were also contracting parties to the GATT were requested to continue to send to the Fund information about their import restrictions maintained for balance of payments reasons. For countries which were not parties to the GATT, the Fund would seek to obtain information about such restrictions.

Certain changes in the GATT rules concerning discriminatory restrictions also came into effect as countries which were members of the Fund assumed the obligations of Article VIII. In general, the rules under which a contracting party could continue to have discriminatory restrictions were greatly simplified. A contracting party was now allowed to have discrimination in the application of its balance of payments restrictions only in a manner having equivalent effect to its restrictions maintained under the Fund Agreement, either Article XIV or Article VIII. These changes in the GATT rules took effect in February 1961. However, the practical significance of these changes in GATT rules was limited, since no contracting party had had discriminatory restrictions since October 1960.

GATT procedure

The actual process by which the Contracting Parties conduct their consultations is different from that of the Fund.10 Under the GATT, consultations are typically conducted by a working party or committee consisting of representatives of individual contracting parties. Recently, this has been the Committee on Balance of Payments Restrictions.

To facilitate the conduct of the consultations provided for in the GATT, the Contracting Parties agree from time to time on certain plans, on the basis of which the consultations are conducted. Generally the plan for consultations under Articles XII:4 (b) and XVIII:12 (b) contains the following major headings:

  • Balance of payments position and prospects
  • Alternative measures to restore equilibrium
  • System and methods of restrictions
  • Effects of the restrictions

Also considered under the heading “Balance of payments positions and prospects” are the level of and expected movements in monetary reserves, and any special factors affecting the availability of or the need for reserves. Under the topic “Alternative measures to restore equilibrium” are examined the internal monetary and fiscal situation and other relevant matters which may affect the balance of payments, and any internal action necessary to preserve or restore equilibrium. Such action may include long-term measures designed to raise productivity and expand capacity or to reduce structural rigidities. In discussing the “System and methods of restrictions” the legal and administrative bases for the restrictions are examined, as well as the particular categories of goods and the proportion of imports restricted. Variations in the treatment given to imports from different countries or currency areas are given special attention. Finally, under the last heading, the protective effects of restrictions on domestic production are closely considered, as well as the difficulties that may be expected upon relaxation or elimination of the restrictions.

Written material on these topics, or on other topics considered relevant, is examined by the Committee on Balance of Payments Restrictions; high-level technicians from the contracting party having the consultation are then expected to explain at some length to the committee their country’s position. Finally, the GATT secretariat prepares a draft report on the committee’s discussion with respect to each consultation; after agreement by the committee on a final version, the report is submitted to the Contracting Parties for adoption.

Fund procedure

Under the procedure which has been evolved in the Fund, and by agreement with the GATT, the Fund provides for each GATT consultation, when notified of it, background material (such as Part II of a Fund paper prepared for a recent consultation under Article XIV or Article VIII with the country concerned, if this is available) together with the recent Article XIV consultation decision, if there is one. The right of any Executive Director concerned to object to the transmission of any of these documents is reserved. Supplementary or special background papers are transmitted only with the agreement of the Executive Board.

In addition to the provision of this background material, the Fund representative at a GATT consultation (nowadays always a member of the staff) is customarily invited by the chairman of the GATT Committee on Balance of Payments Restrictions to make a statement supplementing the documentation with respect to the position of the consulting country. This statement, which is approved by the Board in advance, is in two parts. The first relates to the balance of payments need for, and to the form of, the restrictions, i.e., to items I and III of the plan for the GATT consultations. The second part of the statement relates to “Alternative measures to restore equilibrium,” in the language of item II of the plan, or to “alternative corrective measures which may be available” in the language of Article XII:4 (a) or Article XVIII:12 (a).

Somewhat different statements are made on behalf of the Fund at GATT consultations under Articles XII:4 (a) and XVIII:12 (a)—”intensification” consultations—on the one hand, and at annual or biennial consultations under Articles XII:4 (b) and XVIII:12 (b), on the other. For the former, the formula which has been evolved to present the Fund’s views, if it is of the opinion that the level of restrictions is not excessive in relation to the balance of payments and reserve developments (the normal case), is:

The general level of restrictions of [country] which are under reference does not go beyond the extent necessary at the present time to stop a serious decline in its monetary reserves.

When an earlier version of this statement was being worked out in 1952, the staff and the Board of the Fund believed that a determination in terms only of the last sentence of Article XV:2 (i.e., “as to what constitutes a serious decline in the contracting party’s monetary reserves, a very low level of its monetary reserves or a reasonable rate of increase in its monetary reserves”) would be difficult to formulate and probably not very helpful if it were presented in a flat, absolute form without a reference to the impact of the restrictions under consideration. Thus an attempt was made to relate the level of restrictions to the balance of payments or reserve problem, but still to keep as close as possible to the GATT criteria.

At the regular annual or biennial consultations, the statements made have varied according to circumstances. Some have been in terms similar to the one quoted above, while some have drawn attention to recent decisions taken in connection with Fund consultations under Article XIV and quoted passages from these decisions. These passages range from expressing the Fund’s hope that progress in reducing discrimination and bilateralism will continue and that progress in reducing restrictions will be resumed as soon as practicable, to stating that the Fund considers that restrictions on a country’s imports are no longer necessary to safeguard a country’s monetary reserves and balance of payments.

The quotation of passages from Article XIV consultation decisions is particularly appropriate if the Fund wishes neither to suggest that the country has no balance of payments need for restrictions nor that its situation is such as to warrant the retention of restrictions. In such circumstances the standard form quoted above (“The general level … does not go beyond the extent necessary …”) is clearly inappropriate, and the exact nuance of the Fund’s views can best be conveyed by using the words of the Article XIV decision.

A third type of statement has been necessary where the Fund is not in a position to offer firm advice, either because the current year’s consultation with the country under Article XIV has not been completed, or because the situation in the country has recently changed so substantially that a judgment on it is not yet possible.

As regards alternative measures (item II of the plan of the GATT consultations), the practice has been to notify the GATT that the Fund has no alternative measures to suggest. This wording has been taken to mean “no measures additional to the whole complex of measures discussed in the documentation” and not just the restrictions maintained by the country.

The provision of advice to the GATT is thus greatly dependent upon the smooth progress of the Fund’s own program of consultations under Article XIV or Article VIII. The GATT secretariat seeks, after informal contact with the Fund staff, to arrange the Contracting Parties’ consultation schedules so that GATT consultations follow with a minimum of delay those which the Fund conducts with the same countries. Despite these efforts, however, GATT consultations sometimes take place without a recent Fund consultation decision and related background material being available. There are two main reasons why the Fund may not have completed a consultation with the country in question in the year since the preceding GATT consultation: (1) GATT consultations normally take place in brief semiannual meetings of the Committee on Balance of Payments Restrictions; (2) the contracting party may wish to have its GATT consultation scheduled at a particular time which does not fit the Fund’s schedule. For these reasons, the Fund has devised a variety of “holding” or “delaying” statements.

The preparation of advice to be given to the GATT can therefore not be a routine matter. It is handled at Executive Director level by the Committee on Liaison with the Contracting Parties to the GATT. As meetings of this committee are in practice attended by all Executive Directors with an interest in the matters on its agenda, it is usually possible to dispose of the committee’s reports, when they reach the Board, under the lapse of time procedure.

CONSULTATIONS HELD AND THEIR SIGNIFICANCE

By the process described above, the Contracting Parties undertook well over a hundred consultations from 1949 to 1965. After those in Torquay in November 1950, the next were held in Geneva in October-November 1952. These included consultations with Italy and the Netherlands on the continuance of discrimination, with France and Pakistan on the intensification of restrictions, and with Australia, Ceylon, and the United Kingdom on both discrimination and intensification. The revision in 1954–55 of the provisions of the GATT governing the use of import restrictions was undertaken principally to meet the emerging situation in which most countries no longer had balance of payments deficits of any consequence. But these provisions did not come into force until late in 1957 because the necessary number of acceptances had not been received earlier. Since several countries still maintained various import restrictions despite their strong balance of payments positions, the Contracting Parties made use of a clause in the old provisions, and in 1956 invited twenty-one countries to consult: Australia, Austria, Brazil, Ceylon, Denmark, Finland, France, Germany, Greece, India, Italy, Japan, the Netherlands, New Zealand, Norway, Pakistan, the Federation of Rhodesia and Nyasaland, Sweden, Turkey, the Union of South Africa, and the United Kingdom. These consultations took place in the second half of 1957.

After the revised rules had come into effect, a broad general review of outstanding quantitative restrictions was initiated in 1958, and the first annual consultations under the new rules took place with thirteen countries in 1959. Biennial consultations were begun in 1960 with several less developed countries that maintained import restrictions for balance of payments reasons under Article XVIII of the GATT.11

Inasmuch as the Fund has assisted the GATT in all these consultations, Fund collaboration with the GATT has become a significant part of the Fund’s work on restrictions. Cooperation between the two organizations has been close from the beginning, and the Fund’s findings have always been accepted. Staff of the Fund have not only participated in the General Sessions but also have frequently attended meetings of the Committee on Balance of Payments Restrictions and of various working parties. To facilitate the Fund’s participation in these various GATT activities, as well as to establish close contact with the UNCTAD, the Fund in 1965 set up its own office in Geneva.

This is not the place to consider just how effective the consultations held under the GATT have been in eliminating restrictions; but in view of the Fund’s interest, a few observations may be made. An independent appraisal of the GATT consultations held up to 1963 has come to the conclusion that they were blunt and hard-hitting, that they made European countries accountable for significant restrictions left untouched by the OEEC code of liberalization, and that they served to bring pressure on some European countries to remove import restrictions no longer needed in view of their balance of payments positions.12 From the Fund’s point of view, the last conclusion is the most important one: it seems safe to infer that, for the most part, countries which had relaxed restrictions covered by the Fund’s Articles did not substitute restrictions falling under the jurisdiction of the GATT.

1

Proceedings, p. 941.

2

For a detailed explanation of how the GATT is organized and how it works, see Gerard Curzon, Multilateral Commercial Diplomacy, Chap. II, p. 53.

3

Ervin Hexner, “The General Agreement on Tariffs and Trade and the Monetary Fund,” Staff Papers, Vol. I (1950–51), pp. 448–52.

4

Curzon, Multilateral Commercial Diplomacy, p. 136.

5

The provisions of the earlier rules can be found in Hexner, “General Agreement on Tariffs and Trade and the Monetary Fund,” pp. 436–43, 445–48.

6

Michael A. Heilperin, Answer to the State Department’s Comments on the Document, Basic Criticisms of the Havana Charter (October 1948), as cited in Curzon, Multilateral Commercial Diplomacy, pp. 134–35.

7

See Chapter 4 above, pp. 97–98.

8

See Chapter 11 above, pp. 230–31.

9

E.B. Decision No. 1034-(60/27), June 1, 1960; below, Vol. III, p. 261.

10

The process of Fund consultations is described in detail in Chapter 11 above. A brief statement contrasting Fund and GATT consultations procedures can also be found in Gardner Patterson, Discrimination in International Trade, footnotes 77 and 78 on pp. 62–63.

11

A list of the countries involved in GATT consultations from 1949 to 1963 is to be found in Curzon, Multilateral Commercial Diplomacy, Table 10, pp. 141–43.

12

Curzon, Multilateral Commercial Diplomacy, pp. 145–65.

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