Chapter

chapter 21 Special Exchange Agreements

Author(s):
International Monetary Fund
Published Date:
October 1985
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Obligations Under Special Exchange Agreement

Some of the topics discussed in Chapter 20 illustrate the technique of acting through members in order to affect non-members of the Fund and thus to mitigate the possibly disturbing consequences of the fact that nonmembers are not bound by the obligations of the Articles. A similar result has been sought by a different technique. Obligations comparable to those that bind members are imposed on nonmembers of the Fund under another multilateral international agreement as an alternative to membership in the Fund. The obligations are imposed by the “special exchange agreement” that is prescribed by the provisions of the General Agreement on Tariffs and Trade (gatt).

The Bretton Woods Conference concluded that a rational system for the legal regulation of international economic relations would require the establishment of an organization with jurisdiction over trade practices to complement the jurisdiction of the Fund over exchange practices. The question whether a particular practice must be classified as falling in the field of “trade” or of “exchange” or of both is determined by technical considerations, and often a country can achieve a particular economic effect by either a trade or an exchange measure or by a combination of the two. When the negotiation of an international trade organization was undertaken, it was not contested that obligations within its jurisdiction would be ineffective if countries assuming them were free from all restraint in connection with their exchange systems. The obvious solution would have been to require that all countries must belong to both the Fund and the contemplated trade organization. The solution, though logical, was impracticable, partly because some governments found it inexpedient at that time to join the Fund, and partly because there was no wish to obstruct the right of members to withdraw from the Fund with immediate effect if they found membership too onerous.

The problem was solved by Article XV of the gatt. Under paragraph 4 of that Article, contracting parties to the gatt “shall not, by exchange action, frustrate the intent of the provisions of this Agreement, nor, by trade action, the intent of the provisions of the Articles” of the Fund.1 The provision is remarkable because it binds contracting parties to respect the intent not only of the agreement to which they are parties but also of an agreement that they have not accepted.2 Paragraphs 6 and 7 of Article XV of the gatt provide:

6. Any contracting party which is not a member of the Fund shall, within a time to be determined by the Contracting Parties after consultation with the Fund, become a member of the Fund, or, failing that, enter into a special exchange agreement with the Contracting Parties. A contracting party which ceases to be a member of the Fund shall forthwith enter into a special exchange agreement with the Contracting Parties. Any special exchange agreement entered into by a contracting party under this paragraph shall thereupon become part of its obligations under this Agreement.

7. (a) A special exchange agreement between a contracting party and the Contracting Parties under paragraph 6 of this Article shall provide to the satisfaction of the Contracting Parties that the objectives of this Agreement will not be frustrated as a result of action in exchange matters by the contracting party in question.

(b) The terms of any such agreement shall not impose obligations on the contracting party in exchange matters generally more restrictive than those imposed by the Articles of Agreement of the International Monetary Fund on members of the Fund.3

At their third session, the Contracting Parties resolved that each existing contracting party that was not then a member of the Fund should enter into a special exchange agreement on or before the first day after November 1, 1949 on which the Contracting Parties were in session. Each government that became a contracting party in the future should enter into a special exchange agreement by that same date or within four months after it became a contracting party, whichever was later. A contracting party that ceased to be a member of the Fund should enter into a special exchange agreement within 30 days after ceasing to be a member.4

The Fund collaborated closely with the Contracting Parties in preparing a model special exchange agreement that would satisfy the provisions of the gatt. It was at one time thought that there would be a master text to which contracting parties that were not members of the Fund would adhere, with such modifications as might be necessary for each adherent. The Contracting Parties decided, however, that there should be a separate agreement with each such country, but a basic text was adopted by a resolution of the Contracting Parties on June 20, 1949.5 The special exchange agreement is an elaborate document of 14 articles and 42 paragraphs, notwithstanding the view held by a few negotiators that it should consist of no more than a few general principles. Four special exchange agreements have been entered into, but none remains in operation now. The basic obligation under the gatt of nonmembers of the Fund to sign an agreement still exists unless the Contracting Parties take some action to dispense with an agreement, and they have taken this action on various occasions.

The language of the model special exchange agreement follows the language of the Fund’s Articles with fidelity. Indeed, the model special exchange agreement employs even those obscurities of language that the Fund has been compelled to clarify by interpretation. The language of the Articles has been adapted only when this was unavoidable for technical reasons.

The provisions of the model special exchange agreement are designed to bind the signatory country to as orderly an exchange regime as if the signatory had joined the Fund, although certain qualifications, which will be noted later, were necessary because, after all, the signatory was not joining the Fund. Nevertheless, these qualifications must not obscure the fact that the substance of the special exchange agreement is remarkable in its scope and can be said to embrace virtually the whole of the code of conduct prescribed by the Fund’s Articles for members of the Fund.

The agreement begins with a general undertaking on the part of the signatory relating to exchange stability, the maintenance of orderly exchange arrangements with other contracting parties to the gatt, the avoidance of competitive exchange alterations, and the elimination of certain restrictions. The undertaking is adapted from Article I and Article IV, Section 4 (a), of the Fund’s Articles. The signatory is bound to establish a par value, in effect by agreement with the Contracting Parties, and by a procedure comparable to the one prescribed by Article XX of the Articles for the initial determination of a par value by a member of the Fund. The signatory undertakes obligations, similar to those of Article IV of the Articles, with respect to exchange transactions in its territories, gold transactions, and changes in par value. When the agreement, approval, or concurrence of the Fund would have to be sought by a member under the Fund’s Articles, the Contracting Parties are substituted for the Fund in the corresponding provisions of the special exchange agreement.

The signatory also undertakes, subject to other provisions in the agreement, to avoid restrictions on the making of payments and transfers for current international transactions, discriminatory currency arrangements, and multiple currency practices, in language based on Article VIII, Sections 2 and 3, of the Articles. There is a further undertaking with respect to the unenforceability of exchange contracts that are contrary to exchange control regulations maintained or imposed consistently with the Fund’s Articles or a special exchange agreement. This provision is drawn from Article VIII, Section 2 (b), of the Articles. Other provisions relate to the control of capital movements, scarce currencies, the convertibility of balances of the signatory’s currency held by other contracting parties, a transitional period, and the furnishing of information. These provisions are inspired by Article VI, Article VII, Article VIII, Section 4, Article XIV, and Article VIII, Section 5, of the Fund’s Articles.

Among the miscellaneous provisions, one worth special mention in this brief summary is the provision that makes the explanation of terms in Article XIX of the Fund’s Articles applicable whenever these terms appear in the special exchange agreement. This provision gives expression to an intention that there shall be uniform interpretation of the Fund’s Articles and the special exchange agreement.

Some general aspects of the special exchange agreement should be noted. First, the agreement does not represent any formal exception to the general rule that the obligations of a treaty are not binding on nonparties. The obligations of the Fund’s Articles are not binding as such on contracting parties that are nonmembers. Obligations based on the Articles are made to apply to the signatory of a special exchange agreement by virtue of its acceptance of the obligations of the gatt and its signature of a special exchange agreement with the Contracting Parties. It will be recalled that paragraph 6 of Article XV of the gatt declares that a special exchange agreement becomes part of the signatory’s obligations under the gatt.6 Nevertheless, the special exchange agreement is striking as a legal technique for imposing the substance of the provisions of a treaty on nonparties.

Second, whenever provisions of the Fund’s Articles are drafted in terms of other members of the Fund, the provisions of the special exchange agreement refer to other contracting parties. For example, the obligation of a signatory to ensure that exchange transactions taking place within its territories are within the prescribed margins from parity relates to transactions involving the currencies of the signatory and other contracting parties. Under these provisions, the signatory has no duty with respect to exchange transactions involving its own currency and the currency of a member of the Fund that is not a contracting party. Similarly, the obligation of a signatory to convert balances of its currency is confined to balances held by other contracting parties.

Third, although a special exchange agreement is entered into with the Contracting Parties, which have the responsibility for decisions taken under the special exchange agreement, and although the obligations are defined in terms of other contracting parties and not members of the Fund, certain findings and determinations on which the operation of the agreement depends are made by the Fund. In particular, the Fund determines whether actions in exchange matters are in accordance with the terms of the special exchange agreement, and the Contracting Parties must accept these determinations. The Fund’s role derives from paragraph 2 of Article XV of the gatt:

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. In such consultations, the Contracting Parties shall accept all findings of statistical and other facts presented by the Fund relating to foreign exchange, monetary reserves and balances of payments, and shall accept the determination of the Fund as to whether action by a contracting party in exchange matters is in accordance with the Articles of Agreement of the International Monetary Fund, or with the terms of a special exchange agreement between that contracting party and the Contracting Parties. The Contracting Parties, in reaching their final decision in cases involving the criteria set forth in paragraph 2 (a) of Article XII or in paragraph 9 of Article XVIII, shall 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.

Moreover, provisions in the special exchange agreement are designed to enable the signatory to put itself in direct contact with the Fund on exchange matters:

  • The Contracting Parties shall seek an understanding with the Fund to the effect that,
    • (a) Whenever the Contracting Parties consult the Fund on exchange matters particularly affecting the Government of ______, the latter will be offered an opportunity to present its case directly to the Fund, and
    • (b) The Government of ______ may initiate direct consultation between itself and the Fund in appropriate cases, provided that it shall notify the Chairman of the Contracting Parties upon such occasion that it avails itself of this right.7

Thus, the Contracting Parties are required by subparagraph (b) to seek an understanding on procedures that would simplify direct contact between the signatory and the Fund. A procedure was thought to be necessary because the Contracting Parties may not be in session when the signatory contemplates some action on an exchange matter.8 By arrangement between the Contracting Parties and the Fund, a procedure has been established whereby a signatory can consult the Fund directly if, when the Contracting Parties are not in session, the Chairman of the Contracting Parties seeks a determination from the Fund on the consistency of a proposed action with the signatory’s special exchange agreement. Furthermore, if the Fund determines that the action is consistent with the agreement, the signatory may act at once in accordance with that determination pending an opportunity for consideration by the Contracting Parties in session. A procedure has been established under subparagraph (a) also for direct consultation by a contracting party with the Fund on exchange matters particularly affecting that country on which the Contracting Parties have already initiated consultation with the Fund. A contracting party can act in accordance with a determination made by the Fund in these consultations also pending an opportunity for consideration of the matter by the Contracting Parties in session.9

Fourth, the resources of the Fund are available to members in accordance with the Articles to assist them to perform their obligations under the Articles. The signatory of a special exchange agreement has no access to the Fund’s resources to help it to observe the obligations of the special exchange agreement. As a result, some of the obligations in the special exchange agreement had to be different from their prototypes in the Articles. For example, Article IV, Section 6, of the Articles safeguards a member’s special interest in the par value for its currency by providing that, if a member changes the par value notwithstanding the objection of the Fund, in circumstances in which the Fund is entitled to object, the change is not regarded as a violation of the Articles. The Fund’s interests are protected by providing that the member becomes ineligible forthwith to use the Fund’s resources unless the Fund decides that the member shall continue to be eligible.10 The special exchange agreement deals with a change in par value by the signatory despite the objection of the Contracting Parties, in circumstances in which they are entitled to object, but the consequence cannot be any ineligibility to use the Fund’s resources and the Contracting Parties have none of their own. The only alternative was to provide that the signatory “shall be deemed to have failed in carrying out its obligations” under the special exchange agreement, even though this legal consequence was deliberately avoided by the drafters of Article IV, Section 6, of the Articles of the Fund.

Article VIII, Section 4, is another provision that had to be adapted for the purposes of special exchange agreements. It provides that if a member of the Fund tenders its holdings of a currency to the issuing member for conversion, the issuer must convert it with gold or the holder’s currency, but this obligation does not apply if the issuer is for any reason not entitled to make purchases from the Fund. The theory is that the issuer must convert only when it is entitled to use the Fund’s resources for the purpose.11 This theory is not applicable to conversion by a signatory for the benefit of other contracting parties under the obligations of a special exchange agreement. The provision in the agreement declares that the obligation does not apply, “[w]ith the approval of the Contracting Parties, in any particular circumstance in which the fulfillment of the obligations” of conversion “would dangerously threaten exchange stability.” It is not possible to compare the quantitative effects of this obligation with Article VIII, Section 4. The obligation under the special exchange agreement might require the signatory to convert larger or smaller amounts of its currency than it would have been required to convert had it been a member of the Fund and bound by Article VIII, Section 4.

Adaptation of the obligations of the Articles for the purposes of special exchange agreements has produced modifications even though the use of the Fund’s resources is not involved. For example, under Article VIII, Section 2 (b), certain exchange contracts must not be enforced by a member’s courts or administrative authorities if these contracts are contrary to the exchange control regulations of another member of the Fund. In effect, therefore, members cooperate with each other in support of their exchange controls by refusing judicial or administrative assistance to parties that invoke it in order to get the performance of contracts that violate exchange control regulations.12 The corresponding provision of the special exchange agreement does not ensure as broad a measure of cooperation. Exchange contracts are to be unenforceable in the territory of the signatory if they are contrary to the exchange control regulations of the contracting party whose currency is involved, provided that the regulations are maintained or imposed consistently with the Articles or the provisions of a special exchange agreement. Nothing in the Articles or the gatt, however, would give similar benefits to the signatory if a suit were brought in the territory of a member of the Fund to enforce a contract that was contrary to the signatory’s exchange control regulations. The only benefits that the signatory would enjoy as of right would be under the special exchange agreements of other signatories.

The variations in the obligations of the Articles that have to be made to adapt them to special exchange agreements may explain the word “generally” in the rule of paragraph 7 (b) of Article XV of the gatt, which provides that the terms of a special exchange agreement “shall not impose obligations on the contracting party in exchange matters generally more restrictive than those imposed by the Articles of Agreement of the International Monetary Fund on members of the Fund.”

Special Exchange Agreements in Practice

Four countries entered into special exchange agreements, which terminated, in accordance with their provisions, when the countries became members of the Fund. The periods in which these agreements were effective were as follows: Ceylon, April 2, 1950 to August 29, 1950; Haiti, February 23, 1951 to September 8, 1953; Indonesia, February 25, 1951 to April 15, 1954; Federal Republic of Germany, July 24, 1952 to August 14, 1952.13 The Fund performed a modest number of services under these special exchange agreements, especially those entered into by Haiti and Indonesia. With respect to these two countries it advised the Contracting Parties on par values, prepared reports on their restrictions on the making of payments and transfers for current international transactions, and provided certain information relevant to the agreements.

Certain other countries did not enter into a special exchange agreement because they joined the Fund before the period for signing an agreement had expired.14 The Contracting Parties adopted a special resolution that exempts a contracting party from the need to sign an agreement when the only currency in use is that of another contracting party and when neither country maintains exchange restrictions.15 The resolution was intended primarily for the benefit of contracting parties that are the nonmetropolitan territories of other contracting parties.16 The resolution provides that a contracting party that takes advantage of this exemption is deemed to have agreed to consult with the Contracting Parties on any exchange problem whenever they request consultation. Southern Rhodesia became a contracting party to the gatt but was not a member of the Fund. It did not sign a special exchange agreement because the United Kingdom had accepted the Articles in respect of Southern Rhodesia under Article XX, Section 2 (g).

The example of Sweden illustrates the way in which at one time countries may have come to a decision on whether to join the Fund or enter into a special exchange agreement. In Proposal No. 89 of February 10, 1950, the Government proposed that the Riksdag authorize the King to adopt the necessary measures to pay subscriptions to the Fund and the Bank, and to sign a special exchange agreement as required by the Havana Charter of the contemplated International Trade Organization or the gatt if that should become necessary. The preamble of the Proposal noted that all major states except Argentina, the U. S. S. R., and Switzerland had joined the Fund and the Bank. The preamble also noted that a country electing to enter into a special exchange agreement instead of joining the Fund accepted the main obligations of membership without becoming entitled to the rights and advantages of membership, but at the same time it avoided the obligation to pay a subscription. Furthermore, under a special exchange agreement Sweden might have to be in contact with the Fund, but would not be “directly represented in the Fund.” Sweden would not be able to participate in the proceedings of the Fund, and the procedures involving its contacts with the Fund might be lengthier under a special exchange agreement. Another disadvantage would be the lack of reciprocity in connection with the imposition of restrictions by Sweden against members of the Fund and their imposition of restrictions against Sweden, but this argument was made before June 7, 1950, on which date the Fund adopted Rule M-6 of its Rules and Regulations. The Rule is discussed in Chapter 22. The conclusion of the assessment was in favor of membership, and Sweden applied to join the Fund on June 16, 1950. A membership resolution became effective on July 6, 1951, and Sweden became a member on August 31, 1951.

Obligations in Absence of Special Exchange Agreement

The Contracting Parties have exercised their authority under paragraph 5 of Article XXV of the gatt to grant waivers of obligations imposed under the gatt by exempting certain contracting parties from the obligation to sign a special exchange agreement. Waivers were granted to both Czechoslovakia and Cuba after they ceased to be members of the Fund on December 31, 1954 and April 2, 1964, respectively. The decision of the Contracting Parties of March 2, 1955 granting a waiver to Czechoslovakia noted that “owing to special circumstances,” entry into a special exchange agreement “would raise a number of legal and practical difficulties” and that Czechoslovakia had given assurances that “it will act in exchange matters in a manner fully consistent with the principles of the [standard] special exchange agreement … and in accordance with the intent of the General Agreement.”17 The decision of August 7, 1964 granting a waiver to Cuba was similar to the waiver for Czechoslovakia.18 Both decisions followed the earlier precedent of the waiver for New Zealand in making the period of the waiver conditional on observance of the assurances by the contracting party, and requiring it to report certain information to and enter into consultation with the Contracting Parties. If a consultation should establish that an exchange action had been taken contrary to the intent of the gatt, the waiver would cease to apply and the obligations of paragraph 6 of Article XV would become operative.

New Zealand became a contracting party to the gatt on July 30, 1948 and joined the Fund on August 31, 1961. A waiver was granted by the Contracting Parties on January 19, 1955 by a decision that noted that “owing to special circumstances” New Zealand had not joined the Fund or signed an agreement, that it had taken no exchange action that had frustrated the intent of the gatt, and that it had given assurances that it would “continue to act in exchange matters in a manner fully consistent with the Fund’s principles and in accordance with the intent of the General Agreement.” The waiver was granted for as long as New Zealand satisfied the Contracting Parties that its action in exchange matters satisfied this criterion, and New Zealand was required to report to and consult the Contracting Parties in accordance with the decision.19

The Contracting Parties permitted a nonmember of the Fund, Switzerland, to dispense with the signing of a special exchange agreement by a technique that did not involve a waiver under paragraph 5 of Article XXV of the gatt. The technique adopted to take care of a number of difficulties was a “provisional accession” with reservations, including a reservation to paragraph 6 of Article XV of the gatt, which requires a nonmember of the Fund to enter into a special exchange agreement. The provisional accession was intended to provide time for solving the problems responsible for the reservations and thus prepare the way for permanent accession. An essential part of the procedure was a declaration of November 15, 1956 on Swiss monetary policy by the Swiss delegation at the eleventh session of the Contracting Parties. The declaration dealt with the par value and convertibility of the Swiss franc and related aspects of Swiss law and practice. It explained that membership in the Fund could result in sales of Swiss francs to members of the Fund that might prove incompatible with the maintenance of the stability of the currency. Although, for the reasons explained in the declaration, Switzerland did not wish to join the Fund or sign a special exchange agreement, Swiss monetary policy had “always been guided by the traditional principles of exchange stability and free transfers of payments.”20 The Swiss authorities concluded, therefore, that they observed the basic principles of sound monetary policy and the rules of the Fund. The Contracting Parties could rest assured that, as in the past, the Swiss authorities would refrain from action that might frustrate the intent of the gatt.21

The declaration of the Contracting Parties of November 22, 1958, which established the provisional accession of the Swiss Confederation, included the following passage:

The Government of the Swiss Confederation reserves its position with respect to the provisions of paragraph 6 of Article XV of the General Agreement. The Swiss monetary policy is set forth in the declaration made by the Government of the Swiss Confederation at the meeting of the Eleventh Session of the Contracting Parties on 17 November 1956, which is incorporated by reference into this Declaration. In this connexion the Swiss Confederation undertakes that it will act in exchange matters in accordance with the intent of the General Agreement and in particular undertakes not, by exchange action, to frustrate the intent of the provisions of the General Agreement. The Swiss Confederation agrees to consult with the Contracting Parties at any time, subject to thirty days’ notice, upon the request of any signatory to this Declaration which considers that the Swiss Confederation has taken exchange action which may have a significant effect on the application of the provisions of the General Agreement or is inconsistent with the principles and objectives of the Special Exchange Agreement annexed to the resolution of 20 June 1949.22

The declaration came into force on January 1, 1960.23

At their twenty-third session, on April 1, 1966, the Contracting Parties decided to admit Switzerland as a full contracting party. The representative of Switzerland signed a Protocol for Accession, and Switzerland became a full contracting party on August 1, 1966. Paragraph 5 of Part I of the Protocol reads as follows:

Switzerland also reserves its position with respect to the provisions of paragraph 6 of Article XV of the General Agreement, but undertakes that, so long as Switzerland is not a member of the International Monetary Fund, it will act in exchange matters in accordance with the intent of the General Agreement and in a manner fully consistent with the principles of the special exchange agreement as adopted by the Contracting Parties in their Resolution of 20 June 1949 (BISD, Volume II, pages 17 and 117), and confirms the explicit undertakings set out in its declaration at the meeting of the eleventh session of the Contracting Parties on 17 November 1956 (cf. document L/593). Switzerland shall report to the Contracting Parties promptly on any action taken by it which would have been required to be reported to the Contracting Parties had Switzerland signed the special exchange agreement as adopted by the Contracting Parties in their Resolution of 20 June 1949. Switzerland shall consult with the Contracting Parties at any time, subject to thirty days’ notice, upon the request of any contracting party which considers that Switzerland has taken exchange action which may have a significant effect on the application of the provisions of the General Agreement or is inconsistent with the principles and objectives of the special exchange agreement. If, as a result of such a consultation, the Contracting Parties find that Switzerland has taken exchange action contrary to the intent of the General Agreement, they may determine that the present reservation shall cease to apply and Switzerland shall thereafter be bound by the provisions of paragraph 6 of Article XV of the General Agreement.24

The technique by which Switzerland was permitted to refrain from signing a special exchange agreement was followed in the Protocol for Accession that Poland signed on September 18, 1967, and in accordance with which it became a contracting party on October 18, 1967. Paragraph 8 of Part I of the Protocol declares:

Poland reserves its position with respect to the provisions of paragraph 6 of Article XV of the General Agreement, but undertakes that, so long as Poland is not a member of the International Monetary Fund, it will act in exchange matters in accordance with the intent of the General Agreement and in a manner fully consistent with the principles laid down in the text of the special exchange agreement as adopted by the Contracting Parties in their Resolution of 20 June 1949. Poland shall report to the Contracting Parties promptly on any action taken by it which would have been required to be reported to the Contracting Parties had Poland signed the special exchange agreement. Poland shall consult with the Contracting Parties at any time, subject to thirty days’ notice, upon request of any contracting party which considers that Poland has taken exchange action which may have a significant effect on the application of the provisions of the General Agreement or is inconsistent with the principles and objectives of the special exchange agreement. If, as a result of such consultation, the Contracting Parties find that Poland has taken exchange action contrary to the intent of the General Agreement, they may determine that the present reservation shall cease to apply and Poland shall thereafter be bound by the provisions of paragraph 6 of Article XV of the General Agreement.25

The language of paragraph 8 of Part I of the Protocol for Accession for Poland was followed verbatim, save for the substitution of the word Romania for Poland, in paragraph 7 of Part I of the Protocol for Accession for Romania, in accordance with which Romania became a contracting party on November 14, 1971.26 Romania became a member of the Fund on December 15, 1972.

Hungary applied in July 1969 to become a contracting party. In the discussion of accession in a Working Party that met in December 1970, the representative of Hungary declared that his Government “at present … does not consider it opportune to raise the issue of joining the IMF.” Switzerland had made a similar statement, but Poland and Romania had not. The representative of Hungary was willing to accept an arrangement similar to the one signed by Poland. Paragraph 8 of Part I of the draft Protocol for Accession for Hungary follows the precedents of Poland and Romania.27

In the result, no special exchange agreement has been in operation since April 15, 1954, but when the Contracting Parties have released a country from the duty to enter into a special exchange agreement they have done so on condition that the intent of the gatt in exchange matters will not be frustrated. This condition binds the country to certain standards in connection with exchange matters that would have been the principles of a special exchange agreement, and any alleged departure from these standards could be examined at the request of a contracting party. The principles and standards reflect the provisions of the Fund’s Articles. Furthermore, the role of the Fund under paragraph 2 of Article XV of the gatt as the consultant of the Contracting Parties and as the organization that makes certain findings and determinations is not affected by the absence of a special exchange agreement. The Fund’s role under that provision remains essentially the same as it would be if the country had entered into an agreement, although the Fund might have additional functions if an agreement were entered into.

The concept of the special exchange agreement was attractive in its apparent symmetry. It was designed to achieve the objectives of the complementary monetary and trade organizations even though a country joined the latter only. What was overlooked was the fact that if a country left the monetary organization or failed to enter it, the country would have strong inhibitions about accepting detailed obligations that resembled those that would be binding on it if it were a member of the monetary organization. In one way or another, therefore, the Contracting Parties have dispensed with special exchange agreements and substituted obligations of a generality and ambiguity that have made them acceptable to contracting parties that were nonmembers of the Fund. In any event, the special exchange agreement and the waiver subject to conditions have lost much of their importance as techniques to impose obligations on nonmembers because of the great growth in the membership of the Fund.

International lawyers are familiar with the question whether the obligations of a treaty can or have become binding on all states, whether signatories or not, because the obligations have become transmuted into customary international law. Article 38 of the Vienna Convention on the Law of Treaties declares that “[n]othing in articles 34 to 37 precludes a rule set forth in a treaty from becoming binding upon a third State as a customary rule of international law, recognized as such.” The question whether a particular obligation has become part of customary international law is said by some authorities to depend on the law-making character of the treaty, the broad sweep of formal adherence to it, the de facto “reception” of its standards by states that have not formally adhered, and similar considerations. The experience of the Fund and the gatt shows that the obligations or the principles of a treaty, in the sense of the fundamental postulates that underlie the obligations, can be made to affect and even bind nonmembers without establishing the contention that the principles have become customary international law. This would seem to be the result of two independent lines of development: Article XI, Section 1, and even Article IV, Section 4 (a), under which nonmembers of the Fund can be affected through obligations laid on members, and the various actions of the Contracting Parties as a result of which obligations in exchange matters have been imposed on nonmembers with their consent.

The effect of the techniques that have been developed in the gatt is to bind countries that are not members of the Fund to observe complementary obligations in connection with both trade and exchange. The problem has arisen in the Fund of the extent to which a member of the Fund can be bound by obligations in connection with trade because it has not adhered to the gatt. As of September 9, 1973, 49 of the 126 members of the Fund had not become contracting parties to the gatt.28 The problem was whether in relation to such members a different meaning could be given to the obligation to avoid “restrictions on the making of payments and transfers for current international transactions.” Ordinarily, these words cover only those restrictions that take the form of a direct governmental limitation on the availability or use of exchange as such. That is to say, the obligation does not apply to measures that are formulated as restrictions on trade. The issue was whether a more extensive meaning could be given to the language of the Articles in its application to members that did not adhere to the gatt, on the theory that the drafters of the Articles had assumed that countries would belong to both the Fund and the trade organization. The Fund decided that it could not make this distinction among members and that the meaning of restrictions on the making of payments and transfers for current international transactions was the same for all members.29

1As to the meaning of “frustrate the intent,” see Jackson, World Trade and Law of GATT, pp. 482–86.
2The provision of the gatt differs, therefore, from the Code of Liberalisation of Capital Movements and the Code of Current Invisible Operations of the Organization for Economic Cooperation and Development (oecd), by which members of that organization undertake obligations that are largely supplementary to those imposed by the Articles of the Fund. Both Codes take note of the Fund’s Articles in their preambles, and require members of the oecd to “endeavour to extend the measures of liberalisation to all members” of the Fund. This obligation would bind any member of the oecd that was a nonmember of the Fund, and Switzerland is such a country. A member of the Fund that is a nonmember of the oecd is not bound to grant liberalized treatment under the Codes to Switzerland.
3Art. XV of the gatt established not only a general obligation of non-members of the Fund to enter into a special exchange agreement, but also a specific obligation to furnish such information “within the general scope” of Article VIII, Section 5, of the Fund’s Articles as the Contracting Parties “may require in order to carry out their functions” under the gatt (par. 8). “Specific requests should be prepared in consultation with the Fund and transmitted to the contracting parties concerned by the Chairman. Copies of all information received should be transmitted promptly to the International Monetary Fund.” See General Agreement on Tariffs and Trade, Basic Instruments and Selected Documents, Vol. II (May 1952), pp. 116–17. (Hereinafter referred to as GATT, Basic Instruments.)
4Jackson, World Trade and Law of GATT, p. 487. See also GATT, Basic Instruments, Vol. II, pp. 17–18, 115–16.
5GATT, Basic Instruments, Vol. II, pp. 115 ff. The text of the model special exchange agreement is reproduced in Appendix VI.
6One consequence of this is that Article XXIII of the gatt, which deals with the remedies of nullification or impairment of benefits under the gatt, can be applied to failures to observe the provisions of the special exchange agreement.
7Special exchange agreement, Art. XIII, par. 5; see Appendix VI below.
8GATT, Basic Instruments, Vol. II, pp. 128 ff.
9GATT, Basic Instruments, 3d suppl. (June 1955), p. 13.
10See Gold, “Unauthorized Changes of Par Value,” pp. 113–17.
11See Gold, Fund’s Concepts of Convertibility, pp. 13–15.
12Reciprocity is not a legal condition of the application of Article VIII, Section 2 (b), so that a member is bound to give another member the benefit of the provision even though the latter has failed to perform its obligation to give effect to the provision. See Gold, Cuban Insurance Cases and Fund’s Articles, pp. 47–48.
13Three other special exchange agreements were drafted but did not become effective.—Jackson, World Trade and Law of GATT, p. 491, n. 27.
14The Director-General of the Contracting Parties declared on February 20, 1967 that Barbados had become a contracting party with rights and obligations dating from November 30, 1966. Barbados did not join the Fund until December 29, 1970, but the question of a special exchange agreement seems not to have been raised.—GATT Doc. L/2753, February 20, 1967. See also Jackson, World Trade and Law of GATT, p. 490, n. 24.
15GATT, Basic Instruments, Vol. II, pp. 18–19.
16The question was considered whether Liberia fell under this resolution.—GATT, Basic Instruments, Vol. II, p. 127.
17GATT, Basic Instruments, 3d suppl. (June 1955), pp. 43–44. For amendment of the original decision, see ibid., 6th suppl. (March 1958), pp. 28–29, 38.
18GATT, Basic Instruments, 13th suppl. (July 1965), pp. 23–24.
19GATT, Basic Instruments, 3d suppl. (June 1955), pp. 42–43. For amendment of the original decision, see ibid., 6th suppl. (March 1958), pp. 32–34, 38.
20See “Declaration on Swiss Monetary Policy by the Swiss Delegation for the Contracting Parties to gatt,” GATT Doc. L/593, November 15, 1956.
21See GATT, Basic Instruments, 5th suppl. (January 1957), pp. 40–46.
22GATT, Basic Instruments, 7th suppl. (February 1959), pp. 19–20.
23GATT, Basic Instruments, 10th suppl. (March 1962), p. 58.
24GATT, Basic Instruments, 14th suppl. (July 1966), pp. 8–9.
25GATT Doc. L/2851, September 19, 1967, p. 5.
26GATT Doc. L/3601, October 21, 1971, p. 4.
27GATT Doc. Spec (72) 83, August 2, 1972 (Working Party on the Accession of Hungary), Annex I, pt. I, p. 11.
28Two of the 49 had been allowed to accede provisionally for a limited period pending the completion of negotiations for full accession, and 12 belonged to a group of countries to which the gatt had been applied by their former mother countries and to which it continued to apply de facto pending final decisions as to their future commercial policy.
29Decision No. 1034-(60/27), June 1, 1960, Selected Decisions, pp. 99–100. See Article VIII, Sections 2 and 3, and Procs. and Docs., p. 954.

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