The following sources provide additional references:
The General Agreement on Tariffs and Trade (Amended Text) and Texts of Related Documents. U.S. Department of State Publication 3758 (February 1950
Provisional Consolidated Text of the General Agreement on Tariffs and Trade and Texts of Related Documents. H.M. Stationery Office, Cmd. 8048 (September 1950)
Extension of Reciprocal Trade Agreements Act. Hearings before the Committee on Finance, United States Senate, 81st Congress, 1st Sess., Parts 1 and 2
Trade Agreements Extension Act of 1951. Hearings before the Committee on Finance, United States Senate, 82nd Congress, 1st Sess., Parts 1 and 2
Brown, Winthrop G. “General Agreements on Tariffs and Trade,” in Foreign Economic Policy for the United States, Seymour E. Harris, ed. (Cambridge, Harvard University Press, 1948), pp. 254-70
Hawkins, Harry C. “Problems Raised by the International Trade Organization,” in Foreign Economic Policy for the United States, Seymour E. Harris, ed. (Cambridge, Harvard University Press, 1948), pp. 271-86
Schwarzenberger, Georg. “The Province and Standards of International Economic Law,” The International Law Quarterly, Vol. 2, No. 3 (Autumn, 1948), pp. 402-20
Mr. Hexner, Assistant General Counsel of the Fund, was formerly a professor at the University of North Carolina. He is the author of International Cartels (Chapel Hill, N.C., 1945, London, 1946, Mexico, 1950), The International Steel Cartel (Chapel Hill, N.C., 1943), and Studies in Legal Terminology (Chapel Hill, N.C., 1941).
The thirty-one countries are the following: Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile, Cuba, Czechoslovakia, Denmark, Dominican Republic, Finland, France, Greece, Haiti, India, Indonesia, Italy, Liberia, Luxembourg, the Netherlands, New Zealand, Nicaragua, Norway, Pakistan, Southern Rhodesia, Sweden, Syria, Union of South Africa, United Kingdom, and United States. The Republic of China became a contracting party as of April 21, 1948, and renounced its adherence to GATT as of May 5, 1950. Lebanon became a contracting party on June 29, 1948, and gave notice on December 27, 1950 that it was withdrawing from GATT, to be effective as of February 25, 1951.
The following countries participated in tariff negotiations at Torquay, with the view of becoming contracting parties to GATT: Austria, the Federal Republic of Germany, Korea, the Philippines, Peru, Turkey, and Uruguay.
Throughout this paper, the following designations are used: GATT refers to the General Agreement on Tariffs and Trade; Contracting Parties, when written with capitals “C” and “P”, signifies the contracting parties to GATT acting in joint capacity; contracting parties indicates the parties individually; Havana Charter and ITO Charter refer to the Charter adopted at Havana, Cuba, in 1948, while Geneva Draft indicates the draft ITO Charter adopted in 1947 at Geneva, Switzerland; ITO stands for the International Trade Organization; Fund refers to the International Monetary Fund.
Article XXV of GATT enables the Contracting Parties to act as a unit whenever the provisions of GATT require “joint” action. The best example of the necessity for joint action is approval by the Contracting Parties of various trade measures of individual contracting parties. Such decisions of the Contracting Parties are taken by majority vote or by qualified majorities (e.g., Article XXV, par. 4 and 5). Joint actions of the Contracting Parties have something in common with what are generally referred to as “corporate functions”; but the fact that the Contracting Parties exercise, in specific matters, quasi-corporate functions is not evidence of a corporate personality for the Contracting Parties. In organizational as in other respects, the intention of the participants is decisive as to whether they wish to give to the Contracting Parties corporate structure; it is clear that the participants have not wished to establish a corporate personality.
This paper is a counterpart to the study, “The International Trade Organization and the Monetary Fund,” Staff Papers, Vol. I, pp. 136-73 (February 1950).
Article XV, par. 1, of GATT 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 Fund’s members have weighted votes in the administration of the Fund. In GATT, the “one country, one vote” system prevails.
Article XV, par. 2, of GATT is as follows:
“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.....”
The text of Article IV, Sec. 4(a) is as follows:
“Each member undertakes to collaborate with the Fund to promote exchange stability, to maintain orderly exchange arrangements with other members, and to avoid competitive exchange alterations.”
This provision reads:
“.... as soon as conditions permit, they [the Fund members] shall take all possible measures to develop such commercial and financial arrangements with other members as will facilitate international payments and the maintenance of exchange stability.”
The amended version of the relevant provision (Art. XXIX of GATT) requires that the contracting parties observe the general principles of the Havana Charter (1948). However, to enter into force, the amended version must be adopted by all contracting parties, and as of February 1, 1951, Chile had not accepted the amended text.
An interpretative footnote to Annex J states explicitly that a contracting party may justify discriminatory quantitative restrictions concurrently as balance of payments restrictions and as restrictions essential to the acquisition of products in short supply (Art. XX, par. 11(a)).
Article XII does not authorize import restrictions to prevent an unwanted inflow of foreign capital. Nor is Article XII concerned with quantitative export controls.
Article XII, par. 2(a), reads:
“No contracting party shall institute, maintain or intensify import restrictions under this Article except to the extent 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.
A contracting party whose reserves are less than desirable but not “very low” is not authorized by Article XII, par. 2(a)(ii), to use import restrictions in order to achieve even a reasonable rate of increase.
The Fund Agreement and special exchange agreements authorize the unilateral application of exchange controls to regulate capital movements. This authority will be frequently used to institute restrictions in order to prevent the outflow of reserves as capital transfers. Moreover, this authority may indirectly cover the use of quantitative restrictions to make effective authorized exchange controls to prevent capital flight (Art. XV, par. 9(b)).
There is no reason, however, to prevent the Contracting Parties from indicating in the process of consultation the advantages and disadvantages of certain economic and social measures pertaining to the domestic economy of a contracting party from the aspect of its external financial position.
The terms of GATT do not prevent the Contracting Parties from indicating in the course of consultation that the contemplated import measures are insufficient to correct the maladjustment in the contracting party’s balance of payments, and that restrictions more radical than those envisaged (or imposed) by the contracting party are desirable.
The following communiqué was issued by the Contracting Parties on December 13, 1950 in regard to consultation with eight contracting parties:
“Under Item Eight of the Agenda, consultations were held with the governments of Australia, Ceylon, Chile, India, New Zealand, Pakistan, Southern Rhodesia and the United Kingdom with respect to their import restrictions in accordance with Article XII, par. 4(b) of the General Agreement. In accordance with Article XV, par. 2 of the Agreement, the Contracting Parties also consulted with the International Monetary Fund.
“There was a full and frank discussion between the Contracting Parties, the consulting countries and the Fund, in which full information was presented and views and opinions were freely expressed.
“During the course of the consultations, the representatives of Belgium, Cuba, Canada and the United States expressed the view that the time had come when, with all due caution in the light of the uncertainties of the present situation, a progressive relaxation of the hard currency import restrictions of Australia, Ceylon, New Zealand, Southern Rhodesia and the United Kingdom might begin. This view was based upon their analysis of the favorable current situation of these countries and of the prospects in the coming year. Based upon its analysis, made available to the Contracting Parties, the Fund expressed the opinion that such relaxation would be feasible in these cases, but should be undertaken with due caution having regard to present circumstances. The representatives of Australia, Ceylon, New Zealand and the United Kingdom expressed the opinion that although the gold and dollar reserves of the Sterling Area had markedly improved, these views gave undue weight to the favorable factors in the developments of the past twelve months and that insufficient attention had been paid to the adverse factors operating in the present situation, the full force of which would not be felt until 1951. The representatives of Australia, New Zealand and the United Kingdom referred in particular to the new responsibilities which would be undertaken under the current rearmament programs.
“No suggestion was made during the consultations that it would be appropriate for Chile, India or Pakistan to engage in any further general relaxation of their restrictions on imports from the Dollar Area, and the International Monetary Fund was of the opinion that no further relaxations in the case of these countries were feasible in the present circumstances.
“The consultations accomplished a useful interchange of information and opinion, and the representatives of those governments whose restrictions were the subject of the consultations said that they had taken full note of the views expressed by other Contracting Parties and that these views would be conveyed to their governments for their consideration.”
The complaint procedure pursuant to Article XII, par. 4(d), cannot be applied to those quantitative restrictions which a contracting party alleges to have instituted on the basis of Article XV, par. 9(b).
Article XII, par. 2(a), of GATT expressly mentions special external credits and other available resources among the special factors to which due regard shall be paid.
Quantitative restrictions based on Article XV, par. 9(b), of GATT need not always serve balance of payments purposes since the underlying exchange measures do not always serve such purposes. Restrictions on current payments which are authorized by the Fund mostly—but not always—serve balance of payments purposes. In addition, restrictions on inflowing and outgoing capital transfers may be instituted for other than balance of payments purposes.
Annex J applies only to the United Kingdom, Ceylon, Canada, Southern Rhodesia, Union of South Africa, and Syria, which exercised an option in favor of Annex J. The contracting parties here enumerated cannot apply discriminatory import restrictions on the basis of Art. XIV, par. Kb) and (c) of GATT.
An interpretative note to Article XIV, par. 2, of GATT reads:
“One of the situations contemplated in paragraph 2 is that of a contracting party holding balances acquired as a result of current transactions which it finds itself unable to use without a measure of discrimination.”
The Fund Agreement does not use the term “common” membership. However, nonmetropolitan territories are covered by the membership in the Fund of their respective metropolitan territories. The provision of Article XIV, par. 3(a), of GATT may be used by a Fund member whose nonmetropolitan territories are contracting parties independently from their metropolitan territory (e.g., Southern Rhodesia).
On November 30, 1950, the Contracting Parties at Torquay agreed on a general waiver until January 1, 1952 of the obligations contained in the last paragraph of Part II, Article XX of GATT.
No doubt, the Fund’s fact-finding function extends also to consultations in the course of application of the provisions of a special exchange agreement.
Questions involving these criteria may arise in “cases” other than those involving import restrictions. However, the occurrence of such other “cases” will be very exceptional.
The relevant sentence of Article XV, par. 2, is the last sentence which reads:
“The Contracting Parties, in reaching their final decision in cases involving the criteria set forth in paragraph 2(a) of Article XII, 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.”
Article XV, par. 4, of GATT reads:
“Contracting parties 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 Agreement of the International Monetary Fund.”
A contracting party is not required to conclude a special exchange agreement so long as it uses solely the currency of another contracting party and so long as neither the contracting party nor the country whose currency is being used maintains exchange restrictions, provided further that the Contracting Parties are not of the opinion that the absence of a special exchange agreement may result in frustrating any provision of GATT. This special provision, based on a Resolution of the Contracting Parties adopted at the Third Session at Annecy, applies actually to Liberia only.
Article VIII, par. 1 and 2, are as follows:
“1. The contracting parties recognize that fees and charges, other than duties, imposed by governmental authorities on or in connection with importation or exportation, should be limited in amount to the approximate cost of services rendered and should not represent an indirect protection to domestic products or a taxation of imports or exports for fiscal purposes. The contracting parties also recognize the need for reducing the number and diversity of such fees and charges, for minimizing the incidence and complexity of import and export formalities, and for decreasing and simplifying import and export documentation requirements.
“2. The contracting parties shall take action in accordance with the principles and objectives of paragraph 1 of this Article at the earliest practicable date. Moreover, they shall, upon request by another contracting party, review the operation of any of their laws and regulations in the light of these principles.”
The interpretative note to Article VIII reads as follows:
“While Article VIII does not cover the use of multiple rates of exchange as such, paragraphs 1 and 4 condemn the use of exchange taxes or fees as a device for implementing multiple currency practices; if, however, a contracting party is using multiple currency exchange fees for balance-of-payments reasons with the approval of the International Monetary Fund, the provisions of paragraph 2 fully safeguard its position since that paragraph merely requires that the fees be eliminated at the earliest practicable date.”
The former text of Article XV, par. 9, was amended at the Third Session to make explicit that nothing in GATT shall preclude the application of authorized exchange measures.
The provisions of Article II, par. 6(a), are not applied by Chile since its Schedule of Concessions contains the following observation: “The duties included in the present Schedule VII are expressed in Chilean gold pesos of 0.183057 grammes of fine gold.” Neither are they applied by Nicaragua, whose Schedule contains the following: “The duties included in the present Schedule are expressed in Nicaraguan Gold Cordobas (one Gold Cordoba equals one Dollar, currency of the United States of America).”
There was intentionally no reference to provisional par values or provisional exchange rates in the Fund Agreement. (See Documents 177, 294, 333, 370, and 374, in Proceedings and Documents of United Nations Monetary and Financial Conference, Vol. I, pp. 220, 486, 554, 597, and 604).
The interpretative note states that:
“Multiple currency practices can in certain circumstances constitute a subsidy to exports which may be met by countervailing duties under paragraph 2 or can constitute a form of dumping by means of a partial depreciation of a country’s currency which may be met by action under paragraph 1 of this Article. By ‘multiple currency practices’ is meant practices by governments or sanctioned by governments.”
The provision of Article II, par. 3, of GATT has no bearing upon the problem here discussed.
In a customs union, the members of the union apply substantially the same duties and commerce regulations to trade with countries not included in the union. In a free trade area, two or more customs territories are connected in a group in which the duties and other restrictive regulations of commerce are eliminated in respect to products originating in the constituent territories of the group. Vis-à-vis nonmembers of the group, each member of the group may apply a separate customs regime and separate restrictions.
Article 5 of the Geneva draft reads as follows:
“Removal of Maladjustments within the Balance of Payments. 1. In the event that a persistent maladjustment within a Member’s balance of payments is a major factor in a situation in which other Members are involved in balance-of-payments difficulties which handicap them in carrying out the provisions of Article 3 without resort to trade restrictions, the Member shall make its full contribution, while appropriate action shall be taken by the other Members concerned, towards correcting the situation. 2. Action in accordance with this Article shall be taken with due regard to the desirability of employing methods which expand rather than contract international trade.”
Article XV, par. 3 of GATT reads:
“The Contracting Parties shall seek agreement with the Fund regarding procedures for consultation under paragraph 2 of this Article.”
The U.S. Department of State issued the following press release on December 6, 1950:
“The Governments participating in the General Agreement on Tariffs and Trade, now meeting in Torquay, England, will shortly take up the question of the future administration of the Agreement.
“In anticipation of this discussion, the executive agencies of this Government have reviewed the status of legislation affecting American participation in the General Agreement. This includes the Reciprocal Trade Agreements Act, which is scheduled to expire on June 12, 1951, the proposals to simplify our customs law and regulations, and the proposed Charter for an International Trade Organization.
“As a result of this review the interested agencies have recommended and the President has agreed, that while the proposed Charter for an International Trade Organization should not be resubmitted to the Congress, Congress should be asked to consider legislation which will make American participation in the General Agreement more effective. The many serious problems now facing our Congress and the legislatures of other countries, require that we concentrate on the trade programs that are most urgently needed and will most quickly produce concrete results.
“We must, of course, continue the Trade Agreements Act. This has become a fundamental part of our foreign policy. In addition, we should continue to build upon the trade-agreements program by developing machinery for the administration of the General Agreement so as to permit it to operate more continuously and effectively.
“The General Agreement on Tariffs and Trade came into force provisionally on January 1, 1948. It is the first multi-nation trade agreement concluded under the Trade Agreements Act. It is a landmark in the history of international commercial relations and represents the most constructive effort ever undertaken for the simultaneous reduction of trade barriers among the nations of the free world. Thirty-two governments are at present parties to the Agreement and seven more are expected to join at the conclusion of the tariff negotiations now being conducted at Torquay, England.
“The General Agreement has achieved remarkable results. There has not, however, been any administrative machinery to permit continuing consultation among the participating countries on the problems that arise in interpreting and applying the Agreement. This has been a serious handicap, since it has been difficult to handle matters of this kind solely through the semi-annual sessions of the participants themselves. It is important that this handicap be removed promptly if the Agreement is to do its full part in increasing trade among the free nations and in eliminating the commercial causes of international friction.
“To meet the need for improved organization, the United States will suggest to the other governments concerned the creation of the necessary administrative machinery, including a small permanent staff. Appropriate legislative authority for this purpose will be sought in connection with renewal of the Trade Agreements program.
“Before United States participation in the General Agreement can be made fully effective it will be necessary to simplify our customs laws and regulations in some respects. Certain provisions of the Agreement cannot be applied until this has been done. The Customs Simplification Bill introduced in the Congress last spring would accomplish most of the needed improvements in the customs laws. Congressional action in this field will again be requested next year.”
The President of the Board of Trade gave on February 8, 1951 the following written answers in the House of Commons to a question on ITO and GATT:
“As was made plain at the end of the Havana Conference, His Majesty’s Government had intended to recommend to Parliament in due course, if circumstances proved favourable, that the United Kingdom should ratify the Havana Charter. In the light however of more recent developments, His Majesty’s Government have come to the conclusion that there is no prospect in view of the International Trade Organization envisaged by the Havana Charter being established and developed as an effective instrument for fostering international trade.
“The House will no doubt be aware in this connection of the recent announcement by the United States Administration that they do not intend to submit to the new Congress the proposal that the United States should ratify the Charter. In these circumstances, His Majesty’s Government would not in any case propose to recommend to Parliament that the United Kingdom should ratify the Charter.
“This change in the situation with regard to the Charter, and the intention of the United States Administration to support the continuation and the development of the organisation of the General Agreement on Tariffs and Trade in lieu of the proposed International Trade Organisation, create a new situation which will require careful examination before His Majesty’s Government determine their attitude, particularly as to whether and how the General Agreement could be converted into an appropriate continuing instrument. The undertaking given in 1948, that opportunity would be afforded for debate in Parliament before any decision by His Majesty’s Government to ratify the General Agreement would be implemented, of course, still stands.”