Privileges and Immunities

In the case of International Bank for Reconstruction and Development and International Monetary Fund v. All America Cables and Radio, Inc., The Commercial Cable Company, Mackay Radio & Telegraph Company, Inc., RCA Communications, Inc., The Western Union Telegraph Company, ² a number of points of law connected with the Fund Agreement have been extensively argued. In particular, it is the first proceeding before a judicial or quasi-judicial tribunal in which there has been a detailed consideration of the effects under the domestic law of a member country of an interpretation adopted by the Executive Directors of the Fund under Article XVIII of the Fund Agreement. The novelty and importance of this issue warrant a statement of the history of this case to date even though, as noted below, it has not yet run its full course.

The proceeding arose as the result of a complaint filed on June 21, 1949 by the Bank and Fund with the Federal Communications Commission, a United States regulatory agency. On November 20, 1951, the Hearing Examiner delivered his Initial Decision. Final decision by the Commission is still pending because exceptions to the Examiner’s opinion have been filed by the parties.

The basis of the complaint was that the defendants, the cable companies, proposed to adopt revised tariffs of cable charges under which the Fund and Bank would be required to pay for their official messages the full commercial rates applicable to messages sent by private persons. Formerly, the same rates which had applied to messages sent by a foreign government to its territory from the United States had been applicable to the messages of the Fund and Bank. In many cases these rates were approximately one half of the commercial rates. The Fund and Bank contended that the revised tariffs were unlawful, on the ground that, as long as special governmental rates were in operation, the Fund and Bank were entitled to the same standard of treatment. At the time of this proceeding, special governmental rates were enjoyed, apart from the United States itself, by 35 members of the Fund and Bank. The complainants thus requested the Commission to prohibit the revised tariffs on the grounds that they were inconsistent with the Articles of Agreement of both the Fund and Bank, the (U.S.) Bretton Woods Agreements Act,³ the (U.S.) International Organizations Immunities Act, ⁴ and Section 202(a) of the (U.S.) Communications Act, 1934, as amended. ⁵ At the request of the Secretary of the Treasury, acting in his capacity as Chairman of the National Advisory Council on International Monetary and Financial Problems (NAC) , ⁶ the NAC was granted leave to intervene and participate in the proceedings, which the NAC did. In addition, at the request of the Hearing Examiner, a member of the legal staff of the State Department appeared to give testimony.

Most of the Initial Decision of the Hearing Examiner deals with that part of the complaint of the Fund and Bank which was based upon their charters. On this aspect of the case, the Hearing Examiner decided in favor of the Fund and Bank. As far as the complaint was based on the International Organizations Immunities Act and Section 202(a) of the Communications Act, 1934, as amended, the Hearing Examiner found for the cable companies. However, this did not affect his other findings, with the result, therefore, that the Fund and Bank have succeeded, at this stage of the proceeding, in establishing that they are entitled to foreign governmental rates.

It will be useful, before summarizing the Initial Decision of the Hearing Examiner, to refer to three provisions of the Fund Agreement and an interpretation of one of them which has been adopted by the Executive Directors. ⁷ Under Article IX, Section 7,

The official communications of the Fund shall be accorded by members the same treatment as the official communications of other members.

Section 10 of the same Article directs that:

Each member shall take such action as is necessary in its own territories for the purpose of making effective in terms of its own law the principles set forth in this Article and shall inform the Fund of the detailed action which it has taken. ⁸

Section 11 of the Bretton Woods Agreements Act has given “full force and effect” to Article IX, Section 7, in the United States, its territories, and possessions.

Article XVIII gives the Fund the power to interpret its own Articles:

(a) Any question of interpretation of the provisions of this Agreement arising between any member and the Fund or between any members of the Fund shall be submitted to the Executive Directors for their decision. . . .

(b) In any case where the Executive Directors have given a decision under (a) above, any member may require that the question be referred to the Board of Governors, whose decision shall be final. Pending the result of the reference to the Board the Fund may, so far as it deems necessary, act on the basis of the decision of the Executive Directors.

At the request of the NAC, the Executive Director for the United States raised certain questions in the Fund with respect to Article IX, Section 7, in answer to which the Executive Directors adopted an interpretation of that provision under Article XVIII. The gist of the interpretation was as follows: ⁹

(a) Article IX, Section 7 applies to rates charged for official communications of the Fund.

(b) A member which exercises regulatory powers over the rates charged for communications is not discharged of its obligation under the provision because the facilities for transmitting communications are privately owned or operated.

(c) The obligation under the provision is not satisfied if official communications of the Fund may be sent only at rates which exceed the rates accorded the official communications of other members in comparable situations. For example, the obligation of member A is not satisfied if the rate charged the Fund for its official communications from the territory of member A to the territory of member B exceeds the rate charged member B for its official communications from the territory of A to that of B.

The major aspects of the Hearing Examiner’s Initial Decision may be summarized as follows:

(1) The Articles of Agreement of the Fund and the Bretton Woods Agreements Act

(i) The meaning of “treatment”

The United States, in accepting the Articles of Agreement of the Fund, entered into an executive agreement authorized by Congress, with the result that the Articles became the law of the land. Executive agreements have a dignity similar to that of treaties, which are expressly made the law of the land by clause 2 of Article VI of the United States Constitution. Moreover, the Bretton Woods Agreements Act had expressly made Article IX, Section 7, of the Fund Agreement part of the domestic law of the United States. The United States was thus clearly bound by Article IX, Section 7, and the principal question, therefore, was whether “treatment” in that provision embraced rates or, as was contended by the cable companies, was confined to such matters as priorities and freedom from censorship.

The history of the drafting of Article IX, Section 7, gave no assistance on this question, although the language of the provision itself was broad and general enough to include rates. The Convention on Privileges and Immunities of the United Nations and the Convention on Privileges and Immunities of the Specialized Agencies had been acceded to by a number of countries, although not by the United States. These Conventions contained provisions which expressly included rates in the concept of the “treatment” of communications. At the very least, this indicated that a substantial number of countries regarded the subject of rates as properly comprehended by the term “treatment.”

(ii) The effect of the interpretation

Any uncertainty on the question in issue was dispelled by the Fund’s interpretation under Article XVIII. “This procedure for issuing interpretations binding member governments does indeed appear novel,” said the Hearing Examiner, “but it also appears to point the way toward speedy, uniform and final interpretations.” Interpretations under Article XVIII bound the United States because it had accepted the Articles of Agreement. Moreover, this had been recognized by Congress which, in Section 13 of the Bretton Woods Agreements Act, had directed the Governor and Executive Director of the Fund appointed by the United States to obtain an interpretation from the Fund as to its authority to use its resources for certain purposes, and if the Fund interpreted its authority to extend to any of these purposes, to propose and support an amendment of the Agreement negativing such authority.

The record in this proceeding included two letters from the Department of State signed by the Deputy Legal Adviser. These letters declared that the United States was obliged to conform to the provisions of the Fund Agreement, including the one which related to its interpretation. The United States was thus bound to act in accordance with the interpretation of Article IX, Section 7. The Hearing Examiner stated that he had reached his conclusion independently of these communications from the Department of State. However, the view of the Department was entitled to great weight and constituted an additional basis for his conclusion.

(iii) Formal objections to the interpretation by defendants

The cable companies advanced three objections to the particular interpretation in issue. First, the NAC had exceeded its authority in requesting the United States Executive Director to secure the interpretation. The Hearing Examiner held that the NAC had ample authority to make the request.

Second, the interpretation was ultra vires because the question with which it dealt did not arise between members or between any member and the Fund, but between private companies and the Fund. The Hearing Examiner held, however, that the meaning of the term “treatment” concerned all of the members of the Fund. The interpretation was expressly requested by the United States Executive Director in order to ensure uniformity of understanding among all members. It was true that the interpretation would affect private companies, but this could not limit the interpretation procedure of Article XVIII.

Third, the interpretation was not final because it could be appealed to the Board of Governors of the Fund. The Hearing Examiner was equally unable to accept this contention. The interpretation was adopted without a single dissenting vote, and all member governments had been formally notified of it. For the United States, the NAC had indicated that it had no intention of appealing to the Governors, and no other member government had taken any steps to initiate an appeal.

(iv) Alleged conflict with International Telecommunications Convention

The cable companies argued that the Fund’s interpretation of its Articles conflicted with the International Telecommunications Convention (signed at Atlantic City on October 2, 1947) and the Telegraph Regulations annexed thereto (adopted at the Paris Administrative Telegraph Conference, 1949). The Convention and Regulations provide for priority for “Government telegrams” but declare that they shall be charged as ordinary private telegrams. The definition of “Government telegrams” includes the telegrams of the United Nations, but not of the Fund or Bank or any other Specialized Agencies of the United Nations. The defendants thus argued that the earlier treaty, the Fund Agreement, had been superseded by the later conventions on telecommunications so far as concerned cable rates.

The Hearing Examiner held that, notwithstanding this conflict, the United States was bound to honor its obligations under the Fund Agreement as interpreted by the Executive Directors. The parties to the two sets of international agreements (Fund and telecommunications) were not identical, and the subject matters were in different fields. There was no evidence of a specific intent to override or limit the privileges or immunities in the Fund’s charter in the subsequent international conventions on telecommunications.

(v) Reciprocity

American cable companies granted reduced rates to the outbound messages of foreign governments where the telegraph authorities in the foreign country agreed to a division of the tolls on the basis of reduced rates. The Common Carrier Bureau of the FCC had pointed out that the cable companies might suffer a loss if they were bound to concede reduced rates for Fund cables to any country in which their foreign correspondents refused to settle on the basis of the lower tolls. The Bureau, though not questioning the binding effect of the interpretation on the United States Government and all its agencies, proposed that the cable companies be required to give special rates only where their foreign correspondents agreed to settle on that basis and granted such rates for messages inbound to the United States. Otherwise, argued the Bureau, the United States would be making a unilateral grant whereas all members of the Fund should have an equal and reciprocal obligation.

The Hearing Examiner did not agree. If the United States Government had an obligation, it should perform it, at least initially, independently of the compliance of other members. Furthermore, what was involved was not simply an exchange of privileges among a number of countries, but also the rights of the Fund as an entity distinct from its members.

(2) International Organizations Immunities Act

On July 12, 1946, the President of the United States, by Executive Order No. 9751, designated the Fund, among other international organizations, as an organization entitled to enjoy the privileges and immunities provided for by the International Organizations Immunities Act. Section 2 of that Act directed that “the treatment of official communications, the privileges, exemptions, and immunities to which international organizations shall be entitled shall be those accorded under similar circumstances to foreign governments.” The Fund relied on this provision as a further basis for its claim.

The Hearing Examiner dealt only briefly with this aspect of the Fund’s case. Since the Fund had succeeded on that part of its case which was based on the Articles of Agreement, consideration of its other contentions had little practical significance. The Hearing Examiner conceded that the language of Section 2 of the International Organizations Immunities Act was broad enough to embrace rates. However, he was unable to reach the conclusion that it did include rates mainly because of an expression of opinion by the Department of State very soon after the Act was passed that rates were not intended to be within the scope of the section. ¹⁰

(3) Section 202(a), Communications Act, 1934

Section 202(a) of the Communications Act, 1934, prohibits the making of any unjust or unreasonable discrimination in charges for like communication services. The Fund argued that, since the revised tariffs proposed by the defendants would continue to make reduced rates available to the United Nations, this was discriminatory against the Fund. This aspect of the case also was briefly disposed of by the Hearing Examiner. His main reason for not accepting the Fund’s argument was that the telecommunications conventions already referred to appeared to contemplate a difference between the rights of the United Nations and the rights of other international organizations.

There has also been a reference to the privileges and immunities of the Fund and Bank in a case instituted by another specialized agency of the United Nations, the International Refugee Organization (IRO). In International Refugee Organization v. Republic Steamship Corporation, the IRO brought suit against a Panamanian corporation in a federal district court for fraudulent breach of contract, and the question in issue was whether the federal courts had jurisdiction to entertain the suit. The court of first instance, in deciding that it did not have jurisdiction, ¹¹ pointed out that the plaintiff’s references to the Fund and Bank were not conclusive, since for them the question was specifically settled by Section 10 of the (U.S.) Bretton Woods Agreements Act:

For the purpose of any action which may be brought within the United States or its Territories or possessions by or against the Fund or the Bank in accordance with the Articles of Agreement of the Fund or the Articles of Agreement of the Bank, the Fund or the Bank, as the case may be, shall be deemed to be an inhabitant of the Federal judicial district in which its principal office in the United States is located, and any such action at law or in equity to which either the Fund or the Bank shall be a party shall be deemed to arise under the laws of the United States, and the district courts of the United States shall have original jurisdiction of any such action. When either the Fund or the Bank is a defendant in any such action, it may, at any time before the trial thereof, remove such action from a State court into the district court of the United States for the proper district by following the procedure for removal of causes otherwise provided by law.

It may be noted that, on appeal by the IRO, the jurisdiction of the federal courts was sustained. ¹² It was held that since, under Section 2(a) of the (U.S.) International Organizations Immunities Act, Congress had provided that organizations such as the IRO shall “to the extent consistent with the instrument creating them, possess the capacity . . . (iii) to institute legal proceedings,” this must mean that the organizations could go into the courts, and the only courts whose doors Congress could open were the federal courts. The court quoted with approval a dictum from another case to the effect that:

The broad purpose of the International Organizations Immunities Act was to vitalize the status of international organizations of which the United States is a member and to facilitate their activities. A liberal interpretation of the Act is in harmony with this purpose.

Unenforceability of Certain Exchange Contracts

In the earlier article in Staff Papers, an account was given of the Fund’s interpretation under Article XVIII of the first sentence of Article VIII, Section 2(b). This latter provision declares that:

Exchange contracts which involve the currency of any member and which are contrary to the exchange control regulations of that member maintained or imposed consistently with this Agreement shall be unenforceable in the territories of any member. . . .

The effect of the interpretation, it was explained, was that judicial or administrative authorities in member countries must not lend their assistance to the enforcement of exchange contracts falling within the provision. They can no longer ignore the exchange control regulations of other members and give such assistance on the ground that the exchange control regulations are against the public policy (ordre public) of the forum or because those regulations are part of a law which, under the private international law of the forum, does not govern the contract or its performance.

The neglect of Article VIII, Section 2(b), and its interpretation which was noted in the earlier article continues to be a feature of decided cases. Perutz v. Bohemian Discount Bank in Liquidation ¹³ may be cited as an example. The plaintiff in that case was the administratrix of the estate of her deceased husband, who had been an employee of a Czechoslovak banking corporation, the predecessor of the defendant. The husband had been a citizen and resident of Czechoslovakia and had entered into a contract in Prague with his employer under which he was entitled to a pension of 6,000 Czechoslovak korunas per month payable at the employer’s Prague office. The husband left Czechoslovakia in November 1940, became a citizen and resident of the United States, and died there on June 12, 1949. Pension payments were made up to October 31, 1942. Before his death, the husband had obtained an attachment of the defendant’s dollar funds in New York, and the present action was to recover the dollar equivalent of the korunas due in respect of the period from November 1, 1942. At all times, including the date when the contract was entered into, Czechoslovak exchange control regulations prohibited payments to nonresidents, in domestic or foreign currency, without the license of the exchange control authorities. Korunas had been deposited by the defendant in a blocked account in Czechoslovakia in the name of the husband, but withdrawals could not be made unless licensed. No license for payments from the account or in any other form had been granted.

The defendant relied, inter alia, on Article VIII, Section 2(b), of the Fund Agreement, the rationale of which was explained in its brief as follows:

. . . Under the Bretton Woods Agreement these restrictions are recognized. These restrictions forbid payment to the plaintiff. We feel that it is not the province of our courts to attempt to invalidate such restrictions by ordering payments out of the funds of the defendant to the plaintiff. . . .

In order to develop trade and commerce between the nations it is vitally necessary that foreign countries with a limited amount of dollars be enabled to use these dollars for current business, the importations of such goods as are deemed essential and the payment of such expenditures as may be necessary to stimulate their economy.

The foreign exchange restrictions are enacted for that purpose. If, however, they should be disregarded by our courts it would be impossible for such foreign countries to conduct any business with the United States or to maintain any deposits here for the purpose of current trade. The limited amount of these dollars could not possibly cover internal obligations in crowns or in the currency of whatever the foreign country might be. Any dollars which become available to such foreign country or to any of its nationals could immediately be attached and taken by creditors whose aggregate credits far outnumber the limited dollar resources of said country. This would effectually and completely stop any current banking or foreign trade by said country or its citizens.

The New York court of first instance ¹⁴ dismissed the plaintiff’s complaint, but did so for reasons which did not derive from the Fund Agreement. It held that the deposit of korunas in the blocked account in Czechoslovakia in the husband’s name was a performance of the contract in accordance with Czechoslovak law, the law which governed the contract since Czechoslovakia was the country in which it was made and to be performed.

On appeal, this decision was reversed and judgment given for the plaintiff by a majority of three of the five judges. No reference to the Fund Agreement appears in the opinions of either the majority or the minority judges. All of the judges held that the payment into the blocked account had not constituted performance of the contract. It was no more than an acknowledgment of the debt. The majority relied upon expert evidence to the effect that under Czechoslovak law, including the exchange control regulations, a license would be required before a judgment could be executed, but there was nothing to prevent a plaintiff from bringing an action and obtaining judgment in Czechoslovakia or elsewhere even though a license permitting payment had not been granted. Under Czechoslovak law, therefore, and under New York law, too, the plaintiff could get a judgment establishing the defendant’s liability. It then followed, the majority held, that the judgment could be satisfied from the defendant’s New York funds which had been attached. There was no reason why execution should be stayed until a Czechoslovak license was granted. Czechoslovak currency regulations could have no control over funds situated in New York. Nor could they affect remedial or procedural matters, since these are regulated by the law of the forum. To hold otherwise would give “undue” effect to foreign law.

The two minority judges agreed that the plaintiff could and should have judgment, since if the complaint were dismissed this would defeat any subsequent suit in New York, Czechoslovakia, or elsewhere. However, the fact that the plaintiff could sue in New York should not give her greater rights than she would have enjoyed had she sued in Czechoslovakia, the place where the contract was made and to be performed. Accordingly, the minority judges, although willing to enter judgment for the plaintiff in terms of dollars, the only currency in which an American court can award judgment, would, nevertheless, have stayed execution until the plaintiff obtained a Czechoslovak license. At the same time, the minority would have continued the warrant of attachment of the defendant’s funds to the extent of the judgment until payment was made. ¹⁵

Capital Controls

In Catz and Lips v. S.A. Union Versicherung, ¹⁶ the Fifth Chamber of the Civil Tribunal of Antwerp has discussed the problem of the international recognition of capital controls. In this case, also, no mention was made by the court of Article VIII, Section 2 (b). However, the court did concern itself with the impact of the Fund Agreement, and found that another provision in the Articles required the recognition of the exchange control regulations of another member of the Fund.

In July 1934, the Union Company of Prague authorized the firm of Voorhoeven and Schouten of Amsterdam to enter into certain insurance contracts in the Netherlands on its behalf. Voorhoeven entered into such contracts on behalf of Union, but, because of wartime circumstances and postwar financial measures, claims of the insured under the contracts had not been paid. Some of the contracts were entered into by Voorhoeven with the firm of Catz and Lips of Rotterdam as agents for the insured. Catz and Lips gave credit notes to the insured for the amounts of their claims against Union. On January 1, 1948 the insured assigned their rights against Union to Catz and Lips, and Voorhoeven executed an acknowledgment of the indebtedness of Union to Catz and Lips. Voorhoeven had no funds of Union in their possession. Catz and Lips sought, therefore, to attach some funds of Union held by an agent of Union in Antwerp.

The court found that the assignment by the insured to Catz and Lips was valid and that Voorhoeven had the authority to sign the acknowledgment of indebtedness of Union to Catz and Lips. Nevertheless, Catz and Lips could not succeed. An agreement of November 15, 1946 between Czechoslovakia and the Netherlands prohibited the transfer of funds from one contracting country to the other whenever the payment was in respect of debts incurred prior to December 20, 1945, which was the case with the claims of the insured against Union. This agreement was concluded, the court said, “in execution” of the Fund Agreement, Article VI, Section 3 of which declares that “members may exercise such controls as are necessary to regulate international capital movements.” ¹⁷ Czechoslovakia, Belgium, and the Netherlands were all members of the Fund. Catz and Lips in the Netherlands would not have been able to obtain direct payment from Union in Czechoslovakia. ¹⁸ They could not secure indirect satisfaction by getting an order for the transfer of Union’s funds in Belgium to the Netherlands. This would be contrary to the laws of all three countries. ¹⁹

The Catz and Lips case may be taken to support the following suggestion by a leading authority on monetary law:

A similar duty [i.e., to the duty of members under Article VIII, Section 2(b) of the Fund Agreement] may flow from treaties even in those cases in which they have not been incorporated into the law of England. As has been pointed out, the Bretton Woods Agreement does not express or imply a duty to establish restrictions of capital transfers, but merely grants the power to do so, and in its exercise the United Kingdom has undertaken in a number of Agreements to prevent unauthorized capital transfers. Where such an obligation exists, is it not for an English court a matter of public policy to ensure its implementation, even though the treaty does not form part of English law? It is submitted that the answer should be in the affirmative and that it is this ground which should lead in many cases to the dismissal of actions of the type exemplified by Kahler v. Midland Bank Ltd., and Frankman v. Zivnostenska Banka. ²⁰

The Catz and Lips case goes even further than this suggestion, since it was the court of a third member of the Fund, Belgium, which recognized the capital controls established by an agreement between two other members, Czechoslovakia and the Netherlands. ²¹

Gold Subsidies

Toward the end of 1947, the Canadian Government consulted the Fund on a subsidy which it proposed to pay to its gold producers. As a result, on December 11, 1947, the Fund issued two statements to its members, a general statement of policy on subsidies to gold producers, and a statement dealing with the particular proposal of the Canadian Government. The Canadian plan was later embodied in a statute, the Emergency Gold Mining Assistance Act, 1948. ²² This Act has now been involved in two cases decided by the Manitoba courts, San Antonio Gold Mines Ltd. v. Attorney-General for Manitoba and Jeep Gold Mines Ltd. v. Attorney-General for Manitoba. ²³

Where a member of the Fund wishes to grant a subsidy to its gold producers, the main problem which arises under the Fund Agreement is whether the contemplated subsidy is consistent with Article IV, Section 2:

Gold purchases based on par values.—The Fund shall prescribe a margin above and below par value for transactions in gold by members, and no member shall buy gold at a price above par value plus the prescribed margin, or sell gold at a price below par value minus the prescribed margin. ²⁴

Clearly, the payment of a subsidy to gold producers by a government which is purchasing the output of those producers may amount to the payment of a price in excess of the par value plus the prescribed margin. It must be decided, therefore, when a subsidy has this effect within the intent of Article IV, Section 2. For the understanding and solution of this problem, reference must be made to the history of the drafting of the provision at the Bretton Woods Conference.²⁵

It is apparent from the documents of the Conference that, in the drafting of the provision, there were two main competing proposals with respect to subsidies for gold producers. On the one hand, there were proposals that the provision should be subject to some form of express exception in favor of bonuses for domestic producers. On the other hand, there was support for a provision which would incorporate no exceptions of any kind. The result was a compromise. No explicit exception was made in Article IV, Section 2 for any particular practice for the encouragement of gold production. At the same time, however, it was recorded in the Committee reports of the Conference that the provision did not prevent members from encouraging their gold mining industries “by means other than paying a higher price,” ²⁶ and it was noted further that this “reconciled the different views and tendencies.”²⁷

The history of the drafting of Article IV, Section 2, makes it impossible, therefore, to give the word “price” in that provision either of two otherwise defensible meanings. But for the legislative history, it might have been possible to conclude that the “price” is simply the quid pro quo which changes hands in the transaction of purchase and sale. “Price” would then mean the pecuniary consideration embodied in the contract of purchase and sale. On this view, all subsidies (except the “subsidy” involved in the single payment of a higher consideration in the contract of purchase and sale), whatever their form, would never constitute part of the “price.” Such a view, however, would amount to the complete acceptance of one of the competing proposals which was urged in the drafting of the provision, but which was obviously not accepted in full.

If it had been intended that domestic gold production might be encouraged by any form of subsidy, there would be no reasonable explanation for the refusal at Bretton Woods to accept the proposal that express exception should be made in favor of domestic gold production. Nor would there have been any reason for adopting the formula of the Committee report that a member may encourage gold production by any means other than paying a higher price, or for the statement that the language of the provision represents a reconciliation of competing views.

The other view of “price,” which might have been possible but for the record of the deliberations of the Conference, is that the drafters intended the word to embrace all financial benefits granted to its gold producers by a member which purchases their output from them. On this view, all forms of subsidy would be part of the “price,” and if the result were to increase what the gold producers receive from their government beyond the equivalent of US$35 per ounce plus the prescribed margin, the member would be acting inconsistently with its obligation under Article IV, Section 2. However, the records of the Conference nowhere state that subsidies are to be invalid as such. It is true that there was agreement not to include an express authorization for bonuses, but at the same time care was taken to avoid any statement that Article IV, Section 2, prohibits financial aid. The formula which was adopted (“encouraging local gold mining by means other than paying a higher price for gold”) seems to have been drafted with the deliberate intention of avoiding any statement that financial aid would necessarily be in violation of Article IV, Section 2.

The conclusions drawn by the Fund were that the drafters did not intend to accept as valid or reject as invalid all forms of subsidy, and that, with one exception, abstract or automatic tests could not be established to differentiate among subsidies for the purposes of Article IV, Section 2. The one exception is that any subsidy which takes the form of a uniform payment per unit of gold would be regarded as part of the price. Subject to this exception, the Fund must determine, on a case to case basis, whether, on a reasonable view of the circumstances of each case, a proposed subsidy so resembles “price” that it must be considered as part of the “price.”

These conclusions were incorporated in the general statement of policy of December 11, 1947:

The International Monetary Fund has a responsibility to see that the gold policies of its members do not undermine or threaten to undermine exchange stability. Consequently every member which proposes to introduce new measures to subsidize the production of gold is under obligation to consult with the Fund on the specific measures to be introduced.

Under Article IV, Section 2 of the Articles of Agreement of the Fund members are prohibited from buying gold at a price above parity plus the prescribed margin. In the view of the Fund, a subsidy in the form of a uniform payment per ounce for all or part of the gold produced would constitute an increase in price which would not be permissible if the total price paid by the member for gold were thereby to become in excess of parity plus the prescribed margin. Subsidies involving payments in another form may also, depending upon their nature, constitute an increase in price.

Under Article IV, Section 4(a) each member of the Fund, “undertakes to collaborate with the Fund to promote exchange stability, to maintain orderly exchange arrangements with other members, and to avoid competitive exchange alterations.” Subsidies on gold production regardless of their form are inconsistent with Article IV, Section 4(a) if they undermine or threaten to undermine exchange stability. This would be the case, for example, if subsidies were to cast widespread doubt on the uniformity of the monetary value of gold in all member countries.

Subsidies which do not directly affect exchange stability may, nevertheless, contribute directly or indirectly to monetary instability in other countries and hence be of concern to the Fund.

A determination by the Fund that a proposed subsidy is not inconsistent with the foregoing principles will depend upon the circumstances in each case. Moreover, the Fund may find that subsidies which are justified at any one time may, because of changing conditions and changing effects, later prove to be inconsistent with the foregoing principles. In order to carry out its objectives, the Fund will continue to study, and to review with its members, their gold policies and any proposed changes, to determine if they are consonant with the provisions of the Fund Agreement and conducive to a sound international policy regarding gold.

The subsidy which the Canadian Government proposed to pay and which was subsequently elaborated and enacted in the Emergency Gold Mining Assistance Act took the following form: Assistance would be given for a period of three years beginning on December 1, 1947, provided that in any year the production of gold was not less than 70 per cent of the value of the total output of the mine. For each mine, the size of the subsidy would be determined by taking half the amount by which current production costs exceeded $18 per fine ounce. For example, if costs were $28, the subsidy would be $5, i.e., half of $10. This sum would be paid only in respect of production in excess of two thirds of the output during a base year which ended on June 30, 1947. New mines would be paid a subsidy on their entire production for the first year, and for the subsequent two years on the amount by which current production exceeded two thirds of the output during the first year.

It will be observed that this plan did not involve the payment of a fixed amount for each additional unit of production. Variable amounts were to be paid, were to help meet the increased costs of production, and were to be dependent on the actual costs incurred by each mine. The Fund’s views on this proposal were expressed in the following statement:

The Canadian Government has consulted with the Fund regarding its proposed gold production subsidy and has today made an announcement on this subject. The Fund has examined the present Canadian proposal in the light of its own general statement of policy published today. The Fund has determined that in the present circumstances the proposed Canadian action is not inconsistent with the policy stated by the Fund.

The issue in the two Canadian cases was whether the plaintiffs, operators of certain gold mines, were liable to pay royalty tax under the Manitoba Royalty and Tax Act ²⁸ in respect of the subsidy received by them under the Emergency Gold Mining Assistance Act. The royalty tax was payable on “the income derived from the operation of the mine,” and “income” was defined as “net profit derived . . . from mining operations.” “Net profit” was to be ascertained by deducting certain specified expenses, payments, and allowances from “the gross revenue from the output of the mine.” The problem, therefore, was whether the subsidy paid by the Dominion Government was part of the “income” of the plaintiffs for the purposes of the Provincial statute. The problem of “income” was not the same as the Fund’s problem of “price,” but there is nevertheless a certain similarity between them, which extends, moreover, to the solutions adopted. The Manitoba King’s Bench and Court of Appeals held that the subsidy was not “income.” Canada’s adherence to a fixed price for gold and the increased cost of production had made it necessary to give aid to gold mines in order to enable them to remain in operation. The subsidy was not paid in respect of all gold produced in Canada. Moreover, it was paid after production, in relation to the costs of production, and for the purpose of overcoming operational deficits. Thus, although the subsidy might be income derived “as a result” of the operation of the mine, it was not “income derived from the operation of the mine” within the meaning of the Manitoba royalty tax statute.

The decision of these cases did not involve any discussion of the Fund Agreement or the Fund’s statements on gold subsidies. It appears that an attempt was made on behalf of the Attorney-General for Manitoba to base an argument on the Fund’s statements. However, the only reference to them in the judgments is the following paragraph in the opinion of the Chief Justice of the King’s Bench: ²⁹

At the opening of the trial Mr. Allen tendered in evidence the Annual Report of the International Monetary Fund, April 30, 1948, pp. 79, 80, and 81. These were two appendices: VI—Statement on Gold Subsidies communicated to all members, and VII—Fund’s Statement on the Canadian Government’s proposed gold production subsidy communicated to all members. Mr. Haskin objected to the admissibility of these and it was arranged that these parts of the document should be admitted subject to his objection. Mr. Allen did not refer to them in his argument. I am satisfied they were not admissible and have disregarded them.

Presumably, the reason for this view is the strictness of the English rules, followed in Canada, excluding extrinsic aids in the interpretation of statutes.³⁰

April 3, 1952

Balance of Payments Yearbook

These Yearbooks make available to the public much of the balance of payments information that the Fund has gathered for operating purposes. They present a systematic record of balance of payments developments in individual countries, arranged in a standard form to facilitate international comparison. For most countries, balance of payments statements are also presented in a financing form, illustrating the manner in which surpluses or deficits were financed.

Volume 4, which should be used in conjunction with previous volumes, covers 65 countries and territories. The regional tables which appeared in earlier volumes have been greatly expanded, and the financing tables are used as the main vehicle for illustrating changes in balance of payments positions. A table summarizing the financing statements for individual countries on a dollar basis has been added, to provide a convenient means of reviewing balance of payments developments in the world as a whole. Price for each Yearbook: US$5.00 for library bound buckram and US$4.00 for paper bound volume, or approximately equivalent prices in currencies of most countries.

International Financial Statistics

This journal is a standard source of statistics on all aspects of domestic and international finance. For all countries of the world it reports monthly current data on exchange rates, gold and foreign exchange holdings, international trade, balances of payments, money supply, bank assets, interest rates, and other related items. Each issue also normally includes a special article with tables and charts on subjects such as Changes in Price Relationships Since the Devaluation, Changes in Money Supply, Ownership Distribution of Government Debt, etc. The annual subscription rate for 12 issues postpaid is US$5.00, or the approximate equivalent in currencies of most countries. Single copy US$1.00. The journal may also be dispatched airmail at the expense of the subscriber.

International Monetary Fund

1818 H Street, N. W.

Washington 25, D. C, U. S. A.