The Liberalization of Intra-European Trade in the Framework of OEEC

IN THE YEARS following World War II, there has been a growing measure of agreement that the recovery of Western Europe and its prosperity would depend to a considerable extent on closer political and economic coordination between West European countries than had been achieved in the past. Various schemes with a view to the realization of this objective have been launched in the last few years. This paper examines one aspect of the efforts made within the framework of the Organization for European Economic Cooperation (OEEC) to move toward this objective in the field of trade.1

Abstract

IN THE YEARS following World War II, there has been a growing measure of agreement that the recovery of Western Europe and its prosperity would depend to a considerable extent on closer political and economic coordination between West European countries than had been achieved in the past. Various schemes with a view to the realization of this objective have been launched in the last few years. This paper examines one aspect of the efforts made within the framework of the Organization for European Economic Cooperation (OEEC) to move toward this objective in the field of trade.1

IN THE YEARS following World War II, there has been a growing measure of agreement that the recovery of Western Europe and its prosperity would depend to a considerable extent on closer political and economic coordination between West European countries than had been achieved in the past. Various schemes with a view to the realization of this objective have been launched in the last few years. This paper examines one aspect of the efforts made within the framework of the Organization for European Economic Cooperation (OEEC) to move toward this objective in the field of trade.1

Intra-European trade has traditionally played an important part in the economy of European countries. Commercial relations have been most intensive between the industrialized countries of Western Europe, which have carried on a considerable trade with each other both in manufactured products and in such industrial raw materials as they produce in substantial quantities (coal, iron ore, basic chemical products, etc.). Trade has also been very active between such countries as Denmark, the Netherlands, and Italy, whose staple exports have included agricultural products for which the neighboring highly industrialized and densely populated countries have been a natural outlet.

With the depression of the thirties, international trade declined sharply, and normal trade relations between European countries were disrupted by the widespread tendency to protect domestic markets. World War II and the German occupation of most West European countries carried this disruption much further, and generalized recourse to import and export restrictions and exchange control resulted in an almost complete insulation of national markets and resources.

In the years immediately after the war, with the considerable reduction in the productive capacity of Western Europe, the requirements of reconstruction, and the needs of increased populations, there was little that could be gainfully traded between the countries of the region. Strong inflationary pressures were at work in most domestic markets, and the need to protect reserves was a dominant motive in national monetary and trade policies. Governments had both to limit the total amount of imports to the financing facilities available and to allocate foreign exchange resources to the satisfaction of those needs regarded as the most essential. In general, West European Governments chose to achieve these ends by maintaining most of the features of the control apparatus set up during the war. For trade controls, two main instruments were used.

In some countries the import of certain “basic” or “essential” products, mostly basic foodstuffs or raw materials, continued, as in wartime, to be reserved to government agencies or to groups of traders under the direct control of the state. The main purpose of state trading was originally to avoid competition between private buyers in a sellers’ market and to achieve more favorable contracts through bulk and long-term purchases. While not restrictive in all instances, this method of conducting trade was found to be particularly useful as a means of direct control over large sectors of the national economy. Interest in maintaining the system declined with the passage from a sellers’ to a buyers’ market and with the abandonment of central planning methods in most West European countries, and its role has lately tended to diminish.

In the early postwar years there was also widespread recourse to quantitative restrictions, which were considered a most effective method of achieving the financial and trade objectives of the time. But it was soon recognized that they could serve other purposes as well. Thus, from a domestic policy point of view quotas came to be regarded as an instrument which, in conjunction with state trading, could be used to control the national economy. Moreover, while originally the imposition of quota restrictions had little or nothing to do with the protection of “uneconomic” national industries, whose development had been fostered by shortages during and after the war, the significance of quotas as instruments of protection became gradually more important. Tariffs had become less effective because in most countries the tariff system in force after the war was outdated, and widespread changes in international prices had destroyed much of its significance. In addition, it was recognized that quotas could be used in a more flexible way than tariffs, with a view to protecting certain national interests and to serving bargaining purposes in international trade relations. In a region where the degree of protection afforded by tariffs had traditionally varied considerably among countries, the latter feature of quota restrictions was to prove a formidable obstacle to their removal.

The gradual expansion of production permitted substantial progress toward the restoration of the traditional network of trade in Western Europe. The existence of certain mutual credit arrangements, limited transferability of sterling and of other currencies, and drawing rights applied since 1948 made possible some relaxation of restrictions, but the process was slow and strong elements of discrimination could not be removed. Failure to develop a system capable of ensuring adequate transferability among the currencies concerned made radical departure from generalized discriminatory practices impossible, and it became more and more difficult to avoid a downward bilateral balancing of trade. Faced with these difficulties and pending the eventual restoration of general convertibility and multilateral trade, West European countries joined in a concerted effort in 1948 to devise a system of trade and payments among themselves that would be freer and more effective than the relations established by the makeshift methods hitherto followed.

Attack Against Quota Restrictions in Intra-European Trade

OEEC approach to trade liberalization in pre-EPU period

Created in 1948, the Organization for European Economic Cooperation was given broad powers in the economic, financial, and social fields with a view to the “achievement of a sound European economy” and a “close and lasting cooperation between the participating countries.” In signing the Convention that gave birth to the OEEC, the contracting parties agreed, inter alia, to “develop … the maximum possible interchange of goods and services …, [to] continue the efforts already initiated to achieve … a multilateral system of payments among themselves …, [to] cooperate in relaxing restrictions on trade and payments between one another.…”2 The members of the OEEC are Austria, Belgium, Denmark, France, the Federal Republic of Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Sweden, Switzerland, Turkey, and the United Kingdom.3

These aims were regarded from the outset as elements of a wider design toward which the action of the OEEC was to move, namely, the progressive achievement of a “single market” extending over all the member countries and their dependent territories, or of a situation as closely resembling a “single market” as is feasible in present world conditions. Any identification of the “single market” as an area tending toward self-sufficiency was rejected in the Convention, and the intention of the contracting parties to direct their efforts toward worldwide multilateral trade and convertibility was reaffirmed each time a new step was taken in the direction of further integration. It was considered that the restoration of a freer flow of trade between the member countries, after years of economic disintegration, would strengthen their economies through a more rational use of economic resources over a wide area, and hasten the time when the freedom progressively instituted within the area could be extended to countries outside it without major risks of disruption. Meanwhile, member countries were left free to determine the nature and degree of freedom in their economic and financial relations with the outside world and, in fact, these have varied widely both from country to country at any given time and for certain countries from time to time.

The “Code of Liberalization of Trade,” in which the rules of commercial policy of member countries in the OEEC framework were first set forth in 1950, and which is the main concern of this study, formally recognized this view in its preamble,4 and in Article 1 recalled that the measures of liberalization taken in accordance with the Code prescriptions “shall not prevent any Member country, if it so desires, from taking measures of liberalization of trade in respect of a non-Member country.”

OEEC initiatives for the progressive achievement of a single market were taken in various fields. Early experience, however, showed that it would be premature to attempt to promote economic integration through close and effective international planning; and since that time, coordinated action relating to internal financial stability, investments, manpower, etc., has been tentative and fragmentary. Similarly, plans for the institution of a West European customs union, to which the OEEC Convention made specific reference, were seen to present intractable problems and were abandoned at an early stage, attention shifting from tariffs to other aspects of commercial policy.

Early in the history of OEEC, efforts were made to replace the complex and cumbersome network of bilateral trade and payments agreements which were then in force. Their prolonged maintenance, it was felt with increasing concern, would foster uneconomic distortions in the patterns of production and trade and block any progress toward a single market. The freeing of trade from the rigidity of bilateral relationships and the relaxation of bilateral currency stringencies thus came to be regarded as the most promising and most urgently needed objectives.

Several measures were approved by the OEEC Cuoncil, during 1949 and the first half of 1950, in which the general philosophy of the trade system adopted later gradually found concrete expression, pending the elaboration of its monetary counterpart.

The Council first advocated on July 4, 1949 that member countries should “take immediately the necessary steps for the progressive elimination of quantitative import restrictions between one another, in order to achieve as complete a liberalization of intra-European trade as possible by 1951.” In other recommendations the Council suggested practical ways of coordinating liberalization measures and advised bilateral and multilateral negotiations for this purpose. On November 2, 1949 it decided that “Member countries shall now adopt the objective of removing quantitative restrictions before 15th December, 1949, at latest, on at least 50 per cent of their total imports on private account from the other Member countries as a group, in the respective fields of food and feeding stuffs, raw materials and manufactured goods counted separately.”

By the end of 1949 the removal of quantitative restrictions prescribed by this decision had already been achieved, or more than achieved, by most OEEC countries, the Council decision requiring for the most part the formal consolidation of a situation which for practical purposes already existed in fact. It was clear, however, that further steps for the liberalization of trade would be more painful, since progress would increasingly affect products the import of which was being effectively checked by quota restrictions rather than goods more or less liberally purchased abroad to meet the essential needs of domestic markets. Moreover, the limitations imposed by the payments system under which European trade was then conducted were being increasingly felt; and it came to be recognized that the success of further liberalization measures would depend on the adoption of a scheme for the offsetting of bilateral deficits against bilateral surpluses, which would help to restore more economic trade currents by rendering trade discrimination on account of payments imbalances unnecessary,5 and for access to short-term credit facilities on a scale sufficient to permit the financing of temporary deficits and thus to assure the stability of such liberalization measures as might be taken.6

On January 31, 1950, the OEEC Council decided that in principle member countries should aim at a liberalization percentage of 60 per cent as soon as a “satisfactory payments scheme including provisions enabling the multilateral transfer of the currencies of Member countries” came into force. As soon as possible after June 30, 1960, the date on which the inauguration of a payments scheme was then expected, the Council would decide what further progress was to be made with a view to attaining the liberalization of 75 per cent of each member’s imports on private account.

The Code of Liberalization

The establishment of a European Payments Union was the subject of long and difficult negotiations during the six months following the Council decision of January 1950. Concurrently with the EPU negotiations, the OEEC countries had been negotiating with a view to giving shape to the Council decision on trade liberalization. On August 18, 1950 the “Code of Liberalization of Trade” was adopted by the Organization, and it was to come into force simultaneously with the signing of the EPU Agreement. This happened on September 19, 1950.

This document was to a large extent a codification of previous acts, which still form the core of its provisions. There have since been several modifications and additions. Of these, the more important concern the inclusion in the Code of rules for the liberalization of “invisible” transactions,7 and the setting up in April 1952 of a “Steering Board for Trade” to which was entrusted the tasks heretofore carried out by various organs of OEEC, and which was given, in the field of trade, a competence parallel to that of the Managing Board of EPU in the field of payments.

The achievement of the aim of the Code, namely, the creation of a single market in a group of countries whose economic relations had been disintegrating for several decades, is an undertaking whose success requires much more than an attack on the single front of quota restrictions.

Although a framework for reforms aiming at the international coordination of monetary policies, social and employment legislation, and capital and labor movements has been set up, relatively little has in fact been achieved so far in these fields. Accordingly, it is not surprising that the Code’s provisions for liberalizing trade through the elimination of quotas should be devoid of any absolutism, that the participating countries should have guarded themselves with an elaborate array of escape clauses and exceptions, and that the OEEC’s method of action should have been marked by empiricism.

The Code of Liberalization is above all a code of behavior in the field of commercial policy, implemented in the light of the mutual interests of the countries concerned in the progress of a cooperative undertaking rather than under the threat of sanctions, such as exclusion from the scheme or inability to benefit from the facilities provided under its monetary counterpart, the European Payments Union. The Code (Articles 24 to 34) provides for extensive and frequent reporting by participating countries on the whole range of their commercial policies, which are kept constantly under review by the Organization. There is thus ample opportunity for member countries to put continued moral pressure on any of their partners who for unjustifiable reasons depart from the expected norms of behavior.

General obligations and specific liberalization commitments (liberalization percentages)

In adopting the Code, member countries bound themselves progressively to eliminate quota restrictions “as fully as their economic and financial position will permit,” taking into account “similar efforts” made by their partners (Article 1). Members also undertook not to discriminate vis-à-vis each other in the administration of their import policies, with respect either to liberalized products or to commodities still subject to quotas (Article 7).

Specific obligations regarding the extent of liberalization were also assumed. Member countries committed themselves (Article 2) to free certain percentages of their trade by certain dates (60 per cent as from October 4, 1950 and 75 per cent as from February 1, 1951);8 but they reserved the right to choose the products to be liberalized, subject to the qualification that at least 60 per cent, and if possible 75 per cent, of their imports on private account in each of three broad categories (agricultural products and foodstuffs, raw materials, and manufactured products) should be freed from quota restrictions. However, this right itself was to be limited by an “endeavor to apply common liberalization measures on as wide a scale as possible.” In 1951, this endeavor led to the adoption of a “Common List” of some seventy items which covered some 18 per cent of European trade, consisting mostly of textile goods, textile machinery, and chemical products, on imports of which member countries agreed not to impose quotas.

Last, the Code provided that, once liberalization measures in accordance with the 60 per cent commitment in each of the three categories mentioned above had been taken with respect to specific products, these measures should in principle be irreversible; therefore, a procedure of notifying the Organization of such measures, with a view to their consolidation, was instituted.

Such, then, are the main positive obligations assumed under the Code of Liberalization. For reasons already mentioned, these obligations were qualified by a number of safeguards, limitations, and escape clauses. Some of these had their origin in the repercussions that liberalization measures might have on the payments situation of member countries and on the assets of the European Payments Union; these, in general, are of a temporary character. Others were designed to ensure reasonable balance between the advantages and the sacrifices that progress toward the single market would entail for the member countries.

Limits of liberalization obligations

While member countries undertook to liberalize imports “as fully as their economic and financial position will permit,” their statutory commitments were limited on the one hand to 75 per cent of their imports on private account, as a whole, and on the other to a minimum of 60 per cent in each of the three broad categories mentioned above. Moreover, member countries retained considerable freedom of action with respect to imports by government monopolies (see below, pages 190 and 197), although their policy in this respect became subject to the control of OEEC.

Furthermore, the Code provided (Article 3a) that those countries whose “economic and financial situation justifies such a course … need not take the whole of the measures of liberalization of trade” provided for in Article 2. This clause applied to Iceland and Austria until December 1953. Austria subsequently (June 1954) achieved the 75 per cent commitment. Iceland is under the protection of another clause (Article 3c). Another escape clause (Article 3d) was inserted for the benefit of countries whose debtor quotas in the EPU were originally blocked. (Greece is the only country still in this position. Iceland and Austria were initially in the same category.)

Limits of the principle of irreversibility

Liberalization measures taken beyond the statutory obligations are not subject to the principle of irreversibility. They may be revoked upon the initiative of member countries by notification to the Organization. This right has been used on various occasions by countries which took liberalization measures beyond the 60 per cent commitment in each sector, but insofar as a country is subject to the 75 per cent over-all commitment, the withdrawal of liberalization measures on certain imports has to be compensated by further liberalization of other imports.

Within the specific liberalization commitments, two sets of causes are recognized as justifying exceptions to the principle of irreversibility. Article 36 provides that “If any measures of liberalization … result in serious economic disturbance” in a member country, that country may withdraw those measures. So far, no country has been recognized by the OEEC as justified in availing itself of this clause. It has been interpreted as covering a situation which, in the normal course of events, would be unlikely to materialize.

The second clause, Article 3c, covers the case of a country whose “deficit… with the Union is increasing at a rate and in circumstances which it considers serious in view of the state of its reserves…” Such a country may “temporarily suspend the application of measures of liberalization of trade… .” This clause has been invoked several times, and in 1954 it was being applied by France, Turkey, and Iceland. Two important members which had invoked the clause, Germany in 1950 and the United Kingdom in 1952, subsequently restored their liberalization measures to the 75 per cent commitment, Germany in 1952 and the United Kingdom in 1953.

The decision to suspend liberalization measures is the responsibility of the member country concerned; it must, however, notify the OEEC of any action taken in this connection, and if the action is disapproved by the Organization9 the liberalization measures must be restored. The conditions under which this escape clause may be invoked and applied were strengthened by the Council in May 1954.

Exceptions to the nondiscrimination principle

The adoption of the nondiscrimination principle caused considerable difficulty as long as European currencies were not transferable among themselves. With the establishment of the European Payments Union, which provided for such transferability, the pressure to discriminate for payments reasons disappeared, and the nondiscrimination rule could be adopted as a basic principle of the scheme, the right to introduce discriminatory measures for reasons arising from payments imbalances being withdrawn. Waivers of the nondiscrimination rule for such reasons can be obtained only in accordance with a recommendation of the Organization (Article 31, a and b). In the absence of such a recommendation, a member which suspends or modifies its liberalization measures in circumstances recognized by the Organization “shall do so in such a way as to … avoid any discrimination as between one Member country and another” (Article 3e). Moreover, Article 6 provides that a member country invoking the escape clauses “shall… benefit from the measures of liberalization of trade taken by other Member countries….”

On certain occasions, the OEEC Council has recommended that member countries should take liberalization measures on certain specific products of particular interest to the export trade of a member country, with a view to helping such a country in dealing with special difficulties. Thus, in 1953 when Italy, despite the continuous deficits being incurred after the reversal of its position with the EPU, nevertheless maintained the high liberalization percentage that it had already achieved, the OEEC Council recommended that member countries should “consider the special difficulties of Italy and … of other Member countries which are in an extreme debtor position and the need for increasing imports of agricultural commodities either by extending liberalization or other means.” Any liberalization measures taken in such circumstances are applicable in principle to all members.

Two exceptions to the nondiscrimination rule10 are permitted for reasons other than balance of payments difficulties: (1) Member countries forming part of a special customs or monetary system may apply to one another measures of liberalization of trade without extending them to the other member countries. It was under a liberal interpretation of this provision that a waiver of the nondiscrimination rule was granted to the six member countries that established the European Coal and Steel Community. (2) The second exception was adopted to safeguard the interests of member countries in the event that they would be damaged by certain practices (e.g., dumping) by other members. This exception has not been invoked so far and, since its scope is limited, it is not described in detail here.

Geographic application of Code rules

In discussing the geographic application of Code rules, it is useful to distinguish between the OEEC area (i.e., metropolitan countries of Europe which are members of OEEC and their dependent overseas territories), the member countries participating in the EPU,11 the independent members of the sterling area (whose payments relations with OEEC countries are closely linked with the EPU through U.K. membership), and the other countries of the world.

In general, the rules of the Code apply to all OEEC members whether they retain membership in the EPU or not. Thus, Article 1 (general obligation to liberalize), Article 2 (specific liberalization commitments), Article 4 (common liberalization measures), and Article 11 (consolidation of liberalization measures) would continue to bind a member country that had withdrawn from the EPU. The commodities covered by the liberalization obligations are those which both originate in and are consigned from OEEC member countries or their independent overseas territories. The application of the code rules within the latter territories is optional.

The provision in Article 7 that the nondiscrimination rule “shall only apply as between Member countries which take part in the Union” is an exception to this general principle. The exact scope of this exception has been the subject of considerable controversy in OEEC, notably at the time of the Belgian “surplus” crisis and during discussions of the situation of an OEEC member which, under certain circumstances (e.g., if it made its currency convertible), might find it necessary to withdraw from the EPU.

In the Belgian case it was not necessary to find a practical solution for the problem, since a technique for extra quota financing was adopted which permitted a member whose quota had been exceeded to continue effective participation in the operations of the Union.

In the second case, the view has been taken that the nondiscrimination rule would no longer apply to the withdrawing country but that, in practice, its freedom to discriminate against its OEEC partners would be strictly limited. It would be bound to retain, vis-à-vis each of its partners, the liberalization measures taken in accordance with the 60 per cent commitment, i.e., the consolidated measures, and could not withdraw other liberalization measures (e.g., under the 75 per cent commitment, the “Common List” prescriptions), unless such withdrawal was replaced by equivalent liberalization in other directions.

The independent members of the sterling area are not members of either the OEEC or the EPU,12 and consequently are not bound by the Code rules. In practice, however, quota restrictions imposed by individual members of the outer sterling area vis-à-vis the members of the EPU are, generally, nondiscriminatory.

Regarding countries which are in neither the OEEC nor the EPU area, it has already been explained that the participating countries have retained the right to determine their commercial policies in the light of their individual situations (Article 1e of the Code). There are, in fact, considerable differences in their policies.

Mechanism of the System

Scope and nature of liberalization measures

Commodities may be imported either on private account or on government account. While imports by governmental agencies were brought within the range of OEEC’s consideration (Article 30),13 the obligations of member countries in this field were defined (Article 12) by reference to the Havana Charter, and the participating countries assumed no specific commitments to liberalize their trade on government account. In principle, under the Code rules, a member country retains the right to transfer any import from private to governmental trade insofar as the commodity has not already been the subject of consolidated liberalization measures. A Council decision of January 1954 has limited this right, notably by introducing an obligation for member countries to notify the Organization of any transfer and to submit explanations for such a transfer.

Imports on private account may be either “free” or subject to quota restrictions. For liberalized commodities, freedom from quota restrictions “results from the admission of such commodities without licensing or from the automatic and immediate issue of licenses for their importation” (Annex A, Section I, paragraph 1, of the Code). Moreover, since this freedom can be effective only if exchange restrictions do not prevent the appropriate payments abroad, the Code provides that “measures of liberalization of trade must provide for the automatic allocation of the foreign currencies required for such imports” (Annex A, Section I, paragraph 1, of the Code).

The adoption of the Code of Liberalization brought little effective change in the administrative practices of member countries with respect to imports which were still subject to quotas. In principle, the nondiscrimination rule was extended to the whole of the import trade of member countries as from February 1, 1951 (Article 7a, i and ii), but in fact detailed provisions for the application of the rule (announced in the Code, Article 76) to “imports to which measures of liberalization of trade do not apply” were never worked out. Moreover, the commitments of member countries with respect to obligations resulting from bilateral agreements with their OEEC partners and which came into conflict with the provisions of the Code were specifically waived by the Code only insofar as they concerned commodities to which measures of liberalization apply (Article 16). Member countries have thus retained a fairly free hand in the administration of their licensing systems for imports in the “quota sector.” This does not seem to have created any special difficulties, except in connection with the import programs of countries invoking the clauses of the Code which permit the suspension of liberalization measures. The Steering Board for Trade reviews periodically the import programs of such countries in accordance with principles adopted by the OEEC Council in October 1953. These principles aim at ensuring that countries which have recourse to the escape clauses do not unduly harm any of their partners through (1) discrimination in the choice of products on which the restrictions are reimposed and (2) the granting of treatment to goods imported under the “quota sector” (under conditions usually determined by bilateral trade agreements) which is more favorable than the treatment granted to goods previously liberalized and for which countries withdrawing liberalization measures have no bilateral commitment. These rules were incorporated in the Code by the Council decision of May 7, 1954.

Formal measurement of liberalization performances

The Code rules and their interpretation in OEEC. Article 2 of the Code provides that (1) by October 4, 1950 member countries had to liberalize 60 per cent of their imports on private account in each of three broad categories defined with reference to the OEEC Commodity Nomenclature, i.e., food and feeding stuffs, raw materials, and manufactured goods; and (2) by February 1, 1951 member countries had, on the one hand, to liberalize 75 per cent of their total imports on private account and, on the other, 60 per cent at least and “if possible” 75 per cent of their imports on private account in each of the categories mentioned in (1).

The rules for the computation of these percentages, which were set forth in an annex to the Code, have been interpreted in the following way:

The liberalization measures to be included in the calculation of the performance of a given country at a given date are those taken with respect to commodities actually imported by the member country in 1948, whether on private or government account. Changes in the composition of trade since the reference year are irrelevant for this calculation. Certain products imported in 1948 (e.g., because economic conditions prevented production by a member country at that time) but which were not imported at all in a subsequent period are counted in the calculation of the liberalization percentage, provided they were formally freed. Similarly, changes in import prices and in the relative importance of import goods are not taken into account. These factors are discussed in detail on page 197, below. In broad terms, the percentage of liberalization at any given date, say, December 31, 1950, is calculated by dividing the total 1948 imports of those commodities which were freely importable (but not necessarily were imported) as of December 31, 1950 by the difference between total imports in 1948 and the 1948 imports of commodities importable on government account as of December 31, 1950.

Numerical example of calculation of liberalization performance of a given country. The calculation of the liberalization performance of a member country at a given date (e.g., as of December 31, 1950) involves the following operations:

The starting point is the c.i.f. value of the country’s imports from the OEEC area (i.e., from other OEEC metropolitan countries and their overseas territories) in 1948, the “reference year.”14 This figure is adjusted to exclude imports of certain products (mostly crude and refined oil) payable in dollars, and the resulting figure is divided between the three broad categories defined in the Code (food and feeding stuffs, raw materials, and manufactured goods) with reference to the OEEC Commodity Nomenclature.

The accompanying outline of an imaginary case, Imports of Country X, illustrates how the various elements of the calculation are derived. Columns 1 and 2 summarize the import situation of a member country in 1948. The commodities imported in that year are indicated in Column 1 by means of a conventional sign for each category. The symbols A 1, A 2, A 3 stand for commodities in the group, food and feeding stuffs; B 1, B 2, B 3 for commodities in the group, raw materials; and C 1, C 2, C 3 for commodities in the group, manufactured goods. The c.i.f. value of each commodity imported in 1948 is indicated in Column 2 in millions of a given unit of account. Column 3 presents the list of commodities imported as of December 31,1950 in accordance with the administrative status indicated in Column 4, i.e., those that were freely importable, those subject to quantitative restrictions, and those importable by governmental monopolies. Columns 5 and 6 indicate the (1948) amounts retainable for the calculation of the numerator and denominator of the liberalization percentage. The numerator represents the total amounts imported in 1948 of those commodities which were freely importable (but not necessarily being imported) as of December 31, 1950; and the denominator represents the difference between total imports in 1948 and the amounts imported in 1948 of commodities importable on government account as of December 31, 1950.

Imports of Country X

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Free = importable on private account and not subject to quota, i.e., liberalized imports; quota = importable on private account and subject to quota; government = importable on government account.

Amounts imported in 1948 of commodities freed as of December 31, 1950.

Amounts imported in 1948 of commodities importable on government account as of December 31, 1950.

The liberalization performance of Country X as of December 31, 1950 may now be calculated as follows:

In Category A:

10204×100=62.5%

In Category B:

10+2200×100=60.0%

In Category C:

50602×100=86.1%

In the three categories combined:

10+12+50(20+20+60)(4+2)×100=76.7%

It may be noted that commodities A 4, B 4, and C 4, which were not imported in 1948 and which could be imported as of December 31, 1950, do not count in the calculation of the liberalization percentages, irrespective of the administrative regime under which they were admitted. Similarly, it is immaterial to this calculation whether any of the commodities A 1 to A 3, B 1 to B 3, and C 1 to C 3 were actually being imported at the date in question.

This formal method of calculating liberalization performance has been adopted by the OEEC both for checking the position of member countries with regard to their quantitative liberalization obligations and for preparing the material occasionally published by it regarding the liberalization performances of individual member countries and of the area as a whole. The position as of April 1, 1954 is summarized in Table 1; and percentages achieved as of June 30 and December 31 of each year since the inauguration of the scheme are presented in Tables 36.

Table 1.

Position of Liberalization of Trade as of April 1, 1954

(Values in millions of U. S. dollars)

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Reference year is 1948, with the following exceptions: Germany, 1949; Austria, 1952.

Trade as of April 1,1954 at 1948 values.

Agricultural and food products.

Raw materials.

Manufactured goods.

In April 1953 Greece liberalized approximately 90 per cent of its 1948 trade. However, as this was a trial move, the Greek Government has not submitted details of the measures in force to the Organization.

Source: OEEC Press Release, May 6, 1954 (A/54/20).
Table 2.

Value of Intra-European Imports of Certain OEEC Countries, 1948–50

(In millions of U.S. dollars)

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Table 3.

Trade Liberalization Percentages Achieved by Member Countries of the OEEC with Respect to Their Private Trade

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The 1950 data are tentative.

Source: OEEC.
Table 4.

Trade Liberalization Percentages Achieved by Member Countries of the OEEC with Respect to Private Trade in Category I, Agricultural and Food Products

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The 1950 data are tentative.

Source: OEEC.
Table 5.

Trade Liberalization Percentages Achieved by Member Countries of the OEEC with Respect to Private Trade in Category II, Raw Materials

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The 1950 data are tentative.

Source: OEEC.
Table 6.

Trade Liberalization Percentages Achieved by Member Countries of the OEEC with Respect to Private Trade in Category III, Manufactured Goods

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The 1950 data are tentative.

Source: OEEC.

Comments on the interpretation of formal liberalization percentages

General characteristics of the OEEC formula. International trade policies are subject to so many factors and the criteria for commercial freedom are so diverse and complex that it is difficult to imagine a ready-made formula for measuring trade liberalization which could produce results completely devoid of artificiality. The liberalization percentages published by the OEEC are subject to various limitations, discussed below. At this stage it may be remarked that the OEEC formula takes into account only the measures of liberalization as defined above which are communicated officially to the Organization, and that the effective removal of restrictions resulting from a liberal administration of quota restrictions or of government trading in the sectors subject to these regimes is not reflected at all in the formal percentages of liberalization. “De facto” liberalization arising from such practices may affect a larger proportion of a country’s trade than “formal” percentages would show. An extreme example of this possibility is provided by Greece. As of the end of the second quarter of 1954, Greece had taken de facto liberalization measures on about 90 per cent of its 1948 imports, while the application of the OEEC formula to its import trade gives a zero liberalization percentage. Moreover, in a scheme like that of the OEEC, in which member countries’ statutory obligations are defined with reference to quantitative restrictions only, other restrictive measures may be substituted for quotas, and the progress shown by calculations based on a formula in which such measures are not taken into account may not accurately reflect the actual promotion of trade freedom. There is reason to believe that since the inauguration of the OEEC scheme there has been some substitution in favor of tariffs. Ways and means of dealing with this problem are under study in the OEEC.

The nature of the OEEC scheme required that member countries’ obligations in connection with the removal of quotas should be determined quantitatively in advance.15 Liberalization obligations defined with reference to certain percentages of trade during current periods as the scheme was being implemented would have demanded a higher degree of accuracy in forecasting the response of the market to the elimination of quotas than the present status of economic and statistical tools can ensure. For this reason, it was necessary to define liberalization obligations with reference to some past period. The liberalization percentages thus derived from the application of the OEEC formula were not meant to measure actual flows of trade over a period of time, but were designed to permit, at various stages, the checking of the results of member countries’ action with respect to quota removal against their legal obligations defined qualitatively and quantitatively in the Code.

From a purely statistical point of view, the extent to which the measurement of the liberalization performance of a given country at a given stage, with reference to the base year, corresponds to the actual degree of freedom from quantitative restrictions of trade as a whole depends on two sets of factors.

The first set concerns the choice and combination of the elements included in the formula. The most simple combination would have been a straight comparison between the liberalized portion of a country’s trade (numerator) and its total trade with the area (denominator). However, in view of the fact that member countries were not initially prepared to enter into commitments regarding state trading, imports by government monopolies were excluded from the denominator. The consequences of this exclusion are discussed below, where it will be seen that, while at any given date the liberalization percentage calculated on the basis of the OEEC formula tends to overstate the actual status of liberalization relative to total trade with the area, it may also understate the results of the member countries’ removal of quantitative restrictions on their trade on private account. The latter consequence arises whenever a country, as an intermediary step toward liberalization, changes the administrative status of an import from government to private but keeps it in the quota sector. In such a case the liberalization percentage is in fact reduced (since the denominator is increased while the numerator remains constant), although a liberal administration of the quota system may result in an actual freeing of trade.

The second set of factors concerns the changes that may occur between the base year and any subsequent date on which the liberalization performance is measured, first, in the commodity composition of trade, and second, in the prices of the commodities imported and in their weight in the total imports of the country concerned. Sufficient information on these factors could not be obtained to permit a systematic comparison in this study between the liberalization percentages derived from the calculation based on 1948 as a reference year and those that might be derived on the basis of a more recent period. The OEEC Secretariat, however, has made some experimental calculations which show that, for the majority of member countries and notably for those which have fulfilled their commitments up to the 75 per cent mark, a change of reference year from 1948 to 1952 would not materially affect the liberalization percentages shown in Table 1 and Tables 36. This is explained by the hypothesis that, although trade increased substantially between 1948 and 1952 and there have been important changes in its commodity composition, the quota-free portion of commodities which have entered into intra-European trade since 1948 increased at least as much as the nonliberalized portion. Certain features of the distribution of intra-European trade by countries in 1948 and of its changes between 1948 and 1950 are discussed below; changes in the commodity composition of trade are discussed in connection with an examination of the effects of the system.

Government trading.16 The liberalization percentages worked out in accordance with the OEEC formula do not include imports on government account at the date on which such percentages are calculated. The consequences of this exclusion may be illustrated by returning to the calculation made above of the liberalization percentage in Category A. Assume that Country Y has the same trade as Country X, with the one exception that it imports commodity A 3 under quota instead of on government account. If the formula is applied to Country Y, the latter’s liberalization percentage in Category A amounts to 50 per cent,17 while that of X is 62.5 per cent.

Suppose now that both countries free commodity A 2 and that Country X maintains commodity A 3 under the regime of government imports, while Country Y transfers it to the regime of private imports and eliminates quota restrictions with respect to it. The liberalization percentages of both countries become 100 per cent,18 in spite of the fact that Country X maintains 20 per cent of its imports in Category A under the regime of government imports, regarding which its policy is subject only to the general limitations set forth in Chapter IV, Section D, of the Havana Charter, while Country Y will be subject to the much stricter limitations imposed by the Code rules on liberalized imports.

Table 1 shows that the member countries’ intra-European imports on government account as of April 1, 1954 at 1948 values were equal to about 7 per cent of all their intra-European imports in 1948, the proportion varying from zero for Portugal to about 11 per cent for the United Kingdom and 22 per cent for France. If the assumption is made that government trading is concentrated on imports of foodstuffs and raw materials and the combined liberalization percentages achieved in those two groups (Categories I and II of Table 1) are recalculated by including such imports in the nonliberalized sector, it is found that the liberalization percentages are substantially reduced, by some 6 to 7 per cent for Italy and Belgium, 8 to 10 per cent for Switzerland, Germany, and Sweden, 11 per cent for the United Kingdom, and about 10 per cent for the OEEC area as a whole.

Changes in the distribution of intra-European trade by country between 1948 and 1950. The choice of a reference year as a basis for measuring economic developments or as a guide for determining economic policy usually gives rise to difficult problems. Such a choice has been particularly difficult in relation to intra-European trade in the postwar period. A basis for judgment regarding developments in this period is usually sought in a comparison with what happened in a prewar year that is considered as the most representative of a “normal” situation. Since statistical information on predepression years is usually extremely deficient, the year 1947 or 1948 is generally chosen. While it is easy to find reasons for questioning such a choice and the approximation to a “representative period” that it might imply, it is also difficult to regard as an ideal standard of reference any postwar year preceding the launching of the OEEC scheme. Until 1947, intra-European trade was so profoundly affected by the consequences of the war that the period provides no suitable choice. In 1949, there were major devaluations in most of the leading countries outside the dollar area and unusual shifts in trade. The role of reference period was thus assigned to 1948.

Hampered by difficulties of all sorts, intra-European trade had nevertheless made substantial progress in 1947 and 1948, increasing by some 20 per cent in volume in the latter year, but it was still less than in 1938. The main factor of progress had been the gradual restoration of production in the OEEC countries. Basic economic conditions in the member countries, however, did not at that time present an even picture.

The diversity of the picture is particularly striking when conditions in Western Europe in general are compared with those in Austria and Germany. Germany’s export and import trade with other West European countries amounted to some $2 billion in 1938, but to less than a third of that amount (in 1938 prices) in 1948. Even after allowing for the postwar division of Germany, the restoration of West German and Austrian trade in 1948 was so far from being complete that different reference years had to be chosen for these two countries; and it was decided that the liberalization performance of Germany should be based on its intra-European trade in 1949, and for Austria on its trade in 1952. This change, however, failed to compensate entirely for the delayed trade recovery of Germany relative to other countries;19 moreover, no adjustment was made to the figures for the intra-European trade of the other countries given in the first column of Table 1 so as to make them reflect the adjustments in the German and Austrian intra-European trade figures.

While trade between OEEC countries including Germany in 1948, measured at constant prices, was 28 per cent below that of 1938 (at 1938 f.o.b. prices, the amounts were, respectively, $3.6 billion and $5.0 billion), excluding Germany it had about reached the 1938 level.20 Important changes were, however, still taking place in the distribution of trade both by country and by commodity, which reflected a gradual return to a more durable pattern.

Certain countries that had come out of the war in a comparatively privileged position in regard to their basic economic potential (especially Switzerland, Sweden, Ireland, and Belgium) assumed a position in intra-European trade21 which for most of them could not be maintained and did in fact change between 1948 and the inauguration of the OEEC trade scheme. As a result of their ability to produce scarce commodities, their exports had increased substantially above their prewar share in intra-European trade, while as a result of their inability to obtain adequate payment in gold or dollars from their debtors and the resulting inducement to keep down their surpluses, their imports from a number of OEEC countries had been kept above what their domestic markets would have taken from these sources in the absence of trade and payments controls. For various reasons, other OEEC countries in 1948 had moved into an unusual situation vis-à-vis the area as a whole. The United Kingdom, for instance, in contrast to its traditional prewar pattern, had developed a substantial export surplus vis-à-vis the OEEC countries as a result partly of its ability to export goods of which there was an acute shortage (e.g., capital equipment), partly of the possibility for many countries to draw on accumulated sterling balances to finance their deficits, and partly of the imposition of strict import restrictions in the United Kingdom.

Trade developments in 1949 and the beginning of 1950 were generally in the direction of a more balanced relationship between the OEEC members. In its review of the European situation during this period, the Economic Commission for Europe explained that “many of the changes that took place in intra-European trade appear… to represent simply the expansion of trade in areas where it had previously been low or the contraction of trade in areas where it had previously been high as compared with prewar,” and notes that there was an expansion in the imports of the United Kingdom, Denmark, France, and the Netherlands, while those of Switzerland, Belgium, and Sweden were reduced.22

Data on the distribution of intra-European trade for certain member countries between 1948 and 1950 are set forth in Table 2, in which three groups are distinguished: (1) Germany and Austria, (2) the United Kingdom, France, Italy, and the Netherlands, and (3) Switzerland, Belgium-Luxembourg, Sweden, and Ireland. The data available are not sufficient for an accurate appraisal of the appropriateness of the reference to 1948 for subsequent periods. In the absence of detailed information on changes in the commodity composition of trade, on the administrative status under which commodities were imported, and on the tightness with which quota systems were implemented, it is extremely difficult to reach a firm judgment on the relative significance of the percentages calculated with reference to this particular year.

Appraisal of the Trade Liberalization Scheme and Proposed Improvements

Appraisal of the scheme

It is generally agreed that the characteristics of the European demand and supply situation up to 1948–49 were those of a sellers’ market. In 1948, production in OEEC Europe had not yet reached the 1938 level (see Table 10), while requirements were larger than in prewar years because of the needs of reconstruction and larger populations. Moreover, demand tended to be inflated as the result of inflationary pressures which were still widely active. The situation improved substantially during the following year, and by the end of 1949 the conditions of a buyers’ market seemed to have been restored for most commodities. In September of that year, a more satisfactory pattern of exchange rates was achieved as the result of devaluations of varying magnitudes. Pressures again developed from the demand side in late 1950 and 1951, as the result of the conditions created by the outbreak of hostilities in Korea.

Under the conditions that prevailed up to 1948–49, the limiting factors in trade were mainly on the supply side. This was particularly true of the agricultural and raw materials sectors. The supply situation in these sectors had shown less improvement, relative to 1938, than in the manufacturing sectors (Table 10). The tendency for the production of manufactured goods to increase faster than the output of raw materials is a general postwar phenomenon. Because of the limitations of local resources of raw materials relative to manufacturing capacity, the effects of this tendency were felt more acutely in Western Europe than in other parts of the world. The Economic Commission for Europe noted that “Generally speaking, compared with prewar, the output of basic materials in Europe has risen substantially less than industrial production and in some cases—such as coal, sulphur, timber and iron ore—it has fallen absolutely.”23

The demand for the commodities that enter into intra-European trade was largely controlled by government intervention in 1948, 1949, and the first half of 1950. Externally this intervention operated primarily through bilateral bargaining, and internally through the imposition of physical controls on imports and the allocation of foreign exchange according to an order of priority which favored “essential” imports. In bargaining with partner countries, governments tried first of all to secure supplies of “essential” goods, and while orders of “nonessential” goods (i.e., largely manufactured consumer goods) could to a certain extent be forced upon a partner country, international trade was concentrated primarily on essentials. This accounts largely for the fact that, prior to the inauguration of the OEEC scheme, agricultural products, raw materials, and machinery and equipment goods contributed much more than manufactured consumer goods to over-all intra-European trade expansion. (For details, see Appendix.)

The inauguration of the OEEC scheme in mid-1950 changed the conditions of demand for goods entering into intra-European trade. On the one hand, bilateral bargaining between member countries tended to have a marginal rather than a predominant importance in their trade policies vis-à-vis each other, and, on the other hand, the scope of quantitative controls was reduced and licenses were more extensively granted to importers of commodities of European origin. These changes had an uneven impact on the three sectors.

Whether in a sellers’ or in a buyers’ market, the supply of raw materials produced in Europe is inelastic. Production can increase but slowly, and an increase in demand can, in the short run, have very little influence on supply. The impact of the liberalization scheme on intra- European trade in raw materials was rather modest because member countries, before the inauguration of the scheme, were already importing from their partners about as much as could be obtained from the resources of the area, and any increase in demand such as occurred at the time of the Korean war was likely to be met mostly from overseas sources (see Appendix). It is thus natural that, throughout the period during which the scheme has been in force, the liberalization percentages for raw materials should have been consistently higher than the percentages for the two other categories (see Tables 4, 5, and 6). Of the 16 member countries, 9 had, as of April 1,1954, achieved a liberalization percentage for raw materials higher than 90, 5 of them having exceeded the 99 per cent mark. Were it not for balance of payments reasons which have led a few countries (e.g., France, Turkey, and Iceland) to maintain a substantial portion of their imports of raw materials under quota, a practically complete liberalization of trade on private account would have been achieved by now in this sector. This might be expected if the financial position of certain member countries should be restored. In a few limited instances, however, the problem of government trading might still have to be faced.

It is in the field of agricultural and food products that the OEEC liberalization scheme has met with its greatest difficulties. The reasons for this are well known: for a wide variety of reasons—social, political, defense, etc.—countries are not prepared to forego the means of checking imports of agricultural products by abandoning their restrictive quota practices and purchases through government agencies. Protection through other means (e.g., by customs duties), the impact of which on the market process would, in general, be less disturbing, is not regarded as an appropriate substitute, for quantitative restrictions are, from the point of view of domestic policy, a much more flexible protective device that may be employed at the time when the crops are marketed and suspended whenever imports of foodstuffs are needed (e.g., in the off season) or whenever there is a special emergency or for policy reasons (e.g., the enforcement of a policy designed to lower prices, as shown by experiments in France during 1952 and 1953). In these conditions it is not surprising that the liberalization percentages for agricultural products (Table 4) should have been consistently the lowest of the three categories. The liberalization percentage for the OEEC area as a whole as of December 31,1953 (66.8) was slightly lower than that reached on December 31, 1950 (67.4).24 The consequences of this situation are of course much more serious for member countries whose staple exports consist largely of agricultural products; and to the extent that they have reached the upper liberalization brackets—as Denmark and Italy have done—the scheme appears to have forced them into readjustments more difficult than those their partners have had to face.

The relatively slight impact of the trade liberalization undertaking upon the agricultural and raw material sectors on either the supply side or the demand side is in contrast to developments in the manufactured goods sector. Demand in this sector became more elastic with the inauguration of the scheme, and supply was much more elastic than in the other sectors, so that there was a remarkable shift (which was noted above) in its contribution to the over-all trade expansion. Calculations based on data which are still tentative for some of the partners in the scheme show that the percentage share of manufactured goods in intra- OEEC trade increased from about 35 in 1948 to about 40 in 1952, while that of raw materials decreased from 44 to 40, and that of agricultural products remained constant.

Although it may be pointed out that the liberalization process in this sector has not followed an even course, and that at various intervals certain of the major markets of the area have been less freely accessible than others to the products of member countries—the German market in 1951, the U.K. market for the greater part of 1952 and 1953, and the French market since early 1952—the OEEC trade and payments system has been a landmark in the reversal of the long-term trend toward self-sufficiency and the progressive disintegration of West European economies. While this process was more marked in the thirties than in any other period, there is no reason to believe that it would have disappeared in the postwar years unless checked by a concerted and gradual move. In its review of intra-European trade developments in 1948, that is, during a period when such trade was still below the prewar level, the Economic Commission for Europe noted “several instances of severe cuts in trade25… the most significant of [which] was that embodied in the new trade agreement between Switzerland and Sweden, which represented a complete departure from the former trade policies of the two countries and provided a striking example of downward bilateral balancing.”26

It is true that there has been no spectacular displacement of “uneconomic” industries, whose growth had been encouraged by shortages during the war and by protection after the war. This, however, was to be expected in view of the progressive and partial nature of the liberalization scheme. Radical and sudden changes in the production pattern of the area were never contemplated, since the ensuing economic disturbances would have imposed greater social and political strains than could be envisaged. As long as the liberalization system remains partial, certain “uneconomic” industries (and not necessarily only those which must be kept alive for reasons considered as fundamentally important) will find adequate protection either through what is left of quota restrictions or through tariffs and subsidies, but this does not mean that progress in the direction of the single market has not been made and cannot be promoted further. While there have been notable examples of prolonged resistance to the implications of the OEEC trade and payments system for national monetary and fiscal policies, the reasonable observance of the “rules of the game” by most of the more highly developed countries of the area has undoubtedly contributed to the restoration of a more satisfactory network of price relationships in Western Europe than existed before 1950. It would seem unlikely that this development should have had no impact on the pattern of production of the countries concerned or on its efficiency. In the face of a moderate increase in international competition, the productive apparatus of highly developed industrial countries is flexible enough to permit changes in certain lines of production with only relatively minor changes in the combination or location of the factors of production. These changes may not be spectacular; their cumulative effects, however, may be of much greater importance than the unobtrusiveness of the process might suggest.

Proposed modifications of the scheme

The rather checkered course of liberalization, the reimposition of quota restrictions for prolonged periods by important member countries, and the risk that further setbacks might start a general process of trade contraction, which has been avoided so far, have led to the search for ways and means of improving the scheme.

One of the main criticisms directed against its functioning is that a fair measure of reciprocity in the give-and-take process, which a liberalization undertaking of this nature should entail and which the Code it self recognized to be a condition of progress (Article 1), has not been ensured. The system has often been subject to strains by the lack of simultaneity and balance in the achievements of the various member countries. While the majority of members have, on a unilateral basis, exceeded the statutory liberalization percentages, a few countries have not been able to liberalize to the extent provided for by the Code, and some countries27 are wide of the mark. Since liberalization measures are taken on a nondiscriminatory basis, members with a low percentage of liberalization have enjoyed the full advantages of the measures taken by their more advanced partners, while their own low percentages have had adverse effects on the commercial and financial situations of their partners. Italy, for instance, which has achieved one of the highest percentages of liberalization, has experienced a drastic reversal in its EPU position, partly as the result of restrictions maintained by its partners on certain Italian exports (e.g., of agricultural products).

This situation has been the subject of increasing concern in the OEEC. In a report on the future of trade liberalization, the Steering Board for Trade stated that “failure to apply effective reciprocity in the liberalization of trade” was one of the major obstacles to further progress, and this view was endorsed by the OEEC Council of Ministers in its meeting of October 1953. The marked inequalities in the degree of liberalization not only make further progress extremely difficult but also involve greater risks. In countries that apply a large degree of liberalization, producers are complaining that they have to cope with foreign competition in their own markets, whereas exporters are deploring the fact that the markets of other members are closed to them. This pressure from commercial circles is increasing, and governments find it more and more difficult to resist it. Members which have attained a high percentage of liberalization complain that they find increased difficulties in their trade discussions with member countries which maintain heavy quantitative restrictions, since they have lost the bargaining advantage that the possibility of modifying the amount of goods imported under quota might give them.

Two main causes are at the root of these problems. The first is the large and prolonged imbalances in the EPU positions of certain countries, which have meant that, in the absence of timely measures, these countries have had no alternative but to invoke Article 3c of the Code (suspension of liberalization measures for balance of payments reasons). The second is the persistence of protectionist tendencies. In certain countries the two causes are simultaneously at work, the maintenance of restrictions on imports serving jointly two purposes, namely, the prevention of excessive drains on foreign exchange resources and the protection of high cost industries. In other countries, and more particularly in those which have no balance of payments problems, a reduction in the application of protectionist devices is to a large extent linked with the solution of the problems posed by the lack of reciprocity in the liberalization process and the instability of liberalization measures.

These two obstacles to the satisfactory functioning of the liberalization system are being studied by the OEEC with the closest attention. The search for solutions to the first set of difficulties (payments imbalances) involves the consideration of payments problems which are in the first instance the responsibility of the EPU Managing Board. These will not be covered in the following comments, which are concerned only with the trade side of the question.

It was suggested at one stage that a more satisfactory functioning of the liberalization system might be promoted by a radical departure from the method of gradual removal of quantitative restrictions, and that the Council should decide that 100 per cent liberalization of trade should come into force at a fixed date, April 1, 1954 being proposed for this purpose. This proposal was subject to two conditions, namely, certainty that the European Payments Union would be prolonged for one year from June 30, 1954, and the reliberalization up to the statutory obligations by the major countries which at the time of the proposal had withdrawn their liberalization measures. The proposal also included the possibility that countries without balance of payments difficulties might maintain restrictions up to a limit of 5 per cent of their import trade during a probationary period of six months.

It was recognized subsequently that a decision of this kind would be premature, and while the Council meeting at ministerial level in October 1953 endorsed the objective of complete liberalization, the view was then taken that the most practical and suitable method of achieving it would be to urge member countries to accelerate the adoption of concrete measures that would make complete liberalization possible in the near future.

The Council, after endorsing certain proposals presented by the Steering Board for Trade, requested this group to pursue the study of ways and means of suppressing marked inequality in liberalization performances and of promoting the stability of liberalization measures. The main feature of the proposals submitted by the Steering Board for Trade to the Council at that time concerned the strengthening of the conditions under which Article 3 of the Code would be applied, in such a way as to ensure that the spirit of this article would be observed,28 notably with respect to the temporariness, nature, and scope of the measures taken by the countries invoking it.

In a first set of proposals which the Council adopted in October 1953, the Steering Board for Trade outlined the general criteria under which the import program of a country invoking the escape clauses provided by the Code should be considered by the Organization. It was recommended (1) that such a country should maintain the traditional pattern of its imports from other member countries; (2) that its over-all economies in external expenditures should not be concentrated on such a limited range of products as to reduce imports of such products to an abnormally low level; and (3) that in imposing quota restrictions it should not unduly favor certain categories of imports and directly or indirectly discriminate against certain of its partners, notably through a more favorable treatment of the “quota sector” (i.e., imports admitted under quota previous to the reimposition of restrictions) than of the “ex-freed” sector.

Following the recommendation of the Steering Board for Trade, the Council decided in May 1954 to strengthen the application of Article 3c of the Code. A member country invoking these articles shall endeavor to ensure that its measures of trade liberalization should, twelve months after it has invoked Article 3c, cover at least 60 per cent of its total imports on private account and at least 50 per cent of such imports in each of the three categories specified in the Code, and at the end of eighteen months should cover at least 75 per cent of its total imports on private account and 60 per cent of such imports in each of the three categories. In addition, before a period of twelve months has expired, the situation of the member will be reviewed by the Steering Board for Trade and by the EPU Managing Board, which will report to the Council.

The OEEC is also preparing a series of measures which will tend to meet the difficulties arising from the maintenance of barriers to trade for protectionist reasons. Progress in this field will probably depend upon the adoption of satisfactory solutions to the first set of problems. Meanwhile, an investigation has been started, the purpose of which is to supply the Organization with detailed information on the nature, scope, and impact of the practices followed by member countries for the protection of national industries, and governments have been requested to submit “justification concerning the maintenance of quantitative restrictions on imports on private account for reasons other than balance of payments difficulties.”

Recent decisions of the Council tending to restrict the freedom of member countries to offset the elimination of quantitative restrictions on private imports by transferring such imports to a monopoly under government control have been mentioned above. A parallel undertaking is being launched in the field of tariffs. Special problems have been encountered in this respect because of the risk of conflict with obligations under the GATT. It has been suggested that the OEEC countries should concentrate their efforts on a more liberal tariff policy for items that are of primary importance in European trade, subject to the proviso that a reasonably balanced list of such items could be established and that action by these countries should form part of a world-wide scheme. In consultation with the other international organizations concerned, a “European Commodities List” (i.e., commodities which are imported by member countries almost exclusively from one another) is in preparation.

Appendix. The Course of Intra-European Trade, 1948–53

Over-all changes

Chart 1. shows the development of the volume of imports of OEEC (metropolitan) countries combined from OEEC Europe and from the rest of the world (including territories dependent on or associated with OEEC metropolitan countries), while Table 7 shows changes in the value of trade.

Chart 1.
Chart 1.

Index of Volume of Imports of OEEC Countries Combined1

(1950 - 100)

Citation: IMF Staff Papers 1955, 001; 10.5089/9781451960150.024.A001

1 The data for 1938 are tentative. For description of data in the chart, see text. Sources: OEEC Statistical Bulletins.
Table 7.

Value of Trade of OEEC Members Combined, 1947–53

(In billions of U.S. dollars)

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Half-year trade at annual rate.

The chart shows that from 1947 onward, with the exception of the period from mid-1951 to mid-1952, continuous progress was made by the OEEC countries in the expansion of trade among themselves. From 1947 to 1950, progress was particularly rapid. Imports from the rest of the world, on the other hand, remained relatively stable from 1947 to 1950, but they increased a little more between 1950 and mid-1951 and decreased a little less between mid-1951 and mid-1952 than intra-OEEC imports; from mid-1952, however, the growth of intra-OEEC imports was greater than that of extra-OEEC imports.

Extraordinary financing continued on a large scale in 1950 and 1951 under the Marshall Aid Program and began to taper off from 1952 onward. Moreover, the violent outburst of activity in increasing raw material stocks (fed to a much larger extent from overseas supplies than from European supplies, for reasons discussed above), which took place in 1950 after the opening of hostilities in Korea and continued in 1951, was a factor of much greater importance in the development of the trade of the OEEC area than any other factor originating within the area during this period. It was only during 1952 that the general conditions of international trade became less abnormal, and since at the time this paper was written statistical information did not extend beyond the first half of 1953, the period of time to which analysis could be directed was too short to permit definitive conclusions.

It may be remarked, however, that the higher rate of growth of intra-OEEC imports relative to that of extra-OEEC imports (excluding military items) between mid-1952 and mid-1953 coincided with a substantial increase in liberalization percentages (see Table 3).

Changes in commodity composition

A liberalization scheme of the OEEC type permits market demand to operate more selectively; it may therefore be expected to affect the commodity composition of trade. These effects, of course, are a consequence of changes in the supply of goods that become available for export; in the present status of available information, these changes can be gauged only indirectly. But even changes in the commodity composition of intra-European trade from 1948 onward are extremely difficult to follow because statistical sources are uncomfortably deficient in adequate information permitting a systematic comparison of trade by commodity groups at different periods. There are no statistics for intra-European trade on the basis of a constant price and commodity classification covering the whole period.29 An attempt may nevertheless be made to show how the intra-European trade of some of the more important trading countries of the OEEC developed after 1948 in the three commodity groups distinguished in the Code of Liberalization.

Table 8 presents data (expressed in current dollar values) on the quarterly averages of the intra-European trade of nine of the more important trading countries of the OEEC in 1948, the first three quarters of 1949, the entire year 1950, the second half of 1950, and the first half of 1951; Table 9 shows the percentage changes in these averages; and Table 10 describes developments in the supply situation.

Table 8.

Quarterly Averages of Imports of Nine OEEC Countries from All Metropolitan OEEC Countries, Selected Periods1

(In millions of U.S. dollars)

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The nine countries are Belgium-Luxembourg, Denmark, France, Germany, Italy, Netherlands, Norway, Sweden, and United Kingdom.

Source: OEEC Foreign Trade Statistical Bulletins, Series I, December 1951.
Table 9.

Percentage Changes in Current Dollar Values of Intra-European Imports of Nine OEEC Countries, Selected Periods1

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For periods compared and source and description of data, see Table 8.

Table 10.

Indices of Industrial and Agricultural Production in OEEC Countries Combined, 1948–511

(1938 = 100)

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These data have been adapted from production indices (1950 = 100) published in OEEC General Statistical Bulletin, No. 6, November 1953, pp. 2 and 4.

Since the OEEC General Statistical Bulletin does not give a separate index for crude steel production, these indices have been derived from production figures given in Economic Survey of Europe in 1951 (U.N. Economic Commission for Europe), p. 182. In its total manufacturing index, the OEEC includes the group, basic metal industries, for which, however, data are available only from 1948 onward. For the period covered by this table, the indices (1950 = 100) for basic metal industries are as follows: 80 in 1948, 91 in 1949, 103 in second half of 1950, and 116 in first half of 1951.

These indices are based on 1950 = 100, since an index for 1938 is not available in OEEC source.

Whole year 1951.

There are certain differences between the commodity composition of each of the three broad groups of imports in Table 8 and the categories distinguished by the Code, which statistical difficulties make it impossible to avoid. The main discrepancies concern the classification of “textile fibers” and “chemical products,” which belong partly to the “raw materials” and partly to the “manufactured goods” categories. In Table 8, “textile fibers” is listed separately under “raw materials,” and “chemical products” is listed separately under “manufactured goods.”

While the intra-European imports of the nine countries covered in Table 8 increased by 15 per cent in value between 1948 and 1949, the rise in imports of both agricultural products (23 per cent) and raw materials (20 per cent) was substantially higher than that of manufactured goods (12 per cent); and in the last group, imports of machinery and vehicles increased by 17 per cent, while those of textiles rose by only 3 per cent, and those of chemical products remained practically stable. In view of the fall between 1948 and 1949 in the average unit value of intra-European imports, in the prices of imported foodstuffs,30 and in the prices of imported raw materials,31 the increases in the volume of total imports and in the volume of imports of agricultural products and of raw materials were greater than the increases in value shown in the table.

A comparison between (1) the contribution of the various commodity groups to the rise in the total value of imports in the second half of 1950 and the first half of 1951 and (2) that noted for 1949 reveals a remarkable change. In the 1950 and 1951 periods, imports of raw materials rose by 13 per cent and 20 per cent, respectively, while imports of manufactured products rose by 20 per cent and 35 per cent; in other words, there was a reversal from the changes noted between 1948 and 1949. Moreover, if these figures are judged against the background of price rises subsequent to 1949, which were much steeper for raw material products than for manufactured articles, the conclusion emerges that the reversal of the value figures understates the change that would be shown by volume figures.

Observations on changes in the imports of agricultural products are less clear-cut. The figures in Table 9 show that, in value terms, the percentage rise of imports between 1949 and the second half of 1950 was larger in this group than in the other two. This is probably to be accounted for largely by the seasonal rise in agricultural trade during the autumn; moreover, on account of the rise in the price of imported foodstuffs in this period (about 10 per cent), the increase in the value of such imports was, presumably, much higher than the increase in volume. Furthermore, given the fact that the contribution of imports of agricultural products to the rise in the value of total imports was moderate in 1950 (17 per cent) and negative in the first half of 1951, the trend of imports in this sector, in terms of volume, seems to have been closer to that in the raw materials sector than in the manufactured goods sector.

Within each broad category of imports, there were marked differences between the trend of particular groups of products and that of the categories in which they are classified. In the raw materials category, the trend of the group “other than fibers” (whose weight in the category was much greater than that of fibers) was the same as that of the whole sector. A similar trend was shown by the group “machinery and vehicles” in the manufactured goods category; but the three other groups in the manufactured goods sector and “textile fibers” in the raw materials sector followed markedly different trends. The shift in the trend of trade in “chemical products” and “textiles” is particularly noteworthy.

Table 11.

Percentage Increases in Textile Prices, September 1949 to February 19511

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These percentage changes are based on indices of textile prices.

Third quarter 1949 to December 1950.

September 1949 to January 1951.

Source: U.N. Economic Commission for Europe, Economic Survey of Europe in 1950, p. 131.

As for textiles, while the steep rise in prices in the second half of 1950 was responsible to a large extent for the swelling of current values of trade in textile fibers in this period, this impact on the price of manufactured textile products was presumably neither prompt enough nor large enough to explain the 40 per cent difference between the value of imports of those products in 1949 and in the second half of 1950. The 60 per cent increase between the latter period and the first half of 1951 also seems out of proportion to the price rises. Indices of prices of imported fibers from all sources for OEEC member countries combined were (1951 = 100) 61.3 in 1948, 58.6 in 1949, 91.1 in the second half of 1950, and 118.2 in the first half of 1951. A further illustration of this point may be found in Table 11.

*

Mr. Boyer, economic assistant to the Director of the Fund’s European Office (Paris), is a graduate of Paris University (Faculty of Law) and Oxford University (Worcester College). He was formerly a member of the staff of the Research Department of the Fund.

Mr. Sallé advisor in the Fund’s European Office (Paris), is a graduate of Paris University. He has served in several private international concerns and in the French Government, and was formerly advisor in the Operations Department, and later in the European Department, of the Fund.

1

This paper was prepared early in 1954. Although changes in the OEEC liberalization scheme introduced before November have been taken into account, some of its important features, e.g., its relation to the dollar problem and its future viewed in the perspective of convertibility projects, are not covered.

2

Convention for European Economic Cooperation, April 16, 1948, Article 4.

3

Trieste was a member until the absorption of its territory by Italy and Yugoslavia.

4

Paragraph 6: “Considering that one of the aims of the Organization is to achieve—as a stage towards the world-wide liberalization of trade and invisible transactions—as great a liberalization as possible of trade and invisible transactions between Member countries. …”

5

So far the Council had not considered it possible to adopt nondiscrimination as a principle of general application, although a Council decision of August 13, 1949 had provided that “each Member shall endeavor to avoid any discrimination not based upon balance of payments considerations.”

6

So far member countries have retained the right to withdraw multilateral liberalization measures by unilateral decision.

7

These rules are not dealt with specifically in this study. A number of Council decisions had already been taken on the liberalization of “invisible” (service) transactions when the Code of Liberalization of Trade, which initially covered merchandise trade only, was adopted. The former decisions were subsequently incorporated in the Code of Liberalization, with certain modifications, and have since been further revised and extended. In general there is a close parallelism in the Code rules between the principles to be followed by member countries in their commercial policies in either field. Member countries bound themselves in particular to “abolish all restrictions on current invisible transactions connected with the movement of commodities which are the object of measures of liberalization of trade …” (Article 14 of the Code of Liberalization). In addition, lists of current services have been established regarding which liberalization obligations are graded in accordance with the degree of their essentiality to international intercourse.

8

For details on the computation of these percentages, see pages 191–94.

9

Disapproval requires unanimity.

10

These exceptions are set forth in Articles 8, 9, and 10 of the Code.

11

As explained below, various OEEC organs have been led to study the situation that might arise should a member country decide to leave the EPU while maintaining its participation in the OEEC.

12

Payments between the independent members of the sterling area and the continental members of the EPU are settled through the U.K. quota within the framework of the EPU. The U.K. quota has been calculated on the basis of the total of the visible and invisible transactions in 1949 between the sterling area taken as a whole and the continental members of the EPU.

13

Under this Article, member countries must, within periods determined by the OEEC, notify the Organization concerning the following: (1) the commodities imported by governmental monopolies; (2) the method of operation of the import agencies; and (3) where appropriate, the reasons for which the importation of commodities by the monopolies is maintained under a special administrative regime.

14

For reasons discussed below, different reference years were chosen for Germany (1949) and Austria (1952).

15

As explained above, except for the Common List prescriptions, countries are left free to choose the commodities to which liberalization measures are to be applied.

16

As already stated, government trading is not necessarily resorted to for restrictive purposes, and the change in the status of given imports from government to private need not result in an increase in such imports. The question is discussed here only from the standpoint of the mechanics of the formula.

17

10200×100.

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18

For country X:16204×100;

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and for country Y:20200×100.
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19

Exports of member countries to the OEEC area increased in value by 14 per cent in 1949 and by 17 per cent in 1950, while German exports to the area in the same years increased by 40 per cent and 55 per cent, respectively. German exports to the area represented 8 per cent of total exports of member countries to the area in 1949 and 11.5 per cent in 1950. (Source of calculation of these data: OEEC Foreign Trade Statistical Bulletins, Series I: Yearbook, 1987–51, July 1952.)

20

From data in U.N. Economic Commission for Europe, Economic Survey of Europe in 1948, Chapter 7, it appears that trade among West European countries, excluding Germany, was $3.02 billion in 1938 and $3.04 billion in 1948 (both values at 1938 f.o.b. prices).

21

The following data, derived from Economic Survey of Europe in 1948, p. 187, are particularly revealing. The volume indices (1938 = 100) of imports of Sweden and of the Benelux countries from the OEEC area were, respectively, 107 and 85 in 1947. Corresponding figures for other countries were Germany (Western Zone), 19; the United Kingdom, 53; Italy, 54; and France, 72.

22

Economic Survey of Europe in 1949, p. 78.

23

Economic Survey of Europe in 1950, p. 83.

24

This percentage was raised to an all-time high of 71.6 between December 1, 1953 and April 1, 1954 (see Table 1), mainly as a result of the United Kingdom’s liberalization measures, which increased the United Kingdom’s liberalization performance in Category I from 58 to 86.7. The over-all liberalization percentage for agricultural products is still the lowest of the three categories.

25

E.g., between France and Belgium, Sweden and the United Kingdom, Norway and Belgium, Denmark and Switzerland. The Economic Commission states, “Both Belgium and Switzerland, which had earlier made a notable contribution to the postwar restoration of intra-European trade by their liberal import policies and the extension of credits, were, in 1948, no longer prepared to grant fresh credits on any substantial scale and tended rather to press for the repayment of credits extended earlier… Both these creditor countries consequently tended to move towards a closer bilateral balancing of their accounts with other countries” (Economic Survey of Europe in 1948, p. 138.)

26

Ibid., p. 141.

27

France, Turkey, Iceland, and Greece. Austria has made substantial progress in liberalization and during 1954 attained the 75 per cent mark.

28

Article 3e of the Code provides that “any Member country invoking the provisions of this Article shall do so in such a way as to avoid unnecessary damage which bears especially on the commercial or economic interests of another Member country, and, in particular, shall avoid any discrimination as between one Member country and another.’

29

OEEC trade statistics, which were originally classified by commodities in accordance with the OEEC nomenclature (with reference to which the classification by the Code of Trade Liberalization between agricultural products, raw materials, and manufactured goods was defined), were adapted in the course of the period under review to the Standard International Trade Classification (S.I.T.C.), which has been adopted by several international organizations.

30

Price indices of imported foodstuffs for OEEC countries combined from all sources (1951 = 100) were 94.8 in 1948, 84.6 in 1949, 94.6 in the second half of 1950, and 101.1 in the first half of 1951. (OEEC General Statistical Bulletin, No. 6, November 1953, p. 79.)

31

Price indices of imports of crude materials from all sources (1951 = 100) were 65.8 in 1948, 57.9 in 1949, 85.8 in the second half of 1950, and 111.7 in the first half of 1951. (OEEC General Statistical Bulletin, No. 6, November 1953, p. 79.)

IMF Staff papers: Volume 4 No. 2
Author: International Monetary Fund. Research Dept.