Benelux (Belgium, the Netherlands, and Luxemburg) is the only customs union of significant scope operating in western Europe. Benelux is a contracting party to the General Agreement on Tariffs and Trade and as such is obligated to generalize any tariff concession it may make on imports into Benelux territory, to all other contracting parties to the General Agreement, of which the United States is one. There are no tariffs on imports of goods from one Benelux country into another. A customs union between France and Italy has been studied but has not yet been brought before the legislative bodies of the two countries. France is also a contracting party to the General Agreement and Italy will be negotiating at Annecy in April for the purpose of acceding to the General Agreement. A. GENERAL STATEMENT ON BILATERAL AGREEMENTS The term "bilateral agreement" itself has no precise meaning as far as the provisions of the agreement are concerned. Most intergovernmental agreements relating to trade are bilateral, and they may take any one of a number of forms. The following general types may be separately identified and they cover approximately the range of opportunities that are open to governments in making bilateral agreements in relation to trade. Any given bilateral agreement may combine various characteristics of more than one type of agreement. 1. Commercial treaties.-These establish the foundations for trade relations. 2. Trade agreements, of the type entered into by this Government with other governments. These provide for the reciprocal reduction of trade barriers and establish the general framework within which trade will be conducted. 3. Clearing agreements.-These provide for the exchange of goods with a minimum of foreign-exchange transactions. Importers pay their debts in their own national currencies and exporters are paid in their own currencies. Transfer of foreign exchange is thus eliminated. 4. Payments agreements.-These are designed to guarantee that the proceeds from the sale by one country to another shall be used to pay for current imports from that country or to settle arrears and other financial claims. 5. Bulk purchasing.—Bulk-purchase agreements commit a significant portion of a country's export of a particular commodity for significant future period. The purchase may or may not be at a fixed price. 6. Compensation agreements.-Compensation agreements usually provide for establishment of equivalence in trade between the two contracting countries, with some financial settlement required, but involving a minimum of currency exchanged. 7. Barter agreements.-These arrange for an exchange of goods for goods, either with no values assigned or with values stated on a common basis so as not to require any arrangement for centralized financial settlement. This memorandum is not concerned with either commercial treaties or trade agreements of the type concluded under the United States reciprocal trade-agreements program, nor is it concerned with the prewar type of bilateral agreement having to do with financial settlement, growing out of the shortage of currency and not involving a specific transfer of commodities. Postwar agreements Most postwar bilateral agreements are a combination of compensation and clearing agreements, with many variations and special arrangements. The most numerous types usually have some or all of the following characteristics: 1. They are intergovernmental and strictly bilateral, but the governments themselves usually do not purchase or supply the commodities involved. 2. They are for short terms, generally about a year. 3. They include lists of specified products; each of the two parties agrees to permit shipments of these products, up to the quantities or values specified, under whatever export-control system it regularly maintains. The agreements usually authorize but do not guarantee the exchange of goods. 4. Settlement for goods exchanged is made through clearing accounts in the respective national banks in order to minimize transfers of currency. In connection with some of these agreements credits may be extended for a longer period of time than is provided for the exchange of goods themselves. The following tabulations include all intergovernmental bilateral trade or tinancial agreements on which information is available. Probably the lists are not complete, however, either as to number of agreements actually in existence, or as to terms of the agreements. Official texts are not always available and in some cases information has been obtainable only from confidential sources. Why bilateral agreements are made The typical postwar bilateral agreement is essentially a makeshift designed to meet temporary necessities of countries whose economies have suffered because of the war. Such agreements do not necessarily represent permanent departure from multilateral, competitive trade policies. The governments participating in them usually describe them as undesirable necessities which should be abandoned as soon as conditions permit a return to multilateral trade. The majority of these agreements are clearly attempts by the countries involved to obtain urgently needed imports when exports and credits are scarce. Countries are not willing to export unless they can be sure of obtaining needed imports in return. The agreements reflect low levels of production in foreign countries and an almost world-wide shortage of United States dollars. Without stable or convertible currencies many countries must lean heavily on two-way commodity exchanges which roughly balance out and which depend on clearing arrangements to facilitate solution of the monetary problem. Effect on United States trade and trade policy Few of these bilateral arrangements directly affect the trade of the United States under present conditions. They seldom involve significant quantities of a given commodity as compared with the volume of prewar trade, and seldom have the effect of preempting import markets which the United States exporters are anxious to supply. There is, moreover, a great difference between the volume of trade authorized under these agreements and the amount of trade which actually occurs. In general, the quantities of commodities scheduled in the agreements represent the volume of exports which one country would like to send out and the volume of imports which it would like to have, rather than what it actually can produce for export or can pay for as imports. While the postwar pattern of bilateral commercial agreements arises from understandable necessities and while few of the agreements directly threaten any injury to United States foreign trade now, their tendency is nevertheless toward restriction of world trade and toward conflict with American economic foreign policy. This Government therefore believes it undesirable for this pattern to continue and to be "frozen" after world shortages of commodities are ended. The United States Government, therefore, has sought, through the reciprocal trade-agreements program, through participation in the International Monetary Fund and the International Bank for Reconstruction and Development, and through support of the proposed International Trade Organization, to eliminate the conditions under which so many countries have turned to bilateral exclusive trade agreements as the only way out of their dilemma. B. EUROPEAN BILATERAL AGREEMENTS Since the end of World War II, intra-European trade has been conducted primarily within the framework of bilateral trade and payments agreements. According to information presently available, at least 213 agreements are in force between European countries, including 79 agreements among countries participating in the Organization for European Economic Cooperation (OEEC), 88 agreements between OEEC countries and countries of eastern Europe, 9 agreements of OEEC countries with Spain, and 37 agreements among countries of eastern Europe. Although the physical supplies of goods available for trade within Europe have improved considerably since the end of the war, the basic conditions that necessitated the resort to bilateral trade agreements remain in force: (1) Europe as a whole needs to import more goods and services than it can export in return; (2) European currencies, except the Swiss franc and the pound sterling within the sterling area, remain "soft" and not freely convertible into dollars; and (3) even the financially stronger European countries, such as Belgium and Switzerland, must take payment on their exports to Europe in European goods or in "soft" European currencies. As a result, European trade still is characterized by a scheduling of imports and exports by quantity or value during a short-term future period. There is usually clearing of current payments through special accounts that balance, within narrow limits, payments due from and payments due to agreement partners. The essentiality of the goods imported in return for exports and the possibility of paying for imports by means of the country's own exports are the bases of trade negotiations. It should be noted that scheduled quantities and projected trade values under bilateral agreements are not restrictions on trade but trade targets for the period specified. Quotas may be increased or a supplementary agreement may be negotiated if trade possibilities improve during the agreement period. The negotiating governments usually agree to issue licenses at least up to the quantities or values specified but do not, as a rule, guarantee their implementation. Even the agreements negotiated by State-trading countries generally must be spelled out by further negotiations on specific prices and delivery dates before target quotas have the force of contracts. In the case of Turkey and the United Kingdom, specific commodity quotas frequently do not appear in the bilateral agreement. Although generalization is difficult in the wide field of bilateral agreements, certain distinctions may be drawn: (1) Agreements between OEEC countries, as a result of OEEC efforts and ECA assistance, are tending to depart from a strictly bilateral pattern. During 1948, it became apparent that important trade channels in western Europe were becoming blocked by the heavy debtor position of certain countries and the inability of European creditor countries to extend these debtors further credit. Trade was encountering the typical difficulty of bilateralism, which tends to limit trade to the lower level possible between agreement partners. By means of simple clearing through the Bank of International Settlements, a limited number of triangular or quadrilateral offsets were arranged. As a condition for receiving ECA conditional aid allotments, creditor countries in the current year agree to extend drawing rights to their debtors. Drawing rights against the creditor are to result in an excess of creditors' exports over imports obtainable from the debtor, in value at least equal to the amount of the conditional aid. In this way, a rough conversion of soft-currency credits into dollar credits is arranged. (2) Agreements between OEEC countries and countries in eastern Europe generally have less complicated financial provisions and more limited credit "swings" than intrawestern European agreements. An excess of western European imports from eastern Europe is, however, traditional in intra-European trade. To finance a current import surplus of foodstuffs, fuel, and raw materials from eastern Europe, western European countries generally cannot make payments in gold or dollars. As a result of this situation "investment" agreements have been developed under which an eastern European supplier (especially Poland, the USSR, and Yugoslavia) delivers goods in the current year as orders are placed for machinery and other industrial goods for delivery over 2- to 7-year periods. In some cases, specific percentage down payments are required in the form of exports from the eastern European countries. In some cases, the eastern European partner is to supply specified raw materials needed for the production of the type of goods ordered. It may be noted that investment-type agreements appear also in eastern European trade, with Czechoslovakia most frequently the supplier of goods for long-term delivery. (3) Agreements between European countries and countries of the Middle and Far East and between European countries and countries of Latin America sometimes differ widely from the continental European pattern. As dollars have become increasingly scarce in Latin America as well as in Europe, Europe's trade with Latin American countries is tending more and more toward a bilateral balancing of imports and exports. This bilateralism, however, is not as yet complete and limited credits and free-exchange payments may be found in EuropeanLatin American trade. In some cases, European "agreements" with non-European areas are not reported in detail and may represent specific deals rather than full-scale government-to-government agreements. Following are (a) a summary of European bilateral agreements, with the various European and non-European areas, and (b) a list of the agreement partners and time periods of bilateral agreements reported. Summary of European bilateral agreements as of Feb. 17, 1949 1. Agreements between OEEC countries: (a) In western Europe and Scandinavia_. 21 (b) Western Europe and Scandinavia with Austria, Mediterranean 34 (c) Western Germany with OEEC countries__. Total intra-OEEC agreements. 2. Agreements between OEEC countries and countries of eastern Europe-- 88 13 Summary of European bilateral agreements as of Feb. 17, 1949-Continued 3. OEEC countries with Spain. 9 Total OEEC countries with non-OEEC countries in Europe--- 97 Total OEEC agreements in Europe- 4. Agreements between countries of eastern Europe‒‒‒‒ 176 37 Total intra-European agreements___ 213 5. Agreements between continental European countries and countries out- (a) OEEC countries with the Middle and Far East__. (d) Eastern Europe with Latin America_ (e) Spain with Latin America_ Total European with non-European countries__ Total Agreements__. 1. Most recent commercial agreements between OEEC countries: (a) Western Europe and Scandinavia. |