As previous reports on the operation of the trade agreements

program have pointed out, the operations of EPU have been an important factor in carrying out the objectives of the Western European Countries and the sterling-area countries that have been associated with EPU

through the United Kingdom's membership therein.

Through the EPU

mechanism, member countries have been able to transfer the credits they have earned in their trade with other members to pay the deficits they have incurred in trade with still other members. The solution of the transfer problem, in turn, has made it possible for OEEC to achieve a progressive elimination of the quantitative import restrictions on intra-European trade that its various members had established before EPU was created. These cooperative efforts, together with the revival of economic activity in the OEEC countries, have brought

the currencies of the cooperating countries closer to convertibility with the dollar. The closer individual countries have come to achieving convertibility of their currencies with the dollar, the greater has been their ability to remove quantitative restrictions on imports payable in dollars. Some of the countries concerned have now progressed so

far in liberalizing dollar imports that they maintain little or no discrimination against such imports--that is, they apply virtually the same degree of liberalization to dollar goods as they apply to goods originating in the EPU area itself.

RELATIONSHIP OF THE GENERAL AGREEMENT, THE INTERNATIONAL
MONETARY FUND, AND THE WORLD BANK

The General Agreement on Tariffs and Trade, which became effective. at the beginning of 1948, was sponsored by the United States and the other contracting parties as a multilateral arrangement to replace the network of bilateral trade agreements that had grown up during the 1930's and early 1940's. More than a decade of experience with bilateral trade arrangements had revealed a number of weaknesses that, it was believed, could be overcome by a multilateral approach to the problems of tariffs, other trade barriers, and exchange restrictions. As a result of the breakdown of the multilateral system during World War II, the great bulk of world trade in the period immediately after the war was conducted under bilateral arrangements. These arrangements were accompanied by a confusing array of exchange controls and quantitative trade restrictions, as well as by higher import duties. Under these conditions the United States was greatly handicapped in its efforts to maximize the effectiveness of its economic aid to foreign countries. Accordingly the United States took the initiative in proposing the establishment of international agencies that would assist in restoring order to a confused and disrupted world

economy.

To accomplish this objective, the United States and other countries early in the postwar period planned to establish a "tripod" set of organizations, each with a permanent secretariat. These organizations were the International Bank for Reconstruction and Development (the World Bank), the International Monetary Fund, and the International Trade Organization (ITO). The World Bank was created to assist member countries in recovering from the effects of World War II and in developing their economies to their maximum productive capacity. To the International Monetary Fund was given the responsibility of assisting members in establishing their currencies on a sound basis and--in collaboration with the other two organizations--of restoring the general convertibility of currencies. As originally conceived, the International Trade Organization was to deal with tariffs, quantitative trade restrictions, customs matters, and other aspects of commercial policy and practice, all in the interest of restoring international trade to a multilateral basis. In addition, ITO was to be concerned with a variety of other problems, including cartels and international commodity agreements. However, the United States Senate did not ratify the ITO Charter, and after the United States withdrew its support in December 1950, other

countries did likewise.

Meanwhile, anticipating that ITO would be established, the

United States; and a number of other countries proceeded to negotiate the multilateral type of trade agreement that ITO was expected to administer.. This agreement, known as the General Agreement on Tariffs and Trade (GATT), became effective after the multilateral tariff negotiations at Geneva in 1947. Additional tariff-negotiating conferences under the sponsorship of the General Agreement were held at Annecy, France, in 1949; at Torquay, England, in 1950-51; and at Geneva in 1955 and 1956.

The failure of the ITO to materialize did not affect the freedom

Failure

of countries to negotiate on a multilateral basis with respect to tariffs and other matters. The United States and many other countries merely turned from their earlier practice of negotiating trade agreements on a bilateral basis to negotiating such agreements on a multilateral basis under the General Agreement on Tariffs and Trade. to establish ITO meant, however, that there was no permanent central body to administer the General Agreement. The Contracting Parties to the General Agreement met this problem by agreeing to meet periodically to conduct such business as might arise out of the operation of the agreement Unlike the World Bank and the

International Monetary Fund, which are treaty organizations with permanent secretariats, the General Agreement is a treaty arrangement only and has no permanent secretariat. 1/

Because the International Trade Organization was not established,

the idea of a tripod set of international bodies--of which the Fund and the World Bank were the other two--was not completely realized. Failure to establish ITO did not, however, prevent a high degree of

collaboration between the Contracting Parties to the General Agreement and the Monetary Fund and the World Bank. Actually, the activities of the General Agreement and those of the World Bank are not closely related in any day-to-day sense. The interests of the General Agreement and those of the International Monetary Fund, on the other hand, are close. The following section of this report, which discusses the provisions of the General Agreement that relate to tariffs and quantitative restrictions on imports, describes the relationship between the General Agreement and the International Monetary Fund.

1/ Because of this difference, the countries that belong to the World Bank and to the Fund are properly spoken of as members of these organizations, whereas the countries that participate in the General Agreement are referred to as contracting parties to the agreement.