Chapter 5

Developments in Trade Restrictions and Exchange Controls in Countries With Which the United States Has Trade

Agreements1

INTRODUCTION

The United States is interested not only in the elimination of quantitative restrictions on imports of dollar goods by the various countries with which it has trade agreements, but also in the liberalization by those countries of their treatment of imports from other areas. Liberalization of imports from the dollar area by countries that employ quantitative restrictions is often closely related in timing and coverage to treatment by these countries of imports from nondollar sources.

This close relationship between the treatment of dollar and nondollar imports is particularly noticeable in the actions of the 17 Western European countries that are members of the Organization for European Economic Cooperation (OEEC). By a decision of the Council of OEEC of January 14, 1955, acting under the OEEC Code of Liberalization, each of these countries is required to attain a liberalization of 90 percent for its private imports from the OEEC area, and a liberalization of at least 75 percent for the 3 categories of food and feedstuffs, raw materials, and manufactured products. Some of the OEEC countries have reached or exceeded the specified level of liberalization for OEEC imports. Some of them also have extended the same degree of liberalization to dollar goods by removing-for OEEC and dollar goods alike—all quantitative restric

1In this report the discussion of trade controls employed by countries with which the United States has trade agreements is limited to quantitative import restrictions and exchange controls; export controls and import tariffs are not discussed.

The United States has trade agreements with 15 of these countries (all except Ireland and Portugal). Of the 15 countries, 13 are parties to the General Agreement on Tariffs and Trade; the other 2-Iceland and Switzerland-are parties to bilateral trade agreements with the United States.

In July 1956 the period during which these levels of liberalization are to be attained was extended to the end of 1957.

tions on the commodities they have liberalized. Most of the OEEC countries, however, have followed the policy of removing more restrictions on OEEC imports than on dollar imports. As a result, discrimination against dollar imports continues as far as the formal import-control regulations are concerned.

It is a common practice for OEEC countries that still formally discriminate against dollar goods to license liberally those imports from the dollar area that are still formally subject to quantitative restrictions. Thus there actually is a greater degree of de facto liberalization than de jure liberalization for these goods; or, conversely, a greater degree of de jure discrimination than de facto discrimination against dollar goods. The United States has continued to press for complete removal of the discrimination against dollar goods that results from this practice, and has met with favorable response in some instances but unfavorable response in others. Most countries, however, defend the formal retention of their control regulations on the ground that such regulations might be needed in the future should their dollar position deteriorate. They therefore prefer to license a large part of their dollar imports as liberally as their current payments position permits, but to retain their freedom of action in applying the controls.

The countries of the sterling area are closely associated with the OEEC. The only sterling-area countries that are members of OEEC are the United Kingdom, Iceland, and Ireland. Because of their membership in OEEC, these countries have the same obligations as other members to liberalize their quantitative restrictions on imports from OEEC countries. They also are members of the European Payments Union, which was established by OEEC in 1950 as a clearing mechanism.*

Sterling-area countries that are not members of OEEC have no such obligations as the United Kingdom, Iceland, and Ireland with respect to trade liberalization. But, by virtue of the United Kingdom's participation in the clearing arrangements of the European Payments Union, all other sterling-area countries also participate in the work of that organization because they rely on sterling in the settlement of their international accounts.5 Whatever common policy the sterling-area countries may have with respect to trade restrictions on imports from outside the area results from their cooperation in using and safeguarding the area's

4 Although Ireland is a member of the EPU, it does not have a separate position in the EPU accounts, but is included in the United Kingdom account. Iceland, on the other hand, has a separate position in the EPU accounts, although it is in the same position as Ireland in being part of the sterling area.

Besides the sterling area, EPU embraces the monetary areas of Belgium, France, Italy, the Netherlands, and Portugal, all of which extend beyond the national boundaries of these countries into their overseas territories. A United Kingdom surplus or deficit with the continental members of EPU, for example, may be balanced by a deficit or surplus of the overseas sterling area with continental Europe.

reserves of gold and foreign exchange. Even though these countries "bank" in sterling, they nevertheless (some more than others) have to control their expenditures of sterling.

Aside from the OEEC countries and the sterling-area countries, a number of other countries with which the United States has trade agreements also maintain restrictions on imports, almost entirely for balanceof-payments reasons. These countries are Argentina, Brazil, Chile, Finland, Indonesia, Iran, Japan, Paraguay, Peru, and Uruguay. Peru is in the special position of having a currency that for some years has been regarded as "substantially convertible." Although Peru maintains no import restrictions for balance-of-payments reasons, it does maintain restrictions on imports of automobiles and a few other commodities, and for this reason is required, as are the other countries named above, to report annually to the International Monetary Fund regarding the further retention of such controls. The United States has bilateral trade agreements with Argentina, Paraguay, and Iran, and obligations under the General Agreement with the other countries. The policies of these countries with respect to trade liberalization are independent of any regional agreements. However, all of these countries are members of the International Monetary Fund, and six of them are contracting parties to the General Agreement. They all, therefore, have obligations to relax and remove quantitative restrictions and exchange controls. These obligations are of great importance to the United States in its policy of seeking removal of restrictions on its trade whenever possible.

Finally, a number of countries with which the United States has trade agreements do not have balance-of-payments problems and therefore do not employ import restrictions for balance-of-payments reasons. These countries, which are not discussed further in this report, are Canada, Cuba, the Dominican Republic, El Salvador, Haiti, Honduras, Nicaragua, and Venezuela. El Salvador, Honduras, and Venezuela are parties to bilateral agreements with the United States, and the other five countries are contracting parties to the General Agreement; all are members of the International Monetary Fund. These countries rely almost entirely on their tariffs to restrict imports. Nicaragua requires licenses for all imports, but issues such licenses automatically. All the other countries require import licenses for only a few commodities.

THE OEEC COUNTRIES

For several years the principal objectives of the 17 countries that are members of the Organization for European Economic Cooperation have been the freeing of intra-European trade from quantitative trade restrictions, the establishment of currency convertibility among member countries, and the expansion of their production. Incidental to attainment

of these objectives has been the liberalization of their trade with nonOEEC countries, particularly the United States, Canada, and other dollar countries. By 1956, as an OEEC working party pointed out, liberalization in its present form had practically reached its limit. However, the possibility that a European common market and an even larger European free-trade area might be established afforded hope that further liberalization of trade among European countries might be accomplished through those arrangements.

In its seventh report, issued in 1956, the OEEC thus characterized the difficulties of further liberalizing the trade of its member countries:

The difficulties in the way of further progress towards liberalisation are complex, since they often involve several of the following considerations. In certain countries, including some of the more important ones, the balance of payments is still unstable. The sectors still protected by quotas are often the least efficient ones, and hence are those where such protection is most uneconomic, but where opposition to foreign competition is strongest. The greater the sacrifices, the more the countries insist on strict reciprocity from their partners, and the use of means of protection other than quotas (customs tariffs, State trading, etc.) appears all the more contrary to the idea of equality of treatment. Countries which consider themselves harmed by such practices tend to retain quotas as a defensive weapon. Lastly, quantitative restrictions are sometimes retained as a check on competitive practices which the countries consider unfair. The greatest difficulties, however, are to be found in regard to the liberalisation of agricultural products, as in this sector production policy has for a long time been formulated without taking sufficient account of the advantages of the international division of labour. This development, resulting from a complex set of historical, political and social factors, can only be changed by national corrective measures, harmonised with the gradual reduction of obstacles to international trade.

... In part, the increased difficulties of further liberalisation of trade are the consequences of past success; the fewer the remaining quantitative restrictions, the stronger the forces supporting them, and the more significant the attainment of a given percentage of additional liberalisation. In part also, the uncertainties about the maintenance of financial stability and balance of payments equilibrium have prevented some countries from taking additional risks by extending liberalisation, thus limiting the overall rate of progress. Liberalization of intra-OEEC trade

In a decision of January 1955 OEEC provided that by September 30, 1956, member countries should increase to 90 percent their liberalization of private intra-OEEC trade, and to at least 75 percent their trade in each of the 3 broad categories of food and feedstuffs, raw materials, and manufactured products. In a decision of July 1956 the OEEC extended until the end of 1957 the obligation of members to liberalize 90 percent of all private imports and 75 percent of the trade in the 3 above-mentioned categories. It was also agreed that after September 30, 1956, any member

Organization for European Economic Cooperation, 7th Report of the OEEC: Economic Expansion and Its Problems, C(56)12, Paris, February 1956, pp. 67–68, 79.

7 Before this date the members of OEEC had been obliged to increase their overall liberalization to 75 percent, and their liberalization in each of the 3 categories to at least 60 percent.

country might withdraw the above-mentioned liberalization measures should it find that it could not continue to apply them.

Liberalization of total OEEC private trade increased from 83 percent on December 31, 1954, to 86 percent on December 31, 1955,8 and 89 percent on January 1, 1957 (table 1). The countries that attained the greatest increases in trade liberalization in the 2 years from December 31, 1954, to January 1, 1957, were Austria, Denmark, France, Ireland, and the United Kingdom; before 1954 these countries had lagged behind most members of OEEC in liberalizing their trade.

At the beginning of 1957 only 10 of the 17 OEEC countries-Austria, Belgium, West Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Sweden, and the United Kingdom-had freed 90 percent or more of their private OEEC-area imports from quantitative restrictions, including 75 percent or more of their trade in each of the 3 specified categories. Switzerland is not included in this group because it failed to attain a liberalization of 75 percent in the category of food and feedstuffs. Denmark, France, and Norway failed to attain a 90-percent liberalization of their respective overall imports, although they either exceeded or came close to the goal of 75-percent liberalization in the 3 specified categories. Norway had the lowest overall liberalization-78 percent-of any of the Western European countries.

Special provisions of the OEEC Code of Liberalization exempt Greece, Iceland, and Turkey from the general requirement to attain 90-percent liberalization. Actually, Greece has attained a very high de facto liberalization of imports from the OEEC area. Since Greece's effort represents an experimental measure of which OEEC was not officially notified, its 95-percent overall liberalization is not included in the average liberalization for the entire OEEC area. Because of its balance-ofpayments position, Iceland has been exempted from the requirements of the OEEC Code of Liberalization; its overall liberalization has remained at 29 percent for several years. In April 1953 OEEC permitted Turkey to withdraw all its liberalization measures; at the beginning of 1957 Turkish liberalization still remained in a zero position.

The liberalization lists that individual OEEC countries have established for the OEEC area generally are much broader than those that they have established for the dollar area (table 2). Only the Benelux countries, Greece, and Switzerland have eliminated virtually all discrimination against dollar goods; the liberalization lists of these countries are substantially the same for the OEEC and the dollar areas. Turkey practices "negative" nondiscrimination by having no liberalization list for either area. A comparison of the percentages of liberalization for the OEEC and the dollar areas indicates that France, Austria, and Italy' practice the 8 See Operation of the Trade Agreements Program (ninth report), p. 139.

As stated in the note to table 2, Italy narrowed its discriminatory gap by increasing its overall dollar liberalization from 39 percent to 71 percent.