single-rate exchange structures during the second half of 1957. Iran and Japan have single-rate exchange systems. All the countries except Brazil and Finland require importers to make advance deposits before obtaining the necessary exchange.

The import controls maintained by these countries vary considerably in their severity. Peru's controls are the least restrictive. The Peruvian currency, unlike that of the other countries in this group, is substantially convertible, so that Peru may be classified as virtually a dollar country. Peru does, however, maintain two fluctuating rates of exchange, and it restricts imports of automobiles. From the viewpoint of the International Monetary Fund, Peru is still an "article XIV" country, as are all the other countries in this group. Under article XIV of the Fund Agreement, member countries that maintain restrictions on payments and transfers for current international transactions must consult with the Fund each year concerning the further retention of the restrictions.43

Argentina

During the second half of 1957 and the first half of 1958, Argentina continued to deal with its deteriorating foreign-exchange position— especially its extremely low supply of dollar exchange-by restricting imports and stimulating exports.44 Many of its actions during 1957-58 involved changes in the effective exchange rates for individual import and export commodities. Argentina relies greatly on its multipleexchange-rate system to keep its payments for imports in balance with its income from exports. It supplements that system, however, with various devices, which include exchange licensing, quantitative restrictions on imports, import surcharges, advance-deposit requirements for foreign exchange, limitation of bank credit, and price and wage controls. These devices enable Argentina not only to control the level of imports, but also to channel purchases to nondollar sources. Although imports into Argentina from the United States were much higher in 1957 than in 1956, the increase was largely a result of loans from the Export-Import Bank of Washington and of credits from banks and United States exporters that were financing the purchase of capital goods. The increase in dollar imports, therefore, did not result in increased dollar earnings that would directly benefit dollar countries generally.

The Argentine official rate of exchange-18 pesos per U. S. dollar—

43 Members of the Fund that do not apply any restrictions under the postwar transitional period provisions of art. XIV of the Fund Agreement are referred to as "article VIII" countries. These countries, commonly regarded as dollar countries, are Canada, Cuba, the Dominican Republic, El Salvador, Guatemala, Haiti, Honduras, Mexico, Panama, the United States, and Venezuela.

"See Operation of the Trade Agreements Program (10th report), pp. 149–151.

45

is available only to pay for highly essential imports; the Government sells exchange at this favorable rate to importers of such products, and also employs this rate for most Government payments. The outstanding development in the Argentine exchange-control system during 1957 was the increased use of free exchange for payment of imports; the selling price of such exchange is much greater than that of official exchange. A substantial number of commodities not considered essential to the Argentine economy were removed from the list of goods subject to the official rate of exchange and were placed on the list of goods subject to the free-market rate (either with or without an import surcharge). Imported commodities subject to the free-market rate range from less essential commodities to luxury goods. For some payments, including those for invisibles, capital, and certain specified commodities, the fluctuating free-market rate is used without an added surcharge. For imports such as motor bicycles and spare parts for industrial and other machinery, the effective selling rate is the free-market rate plus a surcharge of 20 pesos. For imports of parts and replacements for automobiles, certain spare parts for tractors, and specified sports goods, the effective selling rate is the free-market rate plus a surcharge of 40 pesos. The great spread between the cost of exchange for use in importing commodities subject to the 40-peso surcharge and the cost of exchange for essential imports has had a decidedly restrictive effect on imports of such commodities as sports goods, parts and replacements for automobiles, and certain spare parts for tractors.

The surcharges of 20 pesos and 40 pesos, referred to above, remained in effect throughout 1957-58. Additional restrictions were imposed on imports during 1957, however, particularly during the second half of the year. The importation of some commodities, including chassis for small buses and trucks, was suspended. In May 1957 certain industrial machinery, machine tools, and welding equipment, importation of which was authorized through the free market (some of the commodities with, and some without, a surcharge), could be paid for in cash up to a specified value per unit if imported from most nondollar countries. Commodities in the same category valued above the specified level could be imported only if they were financed on a deferred-payment basis; the minimum period was 4 years for commodities originating in nondollar countries, and 8 years for those originating in dollar countries. In July 1957 imports of other machinery considered to be capital goods were subjected to the same regulations.

45 The par value of the Argentine peso (18 pesos to the U.S. dollar) was agreed to by the International Monetary Fund on Jan. 10, 1957. Argentina had become a member of the Fund on Sept. 20, 1956.

46 The free-market selling rate was 37.45 pesos per U.S. dollar on Dec. 31, 1956, and 36.90 pesos on Dec. 31, 1957.

Effective in January 1958, the then existing advance-deposit requirement for imports was extended to cover a larger list of commodities. Importers were required to deposit in an Argentine bank 20 percent of the f.o.b. value of commodities imported through the official market and 100 percent of the f.o.b. value of commodities imported through the free market.47 At the same time, the period during which the deposits could be held by the banks was increased from 90 to 120 days. Imports of fuel, newsprint, and industrial machinery and equipment, imported under the regulations discussed in the preceding paragraph, were exempted from these requirements.

Argentina's multiple-exchange-rate system involves a greater number of exchange rates for exports than it does for imports. For exports, the free-market rate is employed only for invisibles, capital, and such commodities as are not covered by the various effective rates that are based on the official rate of exchange. The resulting discriminatory rates make it possible for the Government to favor the exportation of certain commodities by purchasing the export proceeds from their sale at rates higher than those paid for the proceeds from other commodities. The different effective buying rates for foreign currencies are established by deducting from the official rate (18 pesos per U. S. dollar) surcharges of 25 percent for certain exports, including mineral oils and timber; 15 percent for breeding animals; 10 percent for certain fibers, seeds, linseed, and yerba maté; and (until early in 1958, when the surcharge was abolished) 5 percent for unwashed wool and unprocessed sheepskins. The official rate, without any deduction, is used to purchase the proceeds from numerous exports, including tanned hides, tobacco, yarns, meat, washed and combed wool, and wheat and wheat flour. In June 1958, to channel a greater proportion of export earnings through the official market, the Argentine Government increased the official valuations (aforos) on all export commodities to which they are applied. These commodities include oats; barley; rye; bran; and cake and meal products from linseed, sunflower seed, and peanuts. As applied to export commodities, the Argentine aforos establish the proportion of export proceeds that an exporter is required to surrender to the Government at the official rate of exchange. The greater the proportion of the proceeds that an exporter must sell at the official rate, the less he has left to sell at the higher free-market rate. Increase of the aforos on the commodities mentioned above involved the possibility that some of them-especially oats, barley, and rye-might be priced out of foreign markets. Since there are fixed support prices for these commodities, the exporter cannot buy them at lower prices to offset the losses resulting from the increased aforos. His only alternative is to obtain higher export prices for them.

47 Previously these requirements applied only to commodities for which payment was made through the free market.

On May 2, 1958, the Argentine Government that came into power on May 1 temporarily suspended the issuance of all import permits and ordered the banks to open no more documentary credits with either official or free-market exchange. This drastic action-taken because of the continuing deterioration of the country's exchange and reserve position was designed to permit the new Government to formulate major changes in its import and foreign exchange policy. Argentina soon modified the severity of the action by relaxing the restrictions on imports of petroleum products, newsprint, various types of machinery, and certain other merchandise.

On November 25, 1957, Argentina signed the final agreement for the multilateral trade and payments arrangement known as the Paris Club, which began operations on July 2, 1956. The European members of the club are Austria, Belgium, Denmark, Finland, France, the Federal Republic of Germany, Italy, Luxembourg, the Netherlands, Norway, Sweden, Switzerland, and the United Kingdom.48 Under the arrangement, all commercial and financial payments and collections between Argentina and the other participating countries and their associated monetary areas are made in the currencies of any of them, and Argentina undertakes not to discriminate against any of the countries in administering its trade controls. Argentina's transactions with other countries are settled in U. S. dollars.

Brazil

At the beginning of the period covered by this report, Brazil adopted a new customs tariff and substantially revised its import-licensing and exchange-control regulations. In the ensuing months the cruzeiro continued to weaken, inflationary pressures increased, and business activity declined as a result of uncertainties created by the new tariff and trade regulations. During the first half of 1958-particularly toward the end of the period the Government modified a number of exchange rates in an effort to stimulate exports of certain commodities and to restrict imports of a considerable number of commodities. Brazil's multipleexchange-rate system, the country's principal instrument for controlling the volume and direction of its trade, is one of the most complex in the world and is subject to frequent modification. Import duties, licensing, and quantitative restrictions play a decidedly secondary role in Brazil's commercial policy.

The revised Brazilian customs tariff, which became effective on August 14, 1957, established a new nomenclature patterned on the Brussels Nomenclature, and replaced the former specific rates of duty with ad valorem rates. The duties specified in the new tariff, many of which were increased substantially, range up to 150 percent of the external 48 Finland joined the group in April 1958.

value of the merchandise, including insurance and freight (the c.i.f. value). The general surtax on imported goods was increased from 3 percent to 5 percent ad valorem.

Upon the entry into force of the new Brazilian tariff, the Contracting Parties to the General Agreement on Tariffs and Trade immediately prepared for negotiations between Brazil and contracting parties affected by the new rates and related regulations. The negotiations were designed to obtain compensation, where appropriate, for increases in rates of duty that Brazil had previously bound in the General Agreement. The modifications in Brazil's exchange-auction system, which are discussed below, will probably affect the incidence of the new tariff rates because in the calculation of import duties the rate of exchange for the conversion of the external value mentioned above will be revised each month; the rate was initially fixed at 70 cruzeiros per U. S. dollar. To facilitate comparison of the new ad valorem rates with their specific equivalents at any time, provision was made in the new tariff for listing such specific equivalents for each item.

Under the provisions of the new tariff law, a single customs-clearance tax of 5 percent ad valorem replaced the various separate charges (except excise taxes) that had previously been levied on most imported commodities in addition to the import duty. Most imports had previously been subject to an exchange (remittance) tax of 10 percent ad valorem on the official exchange rate and a social welfare tax of 4 percent of the c.i.f. value of the commodities. The former customs surtax of 10 percent of the duty was also abolished. Previously, Brazilian excise taxes on imports had been higher than those on like domestic products. Under the new law this discrimination was eliminated by making the excise taxes applicable equally to imported and domestic products.

Besides the official rate of exchange, which is used very sparingly in making payments for imports, and the fluctuating free-market rate, which is used only for certain capital transactions and nontrade invisibles, Brazil makes foreign exchange available for imports in two ways. The first method involves surcharges, which vary for different types of import payments. For some imports, the surcharges are based on bids received in the exchange auctions; for other imports, they are fixed periodically. The second method involves auction premiums, which fluctuate constantly with changes in the supply of and demand for foreign exchange. The surcharges, which are added to the official rate of

49 Duty scales recommended for the new tariff ranged "from duty-free treatment to 10 percent ad valorem for items considered of primary essentiality to the economy, from 11 percent to 60 percent ad valorem for items competitive with domestic products that do not require full protection but are unable to compete successfully with similar imported products, and from 61 percent to 150 percent ad valorem for imports that are not considered essential, as well as for those that compete with domestic articles that require high protection." (Operation of the Trade Agreements Program (9th report), pp. 186-187.)