require the importer to obtain a permit to purchase the necessary foreign exchange; in virtually all cases the exchange is issued upon presentation of the import permit. In this way countries that employ quantitative restrictions on imports integrate them with their exchange-control

measures.

Import licensing generally takes one of two forms-licenses for individual imports, or the open general license. Many countries employ both forms, applying each form to different categories of imports. The system of individual import licensing requires that an individual license be obtained for each import transaction. Under the open general license, the holder of an import permit is granted the right to import any permitted, or listed, commodity. The quantities of a commodity that may be imported are sometimes subject to quota limitations; sometimes the commodity may be imported in unlimited quantities from a particular group of countries for which open general licenses are permitted. A shift from the requirement of an individual license to the use of the open general license usually indicates considerable relaxation of a country's restrictions. A country that is short of dollar exchange, for example, may require individual licenses for imports that are payable in dollars, reserving the open general license for goods from countries with which it is in a more favorable exchange position. As its dollar reserves improve, the country may-temporarily at least-shift some dollar goods to the system of open general licensing.

Import quotas are a type of quantitative restriction widely used, particularly for raw materials. Such quotas are usually established for given periods (commonly 6 months), and may be increased or decreased as the country's exchange position permits, or as policy dictates. Export licensing, export prohibitions, and taxation of exported commodities are practices that have increased in recent years. These practices were particularly prevalent for several months after the outbreak of the Korean conflict, when there was a widespread feeling that strategic materials and other commodities would soon be in short supply. Export licensing also was introduced or intensified to implement the resolution of the United Nations General Assembly (May 18, 1951) which called for the selective embargo of strategic materials to "areas under the control of the Central People's Government of the People's Republic of China and of the North Korean authorities." Many countries applied export duties in order to obtain revenue from commodities for which the foreign demand was strong and for which prices were exceptionally high. Subsequently, as the demand for many commodities slackened and prices declined, the

tendency was to relax or remove the restriction on exports, and to reduce or remove export duties.

The use of special measures to stimulate exports, usually in conjunction with import restrictions, as a means of improving a country's balance-ofpayments position, has tended to increase in recent years. These measures consist principally of tax rebates, so-called currency-retention plans, and especially favorable terms for the payment of income taxes and other

taxes.

The International Monetary Fund seeks to help member countries to eliminate foreign-exchange restrictions that hamper the growth of world trade. With the permission of the Fund, these restrictions may be retained during the postwar transitional period. Although the Fund recognizes exchange restrictions as justifiable in enabling a country to protect its balance-of-payments position, it also provides that exchange restrictions shall be relaxed or removed when countries experience a favorable balance of payments and thus can build up their reserves sufficiently to enable them to maintain the stability of their exchange

structure.

A number of countries with which the United States has trade agreements-chiefly in Latin America-employ multiple-exchange (multiplecurrency) systems as a principal means of controlling the quantity and composition of their total foreign trade as well as their trade with individual foreign countries or groups of foreign countries. Such practices constitute one of the outstanding forms of exchange control which the International Monetary Fund seeks to eliminate, or at least to simplify as much as possible.

In an effort to increase their trade, many countries enter into bilateral trade agreements and payments agreements with other countries. Some contracting parties to the General Agreement have in force up to 20 or more such agreements. These agreen:ents generally stipulate the quantities or total values of goods that the countries are to import from each other during the period of the agreements.

GENERAL TRADE SITUATION IN 1951-52

For several months after the outbreak of hostilities in Korea in June 1950, world trade expanded rapidly and there was a general relaxation of trade restrictions. Rearmament and the stockpiling of strategic materials by the United States were largely responsible for the initial expansion of trade. In particular, countries that produce raw materials benefited from the increased demand for their products. The prices they received

for many of their export commodities increased sharply, with the result that their foreign-exchange earnings, especially of dollars, increased to levels far above those of other postwar years. The industrial countries of Western Europe also generally benefited from an expansion of exports to dollar markets, but these benefits were to a large extent offset by the increased cost of imports of raw materials and foodstuffs. Although their terms of trade showed immediate signs of worsening, the Western European countries nevertheless relaxed their import restrictions in the second half of 1950 and continued to do so during the first half of 1951, in the interest of stockpiling certain materials before they became scarce and before prices became prohibitive. After a few months of intense trade activity the industrial countries-especially the United States-tightened their export controls to prevent the draining off of capital equipment and other products. Many of the countries that produce raw materials took advantage of the strong demand for their products and imposed export duties in order to increase their revenues.

By early 1951 it was apparent that the extent of world raw-material shortages had been generally overestimated; the demand for stockpile materials slackened, and prices of raw materials declined sharply. In the face of these reverses, the countries that produce primary goods continued for a time to import industrial products, and soon found themselves with serious trade deficits. Several Western European countries also experienced renewed balance-of-payments difficulties; in some, the trade deficits were made more unmanageable by internal inflation. The new requirements for rearmament, which began to be felt by early 1952, also intensified the external-payments difficulties of the Western European countries.

Both the industrial countries and the countries producing raw materials responded to the worsening of their balance-of-payments positions in 1951-52 by reimposing and intensifying the quantitative import restrictions that they had relaxed in the months following June 1950. Because of the widening of the dollar gap-which for a time in 1950-51 had shown signs of disappearing-most of these restrictions were aimed at imports from the United States, Canada, and other hard-currency areas. However, many of the countries that were experiencing renewed dollar difficulties particularly those in Western Europe-were also faced in 1951-52 with currency difficulties among themselves. To a large extent, they sought to alleviate these difficulties by imposing import restrictions. Attempts to stimulate exports, not only to the dollar area but also to other areas with which they were in external-payments difficulties, were also increasingly evident in 1951-52.

THE USE OF QUANTITATIVE IMPORT RESTRICTIONS AND EXCHANGE CONTROLS FOR BALANCE-OF-PAYMENTS REASONS

In 1951-52, as in previous years, a majority of the foreign countries 1 with which the United States had trade agreements continued their efforts to earn more dollars by expanding exports to the United States, and to conserve their dollar reserves by confining their imports of dollar goods to those commodities considered most essential. As already indicated, the efforts of most countries to conserve their dollar reserves resulted in an intensification of their import controls after the collapse of the international trade boom in 1951.

The contracting parties to the General Agreement on Tariffs and Trade are subject to the general rule (laid down in art. XI) that imports from the territories of the contracting parties shall not be prohibited or controlled by restrictions other than import duties, taxes, and other similar charges. The controls thus prohibited include quotas, licenses, and other import restrictions of a quantitative nature. Under the General Agreement, domestic industry in general may be protected by the use of tariffs, taxes, and other charges on imports. The General Agreement, however, permits a contracting party to restrict imports, in terms of either quantity or value, in order to safeguard its balance-ofpayments position and its external financial position (art. XII). This provision was inserted in the agreement on the assumption that general convertibility of currencies would be restored within a few years, and that quantitative restrictions for balance-of-payments reasons (restrictions which were intended to be temporary expedients) could then be removed.

1 For purposes of convenience in presenting the subject matter of this chapter, the countries with which the United States has trade agreements may be grouped as follows: As of June 30, 1952, 33 countries (besides the United States) were contracting parties to the General Agreement on Tariffs and Trade: (1) 15 European countries-Austria, Belgium, Czechoslovakia, Denmark, Finland, France, the Federal Republic of Germany, Greece, Italy, Luxembourg, the Netherlands, Norway, Sweden, Turkey, and the United Kingdom; (2) 8 British Commonwealth countries (all, except Canada, associated with the United Kingdom in the sterling area)—Australia, Canada, Ceylon, India, New Zealand, Pakistan, Southern Rhodesia, and the Union of South Africa; (3) 7 Latin American countries-Brazil, Chile, Cuba, the Dominican Republic, Haiti, Nicaragua, and Peru; and (4) 3 other countries-Burma, Indonesia, and Liberia. Of these 33 countries, 4-Austria, the Federal Republic of Germany, Peru, and Turkey-acceded to the General Agreement between July 1, 1951, and June 30, 1952; Peru and Turkey had been parties to bilateral trade agreements with the United States before they became contracting parties to the General Agreement.

As of June 30, 1952, the United States still had in effect bilateral trade agreements with 11 countries; these agreements were negotiated before the General Agreement became operative. Eight of these were Latin American countries-Argentina, Ecuador, El Salvador, Guatemala, Honduras, Paraguay, Uruguay, and Venezuela. The others were Iceland, Iran, and Switzerland.

Article XII therefore stipulated that the restrictions still being applied under it should be subject to review by the Contracting Parties beginning in 1951.

Article XIII of the General Agreement provides further that there shall be no discrimination in the application of trade controls, but article XIV permits a contracting party to discriminate in the application of the quantitative restrictions permitted under article XII during the postwar transition period. A contracting party is thus permitted to discriminate between sources of supply if its balance-of-payments position is such as to warrant this action. Article XIV required the Contracting Parties to report each year on the status of the discriminatory application of these restrictions in the territories of the contracting parties.

The Commission's fourth report on the operation of the trade agreements program reviewed the status of the restrictions that the various contracting parties applied in 1950, as reported by the Contracting Parties. In November 1951, the Contracting Parties issued their second report on quantitative restrictions. This report indicated that 23 of the 34 contracting parties to the General Agreement were then resorting to the use of quantitative restrictions for balance-of-payments reasons. These included (1) 8 British Commonwealth countries-Australia, Ceylon, India, New Zealand, Pakistan, Southern Rhodesia, the Union of South Africa, and the United Kingdom; (2) 12 continental European countriesAustria, Czechoslovakia, Denmark, Finland, France, the Federal Republic of Germany, Greece, Italy, the Netherlands, Norway, Sweden, and Turkey; and (3) 3 other countries-Brazil, Chile, and Indonesia. Nine contracting parties-the United States and eight other countries-stated that they were not resorting to quantitative import restrictions for balance-of-payments reasons. The 8 other countries were Belgium, Canada, Cuba, the Dominican Republic, Haiti, Luxembourg, Nicaragua, and Peru.3

Almost all the countries that impose quantitative restrictions on imports for balance-of-payments reasons apply them in a discriminatory manner, but the degree of discrimination varies from country to country and from time to time. The Governments of Czechoslovakia and Indonesia state that they do not discriminate against the trade of any other contracting parties. Czechoslovakia is the only contracting party that exercises complete governmental control of imports; state-owned trading companies

* Contracting Parties to the General Agreement on Tariffs and Trade, The Use of Quantitative Import Restrictions to Safeguard Balances of Payments: Incorporating the Second Report on the Discriminatory Application of Import Restrictions, October 1951, Sales No.: GATT/1951-2, Geneva, 1951.

'Burma and Liberia did not inform the Contracting Parties of their position in relation to the use of quantitative restrictions.