licenses were not required, but the issuance of exchange certificates for these items was also reduced substantially during the first 6 months of 1952.

Brazil's multiple-exchange system is operated by applying an exchange tax to most payments. The tax was increased from 5 percent to 8 percent, effective January 1, 1952. As of that date, the selling rate for all incoming United States dollar exchange was 18.72 cruzeiros per dollar; the buying rate for Government payments and for imports of specified essential commodities was 18.72 cruzeiros per dollar and that for all other payments abroad was 8 percent higher, or 20.22 cruzeiros per dollar.

Although Chile generally relaxed its trade controls during the first half of 1951, this trend was reversed during the period covered by this report. In June 1951 Chile established a list of over 100 less essential items that could not be imported from the dollar area; early in 1952 it expanded the list to include approximately 260 items. In April 1952 Chile suspended regulations that permitted the importation of certain products (e. g., machinery, chemicals, and other manufactured products) from all countries without license at the free rate of exchange. These items then became subject to import controls.

According to Chile, these new measures were undertaken to force utilization of increased accumulations of soft currencies and to strengthen the position of the peso in the free market. Although its dollar earnings had been increasing before the new restrictions were applied, Chile found it necessary to increase its dollar expenditures for goods that previously had been purchased in nondollar areas with soft currencies. The increased demand for dollars resulted in an appreciable weakening of the peso-dollar rate of exchange in the free market and caused Chile to undertake the measures mentioned above to strengthen its dollar-reserve position. Chile informed the Contracting Parties to the General Agreement that it would consult with them at their Seventh Session as to this intensification of its import controls.

Chile employs a very complex multiple-exchange-rate system. At the beginning of 1952 the selling rates for exchange (in pesos per United States dollar) were as follows: (1) 31.10 for imports of drugs, sugar, newsprint, tallow, wheat, flour, and certain government imports; (2) 43.10 for imports of raw cotton, certain medical articles and appliances, and certain articles imported for public and semipublic institutions; (3) 50.10 for imports of crude oil, gasoline, tea, paraffin, antibiotics, kerosene, rubber, jute, etc.; (4) 90.20 for imports designated as nonessential; (5) 135 for imports designated as luxuries, including such items as washing machines, watches, and perfume oils; and (6) 110.20 for imports of certain other luxuries with exchange derived from exports of wine. All other payments for imports were subject to the general import rate of 60.10 pesos per dollar.

The rates at which foreign exchange must be sold to the Chilean Government range from 19.37 to 135 pesos per United States dollar. Proceeds from commodities that can readily be sold abroad (such as hides, skins, wool, nitrate, iodine, copper, and copper scrap) are sold at relatively low rates. Proceeds from the exports of frozen meats, timber, barley, petroleum, wine, and designated products of medium and small mining industries and manufacturers are sold at the higher rates.

Cuba, Nicaragua, Iceland, Indonesia, and Iran

Cuba's multiple-exchange-rate system, which was established in 1925, has never been complex. The present multiple rates result from the application of a 2-percent exchange tax on all remittances abroad (that is, on the selling rate) with an additional tax of 2 percent on remittances to former enemy countries, except Austria and Italy. There is no tax on the buying rate. Cuba requires neither import licenses nor exchange permits.

Nicaragua relies on multiple-currency practices as its chief device for restricting imports. In addition to the official rate and two other fixed rates of exchange, there are various taxes or surcharges. When applied to the fixed rates, these taxes or surcharges result in several effective rates of exchange. At the end of 1951 the selling rate for essential imports was 7.05 cordobas per United States dollar, with no exchange tax added. For semiessential imports a surcharge of 1 cordoba was added to the 7.05 rate, and for nonessential imports, a 3-cordoba surcharge. Nicaragua requires licenses for all imports; the licenses entitle the holder to the necessary exchange.

Iceland-not a contracting party to the General Agreement, but a bilateral-trade-agreement country and a member of the International Monetary Fund, the sterling area, and the European Payments Unionhas a system of multiple exchange rates that results from the application of premiums of varying amounts to the official buying and selling rates of the krona. These premiums, which were introduced early in 1951, are designed to permit Iceland to encourage exports of the products of the small-vessel fishing industry, and to make the cost of exchange to importers more restrictive of imports from EPU and dollar-area countries than from countries with which Iceland has clearing agreements. Except for a limited number of staple commodities and for certain goods from EPU countries, from clearing-agreement countries, and from dollar-area countries, Iceland requires import licenses and exchange permits. In 1951 Iceland extended the list of goods that could be imported from any country without license or exchange permit.

"Iceland's exchange rates are discussed in the section of this chapter on the use of export subsidies.

Indonesia employs a very complex system of multiple exchange rates. The system is designed, on the selling side, to discourage the importation of luxury and semiluxury goods, which must be paid for at a higher rate of exchange than that required for imports officially regarded as essential. Profits from the buying and selling of foreign exchange have been a source of considerable revenue to the Government. Indonesia also prohibits some imports and restricts others by requiring licenses and exchange permits (which are issued in combined form). For a considerable period, the importation of goods payable in dollars was discouraged because of shortage of dollar exchange. In February 1950 the Export-Import Bank of Washington offered the Government of Indonesia a credit of 100 million dollars, of which Indonesia accepted about 52 million dollars in June 1951. Before the line of credit was established, the Indonesian Government adopted measures to simplify its exchange system and the procedures for obtaining import licenses and foreignexchange permits; further steps were taken in the same direction in February 1952. However, the Government continued to restrict imports of luxuries and semiluxuries, and even tightened the controls applicable to imports of such goods. Exchange permits representing a large part of the credit from the Export-Import Bank were issued to finance imports under the loan agreement.

Iran's import controls, which were described in the Commission's fourth report on the operation of the trade agreements program, consist of prohibitions, the requirement of licenses for all nonprohibited imports, quotas, exchange licensing, and multiple exchange rates. Late in 1950 Iran relaxed its import restrictions on essential commodities, but soon sharply curtailed credit facilities to importers because of the heavy demand for foreign exchange. Import quotas for most of the essential commodities and a large number of nonessential products were suspended in March 1951, but were reimposed in April with substantially their former coverage. New and more stringent import controls and exchange regulations became effective in December 1951, to operate into March 1952. Loss of income from oil operations, following difficulties with the Anglo-Iranian Oil Co., was the chief factor in the Iranian Government's decision to place further restrictions on imports. The rate for United States dollar exchange (formerly purchased at about 40 rials per dollar for essential imports, and at about 49 rials per dollar for other authorized imports) was increased to about 65 rials per dollar. The list of authorized imports was limited to 36 essential items. The higher rate of exchange tended to make it impossible for importers to make purchases abroad without raising prices beyond the level at which the imports could be sold. By early 1952, therefore, virtually no foreign exchange was being sold for any of the 36 items on the new list of authorized imports.

A number of trade-agreement countries that employ multiple exchange rates utilize the differences in rates to encourage certain exports, as well as to discriminate among the different classes of imports or among imports requiring different foreign currencies. Nearly all these countries require licenses for some or all exports. The government, or its agency, purchases the foreign-currency proceeds from the sale of those exports it wishes to encourage at rates higher than those paid for the proceeds from the sale of less favored exports. In this way, Chile encourages exports of wine, petroleum, and the products of medium and small mining industries; Ecuador, exports of ivory nuts, balsa wood, and straw hats; Iceland, exports of most products of the small-vessel fishing industry; Uruguay, exports of woolen manufactures, pork, and rice; and Venezuela, exports of coffee and cacao.

THE USE OF EXPORT SUBSIDIES

Article XVI of the General Agreement on Tariffs and Trade requires the contracting parties to report on any subsidy they grant or maintainincluding any form of income or price support-which operates directly or indirectly to increase exports or to reduce imports. A number of the contracting parties reported in 1950 that they were not granting or maintaining subsidies of the type defined in article XVI. A number of other countries reported that they were employing such subsidies, but most of them maintained that the effects of their subsidies on exports and imports were slight. These measures were discussed in the Commission's fourth report on the operation of the trade agreements program.20 In March 1952, the Contracting Parties requested countries that maintain subsidies falling within the scope of article XVI to report, before the opening of the Seventh Session (September 1952), on any new development with respect to such subsidies.

In the remainder of this section, discussion is confined to currencyretention quotas, a relatively new development among European countries, and to tax rebates and special credit facilities for exports.

The currency-retention method of encouraging exports permits exporters to retain a specified share of the foreign-currency proceeds derived from export sales. Under this system, import restrictions may be liberalized with respect to the exporter's use of the funds in the retained account, and provision may also be made for the transfer of the retained proceeds to other importers. The profit that an exporter realizes from the importation of goods that command premium prices in the domestic market, or from the sale of the retained exchange proceeds to other importers, makes it possible for him to quote lower export prices. The system has accordingly been criticized on the ground that it represents a form of selective 20 Ch. 5, section on the use of subsidies.

currency devaluation which operates to the disadvantage of those countries not employing similar or equivalent devices. Insofar as premiums attach to the use of the retained accounts for specific transactions, they result in the creation of a limited multiple-exchange-rate system, applicable to the trade affected by them. To this extent currency-retention devices are similar to the multiple-currency practices employed by a number of Latin American countries. They are not generally, however, a particularly prominent feature of the total trade-control system of the countries that use them, and the premiums paid for the retained currencies have generally tended to decline as imports of commodities purchased with the retained currencies increased.

The premium that is realized from the use of the retained accounts may also be contributory to "switch" or "shunting" transactions in some countries. In this type of transaction, exporters who receive the benefit of currency-retention privileges purchase goods in foreign countries for resale in third countries.

Currency-retention quotas are used by countries primarily to promote exports to hard-currency areas, but are sometimes used for soft-currency areas as well. In the immediately following paragraphs, the retention systems employed by various countries are described briefly; no attempt has been made to discuss all the details of the various systems in use.

Early in the fall of 1949 the Netherlands adopted measures that permitted exporters of domestically produced goods to retain 10 percent of their net proceeds from exports to the United States and Canada. The plan later was extended to permit the same percentage retention of United States or Canadian dollars received from exports of domestic goods to any country with which no payments agreement was in force, or from sales (where the Netherlands Government did not act as intermediary) to international agencies and United States agencies. Although the currency thus retained by the exporter is not officially transferable, a de facto market for these export-bonus dollars has developed, and premiums are paid for them over the official rate of exchange.

In Denmark, exporters are issued "import-license promises," equal to 10 percent of their export proceeds in United States or Canadian dollars. Import-license promises are valid for 6 months. Their use is limited to importations, from EPU countries and their monetary areas, and from Finland, Spain, and Yugoslavia, of goods that are subject to import restrictions but not to domestic rationing or price control. The importlicense promises are transferable and command premium rates in the free market. Inasmuch as the retention quotas apply only to Danish goods, transit-trade transactions are excluded from import-license promises.

Under the system in use in the Federal Republic of Germany, virtually all exchange proceeds and exchange requirements are sold to or purchased from the German exchange authorities. German exporters are permitted