By means of licenses, the United States continued during the first 7 months of 1951 to control imports of certain fats and oils and rice and rice products, under the provisions of the Second War Powers Act. Beginning in August 1951 these controls were continued, and similar controls were imposed on imports of cheese and casein, under section 104 of the Defense Production Act of 1950.

The United States maintains absolute quotas on imports from the Philippines of rice, cigars, scrap and filler tobacco, coconut oil, pearl or shell buttons, sugar, and hard-fiber cordage. These quotas, established pursuant to the Philippine Trade Act of 1946, are part of the extensive provisions of that act for the transition of Philippine products, upon entry into the United States, from their present duty-free status to full-duty status.

Other Measures

From July 1, 1951, to April 21, 1952, the United States continued to maintain mixing regulations for rubber as part of a broad program of controls established pursuant to the Rubber Act of 1948 and the Defense Production Act of 1950 in order to conserve the supply of rubber for national defense and to assure its equitable distribution. On April 21, 1952, the mixing regulations, as well as most other controls relating to rubber, were terminated.

On March 11, 1952, pursuant to article XVI of the General Agreement, the United States submitted to the Contracting Parties its third notification on the subsidies that it maintains. The notification contained preliminary data on the export-subsidy programs that the United States conducted during the fiscal year 1951-52 under section 32 of the Agricultural Adjustment Act, as amended, under section 407 of the Agricultural Act of 1949; and under section 2 of the International Wheat Agreement Act of 1949.

CHANGES IN TARIFFS, EXCHANGE CONTROLS, AND QUANTITATIVE IMPORT RESTRICTIONS BY COUNTRIES WITH WHICH THE UNITED STATES HAS TRADE AGREEMENTS

During all or part of the period July 1951-June 1952, the United States had trade-agreement obligations in force with 44 foreign countries. Of these, 33 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-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 the aforementioned 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. The remaining 11 countries with which trade agreements were in force during the period covered by this report are those with which the United States had bilateral agreements that were negotiated before the General Agreement became operative. Those countries are Iceland, Iran, and Switzerland, and 8 Latin American countries-Argentina, Ecuador, El Salvador, Guatemala, Honduras, Paraguay, Uruguay, and Venezuela.

The Use of Quantitative Import Restrictions for Balance-ofPayments Reasons

Most of the countries with which the United States had trade agreements in force in 1951-52 continued, as indicated in previous Commission reports on the operation of the trade agreements program, to apply exchange controls and quantitative import restrictions for balance-ofpayments reasons-that is, because they were unable to obtain sufficient foreign exchange from exports to the United States, Canada, and other hard-currency areas to supply the demand for exchange to purchase goods obtainable only with hard currency. Most of the countries that were in financial difficulties of this kind discriminated against imports from countries with which they had a persistently adverse payments balance. Such discrimination takes the form of more severe quantitative restrictions on imports from hard-currency sources than on imports from other sources. In some instances, quantitative restrictions are placed on imports from hard-currency sources, whereas virtually no restrictions are placed on imports from soft-currency sources. Imports so restricted usually are classified into such categories as "nonessential" or "essential," with intermediate classifications indicating the degree of essentiality. Under such systems of trade control, the usual practice is to permit imports only under license; the quantities permitted entry are usually under quota limitation.

The General Agreement on Tariffs and Trade permits the use of quantitative import restrictions and exchange-control measures by any contracting party that is in balance-of-payments difficulties; it also permits the discriminatory application of such restrictions. The agreement provides, however, that contracting parties that employ quantitative restrictions for such reasons, and that apply them in a discriminatory manner, shall discontinue their use as soon as circumstances permit. Substantially the same rule as to the use of quantitative import restrictions

for balance-of-payments reasons, and the abandonment of such restrictions, applies to the bilateral trade agreements that the United States has negotiated with foreign countries.

In November 1951, in their second report on quantitative restrictions, the Contracting Parties to the General Agreement indicated that 23 contracting parties were then resorting to the use of quantitative restrictions for balance-of-payments reasons. These included all the British Commonwealth countries except Canada; 12 continental European countries (Austria, Czechoslovakia, Denmark, Finland, France, the Federal Republic of Germany, Greece, Italy, the Netherlands, Norway, Sweden, and Turkey); and 3 other countries (Brazil, Chile, and Indonesia). Belgium, Canada, Cuba, the Dominican Republic, Haiti, Luxembourg, Nicaragua, Peru, and the United States stated that they were not using quantitative import restrictions for balance-of-payments reasons. Burma and Liberia did not report their position on the use of quantitative restrictions. The bilateral-agreement countries that have applied quantitative import restrictions for balance-of-payments reasons are Argentina, Ecuador, Paraguay, Uruguay, Iceland, and Iran.

The trade controls employed by most of the countries with which the United States has trade agreements tend to conform to certain patterns, depending on whether the countries fall into one or another of the following three categories (with some overlapping): (1) Those countries that are members of the European Payments Union (EPU); (2) those that are members of the sterling area, which consists of all British Commonwealth countries (except Canada) and a few non-Commonwealth countries; and (3) those that use multiple-exchange systems as an important feature of their trade-control programs. Not included in any of these groups are the few countries that conduct their foreign trade with few or no quantitative restrictions. These countries include Canada, the Dominican Republic, El Salvador, Guatemala, Haiti, Honduras, and Liberia. Also not included in any of the three groups named above are Czechoslovakia and Finland. Neither of these countries is a member of the Organization for European Economic Cooperation (OEEC) or the European Payments Union. Their systems of trade control are discussed in chapter 6.

The European Payments Union, which was established in 1950, provides a multilateral clearing arrangement for the participating countries, and for a general relaxation of quantitative restrictions on their trade with one another. Replacing the old network of bilateral agreements for settling trade balances, EPU provides a mechanism whereby the participants pool their resources and clear through a central system.

EPU was initially given financial assistance, in the form of a workingcapital fund, by the Economic Cooperation Administration (ECA); this assistance was authorized by the United States Congress. The resources of the Payments Union are obtained by quotas allocated to the members

on the basis of their relative importance as trading nations. Each member was granted a line of credit with the Payments Union equal to 60 percent of its quota, and each became obligated to grant the same percentage of credit to the Payments Union. The remaining 40 percent of each member's quota was made subject to settlement in gold or dollars. The settlement of net deficits or surpluses is made at periodic intervals by gold transfers based on a sliding scale. A debtor country is subject to a rising scale of gold payments as it uses an increasing percentage of its quota, and a creditor country is entitled to receive in gold half of the payments due it after its creditor position reaches a certain point. The purpose of the gold-transfer part of the mechanism is to discourage participants from moving into extreme positions, either as debtors or as creditors, with relation to the group as a whole.

In 1951-52 some countries developed extreme positions as debtors with EPU, and others, as creditors; and the countries finding themselves in either of these positions took steps to bring their accounts into balance. The United Kingdom and France became EPU's largest debtors during this period; Turkey, Norway, Sweden, and Iceland were also in a deficit position. West Germany emerged during the year as the largest EPU creditor, after having been in a deficit position for several months following the beginning of EPU operations in July 1950. Italy also became a heavy creditor. The Belgo-Luxembourg Economic Union, which had been a creditor from the beginning, continued in that position during 1951-52, although its surplus was reduced.

The sterling area (with the United Kingdom as the link with EPU by virtue of its membership in the Organization for European Economic Cooperation) acts as a unit in its dealings with EPU with respect to relaxing import restrictions when the area is in a surplus position with the Payments Union, or increasing its restrictions when it is in a deficit position. During 1951-52 the sterling area as a whole was in deficit not only with EPU, but also with hard-currency areas; moreover, some of the sterling-area countries were in deficit with other members of the sterling-area group. Because the sterling area was in deficit with both EPU and the dollar countries, its balance-of-payments difficulties could not be relieved by shifting its sources of imports. Consequently, the sterling-area countries increased their restrictions on imports from both the dollar area and the EPU countries. Early in 1952 the Commonwealth Finance Ministers recognized that the various members of the sterling area should adopt temporary measures to reduce the entire area's deficit with the rest of the world, but each member was left free to formulate its own method of restriction.

The use of the multiple-exchange system as an important means of regulating the volume and composition of a country's total foreign trade, as well as its trade with individual countries, is particularly prevalent

among Latin American countries. In the first half of 1952, according to a report of the International Monetary Fund, multiple exchange rates were employed by the following trade-agreement countries: Argentina, Brazil, Chile, Cuba, Ecuador, Nicaragua, Paraguay, Peru, Uruguay, Venezuela, Iceland, Indonesia, and Iran. Multiple-exchange practices range from a simple system such as that used by Cuba to highly complex systems such as those used by Chile and Indonesia. The common practice is to apply lower rates of exchange to imports that the authorities wish to encourage, and higher rates to imports that they wish to curtail. Exports are subjected to a corresponding kind of differential treatment. Some countries that use multiple exchange rates also impose import and export restrictions of a quantitative nature. The use of multiple rates of exchange and quantitative restrictions is discussed in chapter 6 of this report. Particular attention is given to the actions of Brazil, Chile, Cuba, Nicaragua, Iceland, Indonesia, and Iran. During the period July 1950-June 1951 most of the trade-agreement countries that employed multiple-exchange systems simplified them, or relaxed the associated quantitative restrictions. Most of these countries, however, made no major revisions in their systems during the ensuing period (1951-52).

The Use of Export Subsidies

A number of contracting parties to the General Agreement reported in 1950 that they were not granting or maintaining subsidies (as defined in art. XVI of the agreement) which operate directly or indirectly to increase exports or to reduce imports. A number of other contracting parties reported that they were employing such subsidies, but most of them maintained that the effects of their subsidies on exports and imports were slight.

Chapter 6 of this report reviews various devices employed by certain countries to stimulate exports. These devices consist principally of tax rebates to exporters, special credit facilities for exporters, and so-called currency-retention quotas. The currency-retention method of encouraging exports permits exporters to use a specified share of the foreign exchange derived from their exports; they are permitted to use the retained portion for the purchase of certain foreign goods, or for transfer to other importers. For most countries that use currency-retention quotas, the principal objective is the expansion of exports to hard-currency areas. The use of this device by certain countries has been criticized on the ground that it represents a form of selective currency devaluation which works to the advantage of the countries employing it and therefore to the disadvantage of those countries that do not employ similar or equivalent

The multiple-exchange practices of Argentina, Ecuador, Paraguay, Peru, Uruguay, and Venezuela were discussed in Operation of the Trade Agreements Program (fourth report), ch. 6.