develop, it may be necessary for a government to step in to engage in price support and in connection therewith to limit domestic production. It would obviously be inequitable and unsound to allow imports to enter freely when domestic production or marketing is being limited. Therefore, this Article allows quotas to be used in connection with governmental measures which operate effectively to restrict the quantities of the like domestic product permitted to be marketed or produced. Any restrictions should be applied proportionately, the normal test suggested being the proportion prevailing in a previous representative period.

2. Restrictions for Balance-of-Payments Reasons (Article 21). Article 21 contains the important balance-of-payments exception. It recognizes that when a country is in balanceof-payments difficulties and short of foreign exchange, it must budget its purchases from hard-currency areas, just as an individual must budget his purchases to fit within his income. The Article therefore authorizes restrictions on imports in order to safeguard a member country's balance of payments.

The conditions under which such restrictions may be imposed are, however, specifically and closely defined. In the first place, they cannot be imposed except to the extent necessary to forestall the imminent threat of or stop a serious decline in a Member's monetary reserves, or, in the case ɗ a Member with very low monetary reserves, to achieve a reasonable rate of increase in such reserves. Members are obligated progressively to relax and ultimately to eliminate such restrictions as their external financial position improves. In the application of such restrictions they must permit "token" imports where total exclusion would unreasonably wipe out established trade connections, and they must avoid unnecessary damage to the commercial or economic interests of other Members. In other words, every effort has been made to prevent the use of quantitative restrictions for purely protective purposes.

Members which are contemplating the application of new restrictions under this Article are required to consult with the Organization, and any Member which considers that another Member is applying restrictions under this Article improperly may bring the matter before the Organization. In such case, the Organization shall mediate the dispute. If no settlement sati afactory to the parties and to the Organization can be reached, and the Organization determines that the restrictions are being improperly applied, it shall recommend their withdrawal or modification. If the Member does not comply with

this

recommendation within sixty days, the Organization may release other Members from specified obligations under the Charter toward the Member failing to comply.

The Article (para. 4(b)) makes it clear that no Member shall be required to withdraw or modify restrictions which it is applying under this Article on the ground that a change in its domestic policies would render these restrictions unnecessary.

Conversely, Members undertake in carrying out their domestic policies to pay due regard to the need for restoring equilibrium in their bala ce of payments on a sound and lasting basis".

3.

General Principles Governing the Use of Permitted Quantitative Restrictions (Article 22).

Article 22 requires generally that any quotas which Members are permitted to apply to the importation of products of another Member or to exports to another Member may not be applied unless they are similarly applied to imports from, or exports to, all other countries.

The Article lays down certain rules designed to assure, in the event restrictions are applied, a distribution of trade in the product concerned approaching as closely as possible the shares which the Members would have in the absence of restrictions. These rules include provision for fixing total quotas wherever practicable and giving public notice of their amounts and for allocating quotas among supplying countries either by agreement or on the basis of shares supplied during a previous representative period. Provision is also made for furnishing relevant information concerning the administration of import licensing systems.

4. Special Provisions Governing the Use of Permitted Quantitative Restrictions During the Post-War Transitional Period Article 23).

Article 23 contains the recognition that the aftermath of the war has brought numerous difficult problems of economic adjustment which do not permit the immediate full achievement of the nondiscriminatory administration of quantitative restrictions, and therefore requires certain exceptional transitional period arrangements.

Those arrangements are that so long as, and only so long as, a Member is availing itself of the post-war transitional

Articles of Agreement of the International Monetary Fund, a Member may discriminate in the application of quantitative restrictions which are imposed for balance-of-payments reasons.

The reason for this provision is that completely nondiscriminatory application of limitations on imports which are imposed for balance-of-payments reasons would, in many cases, prevent a member country from getting things which it absolutely needed for the life of the country and which would be available to it from soft-currency areas, but which it could not afford to buy from a hard-currency area. Therefore, Members are permitted by Article 23 to discriminate in the use of quantitative restrictions imposed for balance-of-payments reasons in either of two ways:

(a) within the limits specified for the post-war transitional period by the Articles of Agreement of the International Monetary Fund, or

(b) according to specified criteria set forth in Annex K to the Charter. The main criteria in Annex K are that the discrimination must result in more imports than the country would get without discrimination, and that the prices paid for such imports must not be substantially higher than the prices in the countries discriminated against.

Members agree to apply policies in the use of permitted import restrictions generally which shall be designed to (a) promote the maximum development of multilateral trade possible during the transitional period, and (b) to expedite the attainment of a balance-of-payments position which will no longer require such discriminatory arrangements. Moreover, after March 1952, Members using discriminatory practices under Annex K to the Charter are required to report to and consult with the Organization about them and the Organization may require the limitation or termination of such discrimination. The Fund has similar powers of consultation and limitation with respect to discriminations permitted under its Articles.

The Organization may not, however, require a Member to change its domestic employment or development policies.

5.

Relationship with the International Monetary Fund. (Article 24

Article 24 contains the important provision that in all cases in which the Organization has to deal with problems concerning monetary reserves, balance of payments, or foreign exchange arrangements, it must fully consult with the International Monetary Fund. In such consultation, the Organization

shall accept all the Fund's findings of fact with respect to foreign exchange, monetary reserves, or balance-ofpayments matters, and shall accept as conclusive the determination of the Fund as to what constitutes a serious decline in a Member's monetary reserves, a very low level of its monetary reserves, or a reasonable increase in the level of its reserves. In other words, final determination as to whether a state of facts exists which justifies the use of the balance-of-payments exception of the Charter rests with the Monetary Fund.

Certain countries which may be members of the Organization may not be members of the Fund. In such case, the Charter requires that they enter into a special exchange arrangement with the Organization which shall ensure that the objectives of the Charter will not be frustrated as a result of action with respect to exchange matters by the Member which is not a member of the Fund.

The Charter does not forbid the use of subsidies for the protection of national security, the diversification of industry, or the promotion of economic development. The use of direct subsidies for such purposes is preferable, in general, to the restriction of imports by tariffs and quotas. The cost of subsidies is clear and taxation can distribute its burden equitably among those who benefit. Any subsidy that affects the ability of domestic producers to compete with foreign producers, however, either in the home market or abroad, will exert an influence on the flow of trade. This is particularly evident in the case of export subsidies. It is with these effects of subsidies upon the flow of international trade that these Articles of the Charter deal.

The four Articles should be considered together. In substance, they provide that:

a. Any Member granting a subsidy (broadly defined as including any form of income or price support) which operates to increase exports or reduce imports is obligated to notify the Organization as to the extent and nature of the subsidization, its estimated effect on exports or imports, and the circumstances which make it necessary. The Member maintaining the subsidy is obligated, upon request, to consult with other Members who consider that the subsidy prejudices their interests with respect to the possibility of limiting it. (Article 25)

b. Export subsidies, 1. e. those which result in the sale of a product for export at a price lower than the domestic price, are generally prohibited for products other than primary commodities after two years from the date on which the Charter enters into force. This period may be extended if the Organization approves. (Article 26)

c. In cases involving primary commodities, Members may continue export subsidies if they consider that their interests would be seriously prejudiced by eliminating the subsidy, or may seek a solution of their problem through the mechanism of a commodity agreement provided for in Chapter VI. If they do the latter, they are precluded, without Organization concurrence,