III. QUALIFYING PROVISIONS In the drafting and negotiation of the Charter among the representatives of 57 countries, it was found necessary at certain points to qualify the basic rules of the "key" provisions laid down in articles 16, 17, and 20. Such qualifications or exceptions were required in the interest of promoting customs unions or free-trade areas, promoting the development of "under-developed" countries, protecting a country's monetary reserves in the face of serious balance-of-payments difficulties, and furthering the requirements of national security. It will be noted, as a matter of great importance in connection with the fundamental purpose of the Charter, that the ITO is given substantial powers of review and determination, or recommendation, to ensure that these various qualifications and exceptions to the general rules will be applied only if necessary and for the time and to the extent they are necessary and that their administration will be fair and reasonable in the light of the interests of other members. 1. QUALIFICATIONS RELATED TO ARTICLE 16 (a) Customs Unions and Free-Trade Areas Article 44 permits members to form customs unions or freetrade areas even though such action would be contrary to the strict terms of article 16 requiring nondiscriminatory treatment by each member of the trade of all other members. Customs unions have been almost universally regarded as legitimate exceptions to the principle of most-favored-nation treatment because of the economic benefits to the parties concerned and, indirectly, to the other countries of the world. Accordingly, the Charter recognizes that the rule of nondiscriminatory treatment should not be allowed to stand in the way if two or more members are willing to face the adjustments that may be required by the wholesale abolition of all barriers to trade between their respective territories. The Charter also recognizes that it may not be feasible to put a customs union into effect in a single step. Transitional arrangements are therefore permitted but Iro must approve them in advance to ensure that a complete customs union will be achieved within a reasonable time. (b) Preferences for Economic Development Article 15 also qualifies article 16 by permitting neighboring countries to grant to each other on certain products lower tariff rates than apply to imports of these same products from other countries, in order to ensure an adequate market for the development of new industries. To prevent abuse of this departure from the principle of equal treatment, it is provided that preferential arrangements under this article either must be expressly authorized by a two-thirds vote of ITO or must be based upon a finding by Iro that the arrangement in question meets a number of rigorous conditions and requirements which are set out in detail. These include limitations on the size of the margin of preference, the duration of the agreement, etc., as well as notice and consultation with affected members and the organization. (c) Scarce Currency Provisions Article 23 qualifies the general rule laid down in article 22 (discussed earlier on page 5) that import quotas, when permitted, must be administered in a nondiscriminatory manner. Article 23 is therefore related to article 16, since it concerns the subject of discrimination. It is also one of the most important and highly technical in the entire Charter since it involves international monetary questions. In a general way this article owes its existence to the present state of world finance in which only the U.S. dollar and a few other currencies are "convertible", as opposed to other national currencies which can be used for purchases in the country of issue, but cannot be freely "converted" into, or exchanged for, other currencies. This condition reflects the abnormally large demand for imports from the United States and the few other "hard-currency" countries. Article 23 permits a member which is in balance-of-payments difficulties and therefore rationing its supplies of foreign currencies, to discriminate among supplying countries in its purchases to best conserve the foreign currencies of which it is short. A member can require the purchase of some or all of a product in a "soft-currency" country even though it would be somewhat cheaper to buy in a "hard-currency" country. Discriminations of this kind are typically found in bilateral trading agreements under which two governments undertake reciprocal purchase and sales programs for a given period. They can severely disrupt the normal and most economical pattern of world trade. Accordingly, the provisions of article 23 (and annex K) provide for their virtual elimination after the end of the postwar "transition period" as determined for each country by the International Monetary Fund. Moreover, after March 1, 1952, a member applying such measures must consult the ITo or the Fund, or both, regarding their continued use. 2. QUALIFICATIONS RELATED TO ARTICLE 17 (a) Modification of Tariff Concessions Article 40 corresponds to the "escape" clause in recent trade agreements negotiated by the United States. It provides that a member may reduce or withdraw a tariff concession granted to another member on a particular product if imports of that product increase to such an extent and under such conditions as to cause or threaten serious injury to domestic producers. Such action may be necessary because of an unexpected change in conditions of production or demand at home or abroad. The member taking the action must, however, give notice to the ITo as soon as practicable concerning the intent to suspend a concession, and it is obliged to consult with other affected members. If they are not satisfied and the concession is nevertheless suspended, these members may within 90 days suspend an equivalent concession granted to the member taking the action. 3. QUALIFICATIONS RELATED TO ARTICLE 20 Article 20, it will be recalled, is the third of the fundamental rules of the Charter; it prohibits the use of quantitative restrictions for protective purposes. It has already been noted that deviations from this general rule may be permitted in certain exceptional circumstances. There are, in addition, two other qualifications of importance which are to be found in articles 13 and 21. (a) Quotas for Economic Development Article 13 is written in the interest of members who may wish, for a limited period, to impose a measure of protection against the imports of some product in the hope of promoting a new industry. The "underdeveloped" countries attach great importance to it as a means of ensuring that the rules of the Charter will not be so applied as to prevent the industrialization of their economies in future years. It is expressly recognized in the article that if a product has been included in a trade agreement with another member, there is no "escape" available on these grounds except by negotiation and agreement. The member in question must persuade the other member to whom the commitment was made to allow it to impose a quota on the product, or to increase the tariff, in exchange for an equivalent bargain. If, however, the product in question is not the subject of a previous trade agreement, article 13 (section C, paragraphs 6-10) provides a possible escape from the rules forbidding the use of quantitative restrictions on imports for protective purposes (article 20) and the use of internal mixing regulations (article 18). The article sets forth three alternative possibilities: (1) the members whose trade would be affected by the action may consent to it, subject to whatever conditions are agreed upon; (2) the organization may grant prior approval, subject to certain findings and limitations; or (3) the organization shall grant such exemptions if it finds that certain highly detailed conditions and requirements are fulfilled. In this latter case, however, a time limit must be specified for the protective measure which, moreover, is not renewable. The measure must also be so administered as to avoid unnecessary damage to the commercial or economic interests of other members, including their economic development and domestic employment. Article 14 permits, as a transitional measure, the maintenance by a member of existing quotas for economic development purposes provided that a list of the products and quotas in question has been notified to the other members prior to the time the member maintaining the quota ratifies the Charter. Such quotas are to be reviewed by ITO in the light of the rules and principles laid down in article 13 and in no case may quotas be maintained, even transitionally, with respect to products which have been the subject of tariff agreements. (b) Quota Systems for Monetary Purposes Article 21 constitutes the major exception to the rule of article 20 against the use of quantitative restrictions. It allows such restrictions to be imposed upon the whole or part of its imports by a member in balance-of-payments difficulties which threaten its monetary reserves. In other words, if a member is going broke in its foreign exchange accounts, it may "ration" its expenditures for foreign goods. However, Iro must be consulted by the member if any new quantitative restrictions are imposed or if existing restrictions are increased. All members imposing quantitative restrictions under this article when the Charter comes into force are obliged to get rid of them as quickly as possible, and Iro must within its first two years review any that may exist. Moreover, under article 24, the International Monetary Fund is given exclusive authority to determine the facts about the condition of the member's reserves. (c) Intergovernmental Commodity Agreements Chapter VI, which includes articles 55 to 70 and covers the subject of intergovernmental commodity agreements, may likewise be regarded as a qualification of article 20. Chapter VI is included in the Charter in view of special difficulties that appear to exist in the case of certain primary commodities. The supply and demand characteristics of some of these commodities give rise to the possibility of exaggerated price declines and severe distress to producers. When governments take certain measures to relieve this distress, such as export subsidies in conjunction with domestic price support programs, international trade may become disorganized and producers in other countries may be adversely affected. Accordingly, chapter VI permits members to enter into multilateral agreements relating to the exports and imports of a primary commodity. Such agreements are subject to special requirements when they regulate prices or when they regulate production or impose any controls on imports or exports which might have restrictive effects. They may be used only in situations (a) in which a burdensome surplus is expected, threatening severe hardship to numerous small producers, or (b) in which severe unemployment is expected owing to lack of other opportunities for jobs (article 62). Such agreements, although renewable, must also be limited in duration to five years or less and must be accompanied by a program of economic adjustment designed to remedy the underlying difficulties. Moreover, countries which are principally consumers must have a voice equal to that of producing countries in the operation of such agreements, and Iro has the right to determine whether a given agreement meets the standards specified in chapter VI. 4. QUALIFICATIONS RELATED TO ARTICLES 16, 17, AND 20 (a) General Commercial Policy Exceptions Article 45 lists a number of exceptions commonly found in commercial treaties and agreements and relating to such things as sanitary measures, customs enforcement, patent protection, gold and silver, etc. Provision is also made for temporary measures essential to allow members to deal with shortages of commodities through price control and rationing. There is included a general safe-guarding provision to prevent the abuse of these exceptions for purposes other than those for which they are intended. (b) National Security Exceptions Article 99 is a general exception for reasons of national security, applicable to Articles 16, 17, and 20 and to all other articles of the Charter. It provides that no member shall be required to disclose any information which would be contrary to its essential security interests. Moreover the Charter shall not prevent a member from taking any action it considers necessary to protect its security interests in relation to fissionable materials or traffic in war materials. In time of war or other emergency in international relations, a member may take any action which it considers necessary to protect its security interest. IV. SPECIAL PROVISIONS The articles concerned directly with the international exchange of goods have now been accounted for in relation to the "key" provisions of the Charter. The remaining articles bear upon the special subjects of employment (chapter II); economic development and investment (chapter III); and the functions of the organization as an international agency (chapters VII, VIII, and IX). A brief explanation of some fundamental points in these chapters follows. 1. CHAPTER II. EMPLOYMENT AND ECONOMIC ACTIVITY Economic depressions and national measures to counteract them profoundly affect foreign commerce. Hence provisions on this sub 795040°-48- -2 |