FOREIGN RELATIONS) 1950, VOLUME t


   There are, however, certain elements of uncertainty which surround
 the new scheme and .which can only be resolved by observation of the
 Leheme as it is actually administered. The division of specific com-
x-nodities between the "general" and the "restricted"
import permits is
important. The discrimination would be more serious if restricted
irmport permits are issued for commodities ,which are normally pur-
,chased tin the dollar area, thus transferring the market for these items
to soft currency suppliers.
   The estimate that 85 per cent of the Union's imports would be non-
 discriminatory is based upon the assumption of the maintenance of the
 levels of monetary reserves which exist on January 1, 1951, and the
 expenditure by the Union of all of its current earnings of foreign
 exchange. Insofar as permits may be withheld to increase reserves, this
 would reduce the amount of trade coming in under general permits,
 and, therefore, the proportion of total trade entering the Union on a
 non-discriminatory basis.
   The steady improvement in South Africa's monetary reserves now
raises the question of the general level of its restrictions. The new
system proposed for January 1, 1951, may contemplate continued addi-
tions to gold reserves. GATT Article XII, paragraph 2, provides that
import restrictions (whether or not discriminatory) may only be used
either to prevent a decline in monetary reserves, or "in the case of
a
contracting party with very low monetary reserves, to achieve a reason-
able rate of increase in its reserves". The determinations under these
provisions are explicitly left to the Fund. In an interim report to
GATT, made tin March of this year, the Fund said that South Africa
then had "very low monetary reserves". The present level of South
African reserves would seem to justify a new finding that the South
African reserves can no longer be considered to be "very low".
Indeed,
in South Africa's letter to the Fund, it states that "the present level
of
these reserves -could be regarded as satisfactory". Under these circum-
stances, it is believed that we should take the position that South
African reserves are no longer "very low".
   The Union of South Africa also has recently agreed to sell to the
 United Kingdom one million ounces of gold per quarter. Provided
 that soft currency suppliers get enough business under general permits
 so that this amount of gold would flow to the United Kingdom under
 the permit system, this would not constitute a drain on South African
 gold resources. A question would arise, however, if competition be-
 tween suppliers under the general permit system should work out so
 that gold in this amount would not be needed for settlements with the
 United Kingdom. The Union Government has stated that under such
 circumstances, it would meet the shortfall from its gold reserves, and
 accumulate additional sterling. This arrangement would tend to


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