FOREIGN RELATIONS, 1950, VOLUME I


import restrictions, namely, the country which, in the absence of such
restrictions, could be expected to develop a net deficit in its bilateral
relationship. It follows that the country which would develop a credit
balance in the absence of restrictions between the two countries must
be imposing its import restrictions for protectionist, not balance-of-
payments, reasons.1
   The protectionist motivation of these bilateral agreements is per-
 fectly evident from an examination of certain specific cases.
   [Here follows a recital of the provisions of three 1949 trade agree-
ments, respectively between Belgium-Luxembourg and (West) Ger-
many, Belgium-Luxembourg and Switzerland, and Sweden and West
Germany, and the citation of a restrictive clause in the Minutes of the
Austro-French trade negotiations signed November 25, 1949.]
   The relevant GATT provisions. The relevant GATT provisions
bearing on the protective incidence problem are exceedingly complex.
The basic rule is found in Article XI, paragraph 1:
   "No prohibitions or restrictions other than duties, taxes or other
charges, whether made effective through quotas, import or export
licenses or other measures, shall be instituted or maintained by any
contracting party on the importation of any product of the territory
of any other contracting party or on the exportation or sale for export
of any product destined for the territory of any other contracting
party."§§
  However, Article XII provides a major exception to the general
rule of Article XI. Paragraph 1 of Article XII provides that any
contracting party, in order to safeguard its external financial position
and balance of payments, may restrict the quantity or value of mer-
chandise permitted to be imported. Such restrictions, however, should
not be maintained except to the extent necessary to forestall the immi-
nent threat of, or to stop, a serious decline in the monetary reserves of
the contracting party, or, in the case of a contracting party with very
low monetary reserves, to achieve a reasonable rate of increase in those
reserves. Finally, as conditions improve, contracting parties are under
an obligation to relax any restrictions applied for balance-of-payments

  Tt It might conceivably be argued that these exclusions by both parties
can
be justified on balance-of-payments grounds because the lists of products
subject
to limitations represent the unpredictable elements in the trade movements
between the two countries, hence the elements which unless controlled might
result in a substantial unforeseen surplus or deficit in the bilateral relation-
ship. This contention might have merit if the products subject to restriction
represented a really significant proportion of the total trade between the
two
countries. But in most bilateral agreements of this type, this is not the
case;
the products chosen for limitation are obviously those in which political
con-
siderations lead to a maximum of protection. [Footnote in the source text.]
  §§ It should be noted that Article XI, paragraph 3, provides
that the term
"import restrictions" includes restrictions made effective through
state trading
operations. [Footnote in the source text.]


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