application of discriminatory quantitative restrictions on imports. Of these countries, Australia had been applying such restrictions under the provisions of paragraph 1 (c) of article XIV of the General Agreement; Ceylon, New Zealand, the Federation of Rhodesia and Nyasaland, and the United Kingdom had been applying them under the provisions of annex J. In conjunction with its consultations under article XIV: 1 (g), Australia also consulted, under the provisions of article XII, regarding its substantial intensification of import restrictions in July 1956. According to the Australian delegate, this intensification was necessary to introduce a greater selectivity and flexibility in the control of imports, to further restrain the increased flow of imports resulting from inflationary pressures, and to strengthen Australia's long-term balance-of-payments position. Pursuant to article XV, the International Monetary Fund participated in the consultations, and in each instance provided pertinent information and background material for the consulting contracting parties. The Contracting Parties agreed that in 1957 they would combine the consultations required under paragraph 1 (g) of article XIV with those scheduled for the same countries under article XII.

United States proposal to expand consultations on import restrictions for balance-of-payments reasons (art. XII)

Up to and including their 11th Session, the Contracting Parties conducted consultations on the application of balance-of-payments restrictions pursuant to paragraph 1 (g) of article XIV only with those contracting parties that were applying such restrictions under the provisions of paragraph 1 (c) of article XIV and annex J and-in instances of intensification of restrictions-under paragraph 4 (b) of article XII. At the 11th Session, the United States delegate proposed that the Contracting Parties hold consultations during 1957 under the previously unused provisions of paragraph 4 (b) of article XII, which provides for such consultations with all contracting parties that apply quantitative import restrictions for balance-of-payments reasons. Such a project would involve consultations with about 20 countries-a much more comprehensive undertaking than the previous consultations, which involved only 5 countries that applied discriminatory balance-of-payments restrictions under the provisions of paragraph 1 (c) of article XIV, annex J, and paragraph 4 (b) of article XII.

The consultations under paragraph 4 (b) of article XII, besides involving more countries, would be broader in scope than those under article XIV. Consultations under article XIV concentrate on the technical details of the restrictions, such as their discriminatory effects; consultations under article XII would include an examination of all the financial problems faced by each consulting country, the procedures it employs to regulate imports, and the effects of its restrictions on its internal and external trade. Moreover, consultations under article XII would consider

possible alternative measures that the consulting country might employ to improve its balance-of-payments position.

It was the United States view that many changes had taken place in the economic position of the countries concerned since the Contracting Parties conducted their general examination of quantitative import restrictions in 1951-for example, changes in production, patterns of trade, monetary reserves, and currency stability. In fact, during the 10-year life of the General Agreement the Contracting Parties had conducted no consultations with the majority of the contracting parties that apply such restrictions. Since there had been no opportunity for comprehensive consultations on such restrictions, the United States hoped that the consultations it proposed would contribute to the general program for eliminating restrictions.

The need for such consultations was recognized in the general review of the General Agreement that the Contracting Parties conducted at their Ninth Session in 1954-55. At that time the Contracting Parties decided to revise article XII to require all contracting parties that maintain import restrictions for balance-of-payments reasons to consult on them every year or, in the case of underdeveloped countries, every 2 years. These consultations were to be implemented under the provisions of the Agreement on the Organization for Trade Cooperation. The United States proposal was designed to serve as a stopgap until such time as the Agreement on the OTC becomes effective.

The working party on balance-of-payments restrictions, which considered the United States proposal, reported favorably on it and suggested a tentative schedule of consultations and an agenda for them. At their 11th Session, the Contracting Parties adopted the recommendations of the working party and established a consultations committee. The consultations were scheduled in three stages: (1) Those with 9 contracting parties, during June and July 1957;30 (2) those with 6 contracting parties, immediately before the 12th Session; and (3) those with 5 contracting parties, early in the 12th Session.

TARIFFS AND TARIFF NEGOTIATIONS

Plans for future tariff reductions

As the Contracting Parties did not include a plan for automatic tariff reductions in the negotiating rules that they adopted at their 10th Session, a number of European "low tariff" countries requested that the Contracting Parties consider the possibility of adopting such a plan at a later session. These countries subsequently proposed that the Organization for European Economic Cooperation (OEEC) adopt such a plan as a part of its own program for tariff liberalization.

30 Consultations with 8 of these 9 contracting parties were completed on June 29, 1957. The consultation with the remaining contracting party was postponed until the second stage.

In July 1956 the Council of the OEEC met at the ministerial level to consider the suggested plan for automatic tariff reductions. They postponed their decision on adopting such a plan, however, pending completion of a study of the possible ways in which OEEC members that are not included in the proposed European Common Market might become associated with that organization. Although the Chairman of the Contracting Parties suggested at the 11th Session that the Contracting Parties defer consideration of the plan for automatic tariff reductions until the OEEC had acted, the Contracting Parties-at the request of Denmark and Sweden-agreed instead to review the plan at their 12th Session.

Proposals for European economic integration

In June 1955, with a view to more closely integrating their economies, the six members of the European Coal and Steel Community-Belgium, France, the Federal Republic of Germany, Italy, Luxembourg, and the Netherlands-agreed to study the possibility of creating a customs union to be known as the European Common Market, as well as a European community for the exploitation of atomic energy (Euratom). The efforts of these countries culminated in the signing of treaties for the Common Market and Euratom in Rome on March 25, 1957.

By June 1956 a movement was under way within the Organization for European Economic Cooperation to form an association embracing not only the members of the European Common Market, but also members of OEEC who were not included in the Common Market. The OEEC decided that such an association should take the form of a European free-trade area, within which the six-member Common Market would function as a single member.

In November 1956, at their 11th Session, the Contracting Parties discussed the problems associated with the creation of the Common Market and the proposed European free-trade area. At that time some of the contracting parties expressed concern that, without proper regulation, the common external tariff of the Common Market might become more protective than were the former tariffs of its individual members. The Contracting Parties noted that the six contracting parties concerned were prepared to submit the Common Market Treaty to them for consideration before its ratification, in accordance with the procedures set forth in article XXIV of the General Agreement. The Contracting Parties directed the Intersessional Committee to follow the developments with respect to the Common Market, and to report to them at their 12th Session.

Because of the rapid progress that the six countries made in drafting and signing the Common Market Treaty, the Intersessional Committee met in April 1957 to discuss preparations for consideration of the treaty

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by the Contracting Parties. Several members of the Committee expressed the opinion that if the Contracting Parties did not definitively consider the treaty at an early date there might not be an opportunity for such consideration before its ratification. After considerable discussion, the Committee established a procedure by which individual contracting parties might submit questions concerning the treaty to the members of the Common Market; the members were to submit their answers to the Intersessional Committee at its meeting in August 1957. The Committee also decided that after it had considered these answers it would recommend procedures for definitive consideration of the treaty by the Contracting Parties-either at a special session or at their 12th Session.31 Uniform application of the tariff of Rhodesia and Nyasaland

On September 3, 1953, the self-governing territory of Southern Rhodesia and the protectorates of Northern Rhodesia and Nyasaland joined to form the Federation of Rhodesia and Nyasaland. Later that year the Federation assumed responsibility for the external affairs of its member territories, and on July 1, 1955, it adopted a Federal tariff that replaced the individual tariffs of those territories.32

At their 10th Session in 1955, the Contracting Parties considered the question of whether the Federal tariff was compatible with the General Agreement on Tariffs and Trade.33 The tariff accorded no preferential treatment to imports into the Federation's "conventional" area since such treatment would have been contrary to the provisions of the Congo Basin Treaty of 1885.34 It did, however, accord preferential treatment to imports into the "nonconventional" area from the self-governing Commonwealth countries, from South-West Africa, and from the Republic of Ireland. The tariff accorded an even greater degree of preference to imports into the nonconventional area from the United Kingdom, its territories, colonies of the Commonwealth, and British protectorates. Although the Federal tariff of 1955 provided for some preferences that were not included in the former individual tariffs of the member territories, and increased some of the margins of preference that were contained in them, the Contracting Parties decided that, on the whole, it eliminated and reduced more preferences than it created or increased. They con31 For a detailed discussion of the European Common Market, see ch. 4 of this report. 32 See Operation of the Trade Agreements Program (eighth report), pp. 63–64.

33 The Federation of Rhodesia and Nyasaland became a contracting party to the General Agreement on October 30, 1953.

34 For customs purposes, the Federation of Rhodesia and Nyasaland is divided into two parts: The Congo Basin area, or "conventional" area, and the rest of the Federation, known as the "nonconventional" area. The conventional area, comprising all of Nyasaland and the northeastern part of Northern Rhodesia, is subject to a special customs regime calling for commercial equality for imports from all nations. This arrangement dates from the conclusion of the Congo Basin Treaty in 1885.

35 See Operation of the Trade Agreements Program (ninth report), pp. 63–67.

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cluded, therefore, that the Federal tariff of 1955 conformed to the spirit and objectives of the General Agreement. Accordingly, they decidedpursuant to article XXV (waiver of obligations)—that the provisions of article I of the General Agreement would not be permitted to prevent the application of the preferences established by the Federal tariff, or to prevent the individual territories from completing the adjustment of their tariffs to the Federal tariff. 36

During 1955 and 1956, the Federation of Rhodesia and Nyasaland found that the preferential treatment of imports into the nonconventional area created a number of difficult problems. These problems, which resulted from the wide disparity in the resources, economic development, and social legislation of the Federation's three constituent territories, weakened the unity of the newly created state. Moreover, the effective application of two separate tariffs in an undeveloped territory like central Africa proved difficult because of the long customs frontier that was required to separate the conventional area from the rest of the Federation. Because of these problems, the Federation-at the 11th Session-requested that the Contracting Parties permit it to apply a uniform tariff to the entire Federation, and to recognize such action as a further adjustment within the terms of their 1955 decision approving the preferential tariff.

Under the Federation's proposal, the new uniform tariff would extend to the conventional area the four-column tariff that has applied to the rest of the Federation. In so doing, it would extend to the entire Federation those preferences previously accorded certain imports into the nonconventional area. The Federation stated that it was prepared to consult with any contracting party that claimed to be substantially affected by the proposed adjustment, and to reduce the margins of preference on a number of tariff items.

During the discussion of the proposed new arrangement at the 11th Session, the United States, the Netherlands, and Italy contended that the Federation's proposal affected the validity of the Congo Basin Treaty, which established for the signatories the right to equal treatment in the conventional area. The United States declared its intention to abstain from voting on the matter in order to reserve the right to equal treatment in the conventional area that it obtained by signing the Treaty of SaintGermain-en-Laye in 1919. In a decision adopted on November 17, 1956, the Contracting Parties agreed that establishment of a uniform tariff for the entire Federation came within the terms of their decision of December 3, 1955. They recognized, however, that establishment of a uniform

38 For the complete text of the decision, see Contracting Parties to GATT, Basic Instruments Fourth Supplement, Decisions, Reports, etc. of the Tenth Session, Sales No.: GATT/1956-1, Geneva, 1956, pp. 19–20.

37 49 Stat. 3027; Treaty Series 877.