The European Payments Union

Abstract

The long delayed signing on September 19, 1950-retroactive to July 1-in Paris of the agreement establishing the European Payments Union (E.P.U.) for a period of at least two years was an event of considerable importance, even if it was overshadowed by the events in Korea and its actual operation somewhat clouded by the uncertainties of the economic problems arising out of the rearmament programs. This agreement consists of two parts. In the area of commercial policy it made further progress in the elimination of trade barriers between the member countries of the Organization for European Economic Cooperation (O.E.E.C.), which includes practically all of western Europe, by committing them to nondiscriminatory treatment between themselves on current account (both on merchandise and service transactions) and by raising the percentage of import quotas which have to be eliminated from 50 to 60 per cent, based on the level prevailing in 1948. Under this provision import quotas, except for government purchases, have to be reduced by 60 per cent in each of the three major commodity classifications: foodstuffs, raw materials, and manufactured goods. A further reduction bringing import quotas to 25 per cent of the same base is envisaged for January 1, 1951. It has been pointed out that these commercial policy provisions are probably the less important aspect of the agreement. Many countries had already lifted 60 per cent of their import quotas, and in some cases more, applying to other O.E.E.C. countries, and the principle of non-discrimination between them had also been previously recognized. The specific inclusion of invisibles is, however, a step forward. Agreement on these questions of commercial policy might have been achieved without setting up the E.P.U., but it must be recognized that convertibility of currencies greatly facilitated the process. The second and more important aspect of the E.P.U. agreement is the establishment of complete convertibility between members on current account. It is this convertibility which makes the concessions in commercial policy more significant. The relaxation of trade controls, after all, has frequently been a meaningless gesture when goods were kept out through exchange controls. In what ways is this agreement a new departure? The clearing agreement of 1948/49 was simply a bilateral arrangement, even if written for many countries at the same time, granting bilateral credits which were based on estimates made at the beginning of the period. The agreement for 1949/50 was essentially the same although it provided for transferability of 25 per cent of these credits, again based on advance estimates of deficits and surpluses. As already mentioned the new agreement provides for free convertibility on current account between members with a few minor exceptions and escape clauses.