840.515 Gold Bloc/24

Memorandum by the Secretariat of the League of Nations Concerning the Enquiry Into Compensation and Clearing Agreements 14

(Drawn up by the Secretariat with a view to the preliminary meeting of the “Joint Committee” to be held on October 18th, in Paris)

I. Delimitation of the Subject of the Enquiry

What is the precise category of agreements covered by the Assembly resolution?

The Second Committee’s report does not define this point, but the character of the previous discussion provides valuable guidance for replying to this question.

1) The crisis has led countries to conclude two categories of treaties of a new type, namely:

a)
agreements for establishing equality of commercial exchanges or compensation of various items of the balance of payments between the Contracting Parties, and
b)
agreements for regulating payments in respect of commercial (and other) transactions between the Contracting Parties.

The term “compensation agreements” is used in many cases to describe both these categories of agreements, although they are quite different alike in origin and in aim.

2) Agreements of the first category.

On endeavouring to determine the requirements which have led to the conclusion of agreements of the first category, we note that many countries which in normal times were not particularly concerned with the fluctuations of their balance of trade, seeing that any debit items were compensated for by other items in the balance of payments (such as tourist traffic, earnings of merchant shipping, interest on capital invested abroad, etc.), have been compelled by the economic crisis, which has gradually dried up the whole or part of the receipts from these items, to concentrate their attention on the trade balance. This balance has been no longer regarded in its entirety, but in respect of each country with which commercial relations were maintained. Wherever these individual balances showed a deficit, efforts were made to redress and readjust them by means of commercial agreements based on the principle do ut des. This policy has in general been applied by fixing import quotas.

[Page 602]

In some cases a deficit in the balance of trade with a particular country has been accepted on account of equivalent compensation obtained in other spheres (payments, services, tourist traffic, etc.).

It is important to observe that agreements of this type are often concluded between two countries with a sound currency which do not in any way restrict foreign exchange transactions.

Such agreements, especially in Europe, are frequently called compensation agreements.

3) Agreements of the second category.

On the other hand, the second category of agreements owes its origin to the introduction of foreign exchange control, to which some countries resort with a view to safeguarding an unsteady currency, while continuing to effect the necessary imports and endeavouring entirely or partly to meet financial obligations towards foreign countries.

As the monetary machinery thus no longer runs smoothly on account of the introduction of foreign exchange restrictions, the time comes when it has to be replaced, at any rate in part, by bilateral accounting arrangements in which debit and credit items, resulting especially from imports and exports, are written off against each other until a balance is reached, so that the two countries are enabled to continue to sell and purchase without effecting any transfers of foreign exchange. The two countries are driven to this necessity by various causes relating to their monetary, financial and commercial position.

A debtor country, with a weak currency, endeavours by means of this system:

a)
to continue to export to countries with sound currencies; this it would be unable to do unless it gave some guarantee for the payment of the goods which it purchases from those countries;
b)
to continue to export to countries which are in a similar monetary position to itself and nevertheless to obtain payment for its exports;
c)
if it has a credit trade balance, to procure a surplus which will as far as possible be at its entire disposal and will enable it, on the one hand, to purchase goods which are indispensable for its economic life from third countries and, on the other hand, to meet entirely or in part its financial obligation toward foreign countries.

A country with a sound currency (which is usually also a creditor country) regards the clearing agreement as a means:

a)
of obtaining value in return for the goods which it exports to countries applying foreign exchange restrictions and of thus maintaining the corresponding production within the country;
b)
of possibly obtaining, by drawing on the surplus established in favour of the other country, payment of commercial or financial claims, or the grant of foreign currency to tourists of the other country coming to its territory, or the payment of transport services, etc., etc.

[Page 603]

The two countries aim at maintaining a certain trade level with each other in spite of the obstacles created by an abnormal monetary position. This abnormal monetary position—which is itself the result of a number of well-known causes—almost inevitably compels the two countries, in spite of the disadvantages of such a procedure, to replace the multilateral and automatic clearing arrangements existing in normal times by bilateral and compulsory clearing arrangements. These bilateral clearing arrangements are always established between two countries, one of which at any rate is compelled to apply foreign exchange restrictions. Agreements of this second category are called indifferently “compensation” or “clearing” agreements.

4) Necessity of limiting the enquiry to the agreements of the second category described above.

It is obvious that these two types of agreement are quite distinct, although they are undeniable related to each other and may even be combined in one and the same treaty. The first, which might be called “agreements of reciprocal commercial equilibrium”, are a matter of commercial policy; the second, for which the name “clearing or compensation agreements” might be reserved, are due to a defect in the working of the monetary machinery.

After due consideration it would appear inadvisable to extend the enquiry to the first category of agreements, as this would necessarily lead to an endless discussion on the various features of protectionism and economic nationalism.

It might therefore be agreed, if the Joint Committee shares this view, that the enquiry should relate in the first place to “clearing or compensation agreements”, these two terms being regarded as synonymous. (The field of enquiry might be subsequently extended should the necessity arise).

There is no reason to fear that if the field of enquiry were thus limited it would become too superficial or exclusive in character. It will soon be seen that the study of “clearing agreements” properly so-called necessarily raises the most important problems of monetary policy and, that moreover, the working of these agreements is closely connected with the policy of restricting imports and, in particular, of imposing quotas.

In the same way as the choice of an arbitrary rate of exchange, by raising the price of goods of the country which has the greatest need of exporting, may in a short time upset the balance of trade and thus defeat the very object of the clearing agreement, a clearing agreement may very soon be rendered inoperative by autonomous measures involving the establishment of quotas and the like during its period of validity. Lastly, as mentioned above, the two questions are frequently dealt with in the same agreement.

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Consequently, there is no danger that, by limiting the enquiry to clearing agreements properly so called, any essential elements will be neglected. On the other hand, the danger of embarking on abstract and theoretical discussions would be avoided.

II. Procedure

1. Countries to which the request for information should be addressed in the first instance.

It is already some time since, at least in so far as economic questions are concerned, a break was made with the tradition that when an enquiry was called for under a resolution of the Assembly or Council, the request for information should be addressed indiscriminately to all countries Members and non-Members of the League of Nations irrespective of whether they were interested in the problem under discussion or not.

That practice has given way to the idea that the procedure and scope of enquiries should be variable, and should in each case be determined after objective examination of the factors of the problem to be investigated. This point of view was expressly confirmed by the Council in regard to the Veterinary Conference which opened in Geneva on the 15th of this month, and also in regard to the draft international convention regarding commercial propaganda. In one of these cases the Council laid it down that co-operation should in the main be requested of such countries as were more especially interested in that type of question.

Furthermore, the terms of the Assembly resolution leave no room for doubt that the request for information should in the first place be addressed to countries which have themselves concluded numerous or important clearing agreements, though it was understood that the circle might subsequently be widened should that appear necessary. It is obvious that the co-operation of certain other countries (e. g. United States, Japan, the Argentine, etc.) might be necessary especially when they play a part of outstanding importance in international economic life, but it is above all when the time comes to draw up the conclusions of the enquiry, that is to say, just before or during the drafting of the report of the Joint Committee, that such co-operation would be of value. As regards the enquiry itself, it is difficult to see how countries which have not felt impelled to conclude clearing agreements on their own behalf, could be of great assistance to the Joint Committee in throwing light upon the “causes, scope, methods and results” of such agreements. The second part of the resolution lays down, moreover, in the most unequivocal terms that the Economic Committee is to proceed to an examination of the agreements actually concluded, inform itself as to the working of the bodies [Page 605] set up to execute them and bring to light any difficulties experienced in their application, together with the results achieved. The Economic Committee can certainly not expect countries having no personal experience in the matter to shed any light on these questions.

Having regard to the considerations set out above, it would appear appropriate, at least in the initial stages, to limit the enquiry, and more especially the requests for information, to the following countries:

  • Germany
  • Austria
  • United Kingdom
  • Belgium
  • Bulgaria
  • Chile
  • Denmark
  • Estonia
  • Finland
  • France
  • Greece
  • Hungary
  • Italy
  • Latvia
  • Norway
  • Netherlands
  • Portugal
  • Roumania
  • Sweden
  • Switzerland
  • Czechoslovakia
  • Yugoslavia.

It was, moreover, to be understood that the above list would not necessarily be exhaustive and that, should such a course prove to be necessary, the Chairman of the Committee might decide that other countries also should be associated in the work of investigation.

[2.] Request to he addressed to the countries concerned.

The purpose of this request should be in the main to obtain a general statement on all the aspects of the problem under consideration.

In this connection the Assembly’s resolution would appear to be sufficiently explicit and complete.

The discussions of the Joint Committee will show whether any comments need to be added.

At the same time, it might perhaps be useful to append a list of points similar to that annexed to the present note so that certain special aspects, the importance of which may vary according to the point of view of the investigator or the situation in the country concerned, will not be neglected.

3. Summoning of the special sub-committees during the enquiries of the Joint Committee.

(a) Technical Sub-Committee.

It is highly probable that, when the Joint Committee is in possession of the reports of the countries concerned, it will require—however complete these reports may be—to obtain additional information on some special point or on some question insufficiently dealt with in the material collected. Furthermore, various comments and interpretations regarding similar treaties may be found in the reports of [Page 606] various countries. In the last place it must be constantly borne in mind that in the field under consideration new developments are constantly taking place and that each day may bring some fresh experience or some new contribution.

The Joint Committee will therefore have to make provisions for the necessity of summoning at the appropriate moment, a meeting of specialists such as directors of clearing offices, officials of banks of issue, etc. to enable them to discuss the problem among themselves, compare their methods and results, and place their experience at the service of the Joint Committee;

(b) Sub-Committee of expert economists.

On the other hand, a situation might arise in which it would be highly valuable to arrange for a meeting of a small committee, whose members would not belong to public administrations, clearing offices or banks of issue, but whose technical training, experience and importance in the world of economic affairs would qualify them to express general views on the problem as a whole. It would no doubt be valuable to consult such persons, more especially when the time comes for the Joint Committee to carry out its duty of drawing conclusions from the investigations undertaken.

ANNEX

Questions Bearing Upon an Enquiry Into Clearing Agreements

I. Aims of clearing agreements

A. Countries having introduced control of foreign exchange dealings.

Have the various agreements been concluded with a view to:

a)
maintaining the flow of trade with countries that have not resorted to such control;
b)
maintaining, at least in part, trade in commodities with other countries which have also resorted to control of foreign exchange dealings;
c)
making possible, at least in part, the payment of commercial or other debts to creditor countries in goods;
d)
making control of foreign exchange effective;
e)
finding a practical method of disposing of a stock of appreciated foreign exchange.

B. Countries not having introduced control of foreign exchange dealings.

Have the various agreements been concluded with a view to:

a)
maintaining the exports of such countries to countries having introduced control of foreign exchange dealings and guaranteeing, if possible completely, that such exports will be paid for; such guarantee [Page 607] being capable of extension, if the balance of trade allows of this, so as to provide for the payment of debts—both commercial and others—previously contracted.
b)
ensuring as far as possible that commercial payments made in sound currencies shall not have as their counterpart payments in depreciated currencies.
c)
bringing about a more or less even balance of trade between the two countries.
d)
utilising their purchasing power as importers for the purpose of obtaining new outlets for exports.

The Committee thinks it important to ascertain:

Which of the objects enumerated above you had in mind in concluding your clearing agreements. Had you any other object in view?

II. Provisions of clearing agreements

1.
Do your clearing agreements relate exclusively to payments for commodities imported and exported, or do they also comprise the settlement of commercial or other debts (including tourist traffic and financial debts)?
2.
Through what bodies (national bank, special offices, monopolies, etc.) are the clearing operations carried out?
3.
Do your clearing agreements allow for “private compensation”? If so, to what extent and subject to what conditions?
4.
Are your clearing agreements linked to other special arrangements of a commercial, financial or other character?
5.
What is the basis adopted, for the purposes of clearing operations, for the reciprocal conversion of the currencies of the contracting parties (actual, legal or conventional exchange parity)?
Is provision made in your agreements for accounts relating to goods imported and exported being kept in currencies other than the national currencies? In that event what are the bases of conversion provided for in respect of these currencies? Apart from the general rule, how are payments made in respect of invoices in foreign currencies?
6.
What is the procedure laid down for the application of your clearing agreements?
7.
How is the question of surpluses dealt with:
(a)
the surpluses (activity-peak) foreseen at the outset; how are these disposed of?
(b)
unforeseen or temporary surpluses; how are these dealt with?
8.
What is the duration of the agreements? Is revision provided for? If so, in what form?
9.
Do your clearing agreements contain provisions regarding transit?
10.
Treatment of colonies?
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III. As To Results

1.
What has been the effect of each of your clearing agreements on the reciprocal movements of your commodities trade with the other contracting parties (increase, stabilisation or decrease)?
2.
Can you point to any other characteristic modifications in such trade due to the application of clearing agreements?
3.
Have the clearing agreements made it possible to relax the restrictions placed upon imports or exports?
4.
To what extent have your clearing agreements modified your balance of trade in relation to the other parties?
5.
In the event of your clearing agreements containing stipulations relating to other items in the balance of payments, to what extent has it actually been possible to carry out such stipulations and what have been their effects on the volume of trade in commodities?
6.
What have been the effects of the clearing agreements on home economic policy?
7.
Have the clearing agreements exercised any influence on the position of the currencies of the contracting countries? What has been the effect of the clearing agreements on the “exchange position”?
8.
Have the aims which you had in mind in concluding your clearing agreements been achieved?
9.
What conclusions does your experience enable you to draw from clearing agreements as regards international economic policy? Is the extension of the clearing system on a multilateral basis, in your opinion, possible and desirable?
  1. Copy transmitted to the Department by the Consul at Geneva in his despatch No. 1070 Political, November 5; received November 16.