RESTRICTED GENERAL AGREEMENT ON 10 July 1968 TARIFFS AND TRADE Limited Distribution COUNCIL 4-5 July 1968 MINUTES OF MEETING Held at the Palais des Nations, Geneva, on 4 July 1968 Chairman: Mr. S. Chr. SOMMERFELT (Norway)l Subject discussed: French trade measures 1. French trade measures (L/3035 and Add.l) The French representative said that the economic and social life of France had recently been affected by social events that constituted an exceptional phenomenon in recent history. Since the General Agreement had entered into force it was the first time that a contracting party had found itself faced with the problems currently confronting France. The entire producing sector had been completely paralyzed for five weeks, either as a direct effect of strikes or indirectly as a result of the virtually complete standstill in the sectors of transport, production and distribution of power, post and telecommunications. The crisis had shaken the French economy to its foundations. In order to ensure a normal resumption of activity, the public authorities as well as individual enterprises were obliged to make major adjustments within a very short period. There were problems of all kinds: interruption of production and decline of stocks, budget difficulties, future investments which would be seriously affected by the increase in wages and other production costs. The immediate incidence of the wage increase was as much as 20 per cent in certain sectors, and wages in the lowest brackets had been raised by 35 per cent in a single step. The rise in production costs threatened to generate dangerous inflationary tension. It was tending to slow down exports substantially, and at the same time was making the French market abnormally vulnerable to outside competition. An external trade deficit for a certain period seemed inevitable. 1The Chairman of the CONTRhACTING PARTIES presided in the absence of the Chairman of the Council Mr. C. Besa (Chile). C/M/48 Page 2 The expansion of production and external trade had suddenly been checked. Whereas gross domestic product had been expected to rise by at least 5.5 per cent in 1968, that growth rate was going to be greatly diminished. The shock sustained by the French economy was not attributable to difficulties in particular sectors of the economy or to any structural maladjustment. Nor was it comparable to the conjunctural difficulties that the industrialized countries were encountering. It therefore required specific remedies, comprising measures to restore equilibrium in the medium-term as well as interim protective measures, where necessary, to ensure the resumption of activity and avoid compromising the future. At internal level, the French Government's policy Was designed to ensure the resumption of expansion, promote the development of production capacity and productivity, and progressively permit a return to the normal conditions of a competitive economy. At external level, and despite the difficulties, France Intended to respect its international obligations and to continue, as in the past, to contribute to trade expansion. From the aspect of internal policy, the French Government had first turned its attention to countering the risks of inflation. Apart from the expected effects of international competition, in the context of the tariff reductions resulting from international commitments, measures had been taken to ensure close supervision of price movements. Measures had also been taken to facilitate the resumption of production and to maintain the level of employment, by moans of financial aids to enterprises in difficulty. In addition, provision had been made for investment promotion measures in order to enable the economy to adjust, and to expand in the longer term. Major budget adjustments were in preparation which would include new tax measures. In the field of external trade, the French Government had not yielded to pressure from protectionist circles. It had made a point of carrying out the tariff adjustments scheduled to take effect on 1 July in the European Community and, with regard to the GATT, had put into effect the reductions resulting from the agreements reached following the multilateral negotiations completed in 1967. The exceptional situation of the French economy had nevertheless obliged the Government to take certain temporary and limited measures in order to avoid serious disturbances in the immediate future. These interim protective measures, which were designed to preserve vital national interests, were nevertheless devised in such a way as to respect to the fullest possible extent the interests of the other contracting parties. The measures had been decided in emergency conditions that had not made possible any prior consultation with the CONTRACTING PARTIES, and they had forthwith been communicated to the CONTRACTING PARTIES in document L/3035. C/M/48 Page 3 The measures just adopted with respect to imports left the French market broadly accessible. It was nevertheless necessary to ensure, in certain particularly vulnerable sectors, that the resumption of activity was not hampered by any excessively large import increase whose adverse effects on national producers would be difficult to remedy. Accordingly, temporary controls had been instituted on certain import categories by fixing ceilings, in certain cases, which left no latitude for trading partners to profit unduly from exceptional circumstances, yet nevertheless enabled-them to maintain their sales or expand them in reasonable proportions. A non-discriminatory ceiling had been imposed on imports, for a period of six months, in three economic sectors that oven before the crisis were already experiencing. serious adjustment difficulties: electrical domestic appliances, textiles, and iron and steel products. With respect to the latter sector the measures were not yet in force because the appropriate procedure had been initiated within the European Economic Community. The coiling was designed to ensure that trade flows were maintained, and even in most cases to permit a substantial margin of expansion. Import restrictions had also been imposed in the motor vehicles sector for a period of four months. In this sector, the halt of activity had been particularly long at the very moment when pressure of demand was strongest. It was necessary to alleviate the trade repercussions of delayed delivery dates, while maintaining overall import flows at the level that they would probably have reached in normal circumstances. Lastly, statistical records were to be kept on imports of certain other products for a certain period so as to ensure more immediate information on trade flows, but this measure would not in any way affect the volume of trade. So far as exports were concerned, it had also seemed necessary to adopt measures to mitigate the effects of the halt in production and the rise in costs, and thus to avoid any steep decline in Francos foreign sales. Such a decline would have adversely affected both the present situation of enterprises and their future possibilities for expansion in foreign markets. There again the mechanism was temporary and degressive; it was designed to limit the effects of wage increases on the activities of export industries. One such effect would be a rise in income tax payments; industrial enterprises were to receive partial compensation, at a rate and on conditions having regard to the tax situation. Although his Government was aware that the measures implied certain disadvantages for France's trading partners, the French representative never- theless wished to emphasize that the measures were of a limited character in volume, in duration, and in scope. The French Government intended to restore the country's economic situation by means of internal measures of much broader scope. The modifications that had been made on a temporary basis in the external trade system were solely designed to moot certain immediate difficulties. C/M/48 Page 4 France's situation was exceptional, it was not among those that had been envisaged by the General Agreement and for which specific provisions had been written into that instrument; (none of the articles of the Agreement mentioned a general strike). The French crisis nevertheless presented certain circumstantial elements that were covered by specific provisions of the General Agreement. Article XII, on restrictions to safeguard the balance of payments, authorized a contracting party to restrict the volume of imports to the extent necessary "to forestall the imminent threat of, or to stop, a serious decline in its monetary reserves". The fact that in slightly more than one month approximately $1,500 million had been withdrawn from foreign exchange reserves to finance the external deficit constituted a serious decline in monetary reserves. Furthermore, Article XIX authorized the adoption of emergency measures on imports of particular products. Those provisions were surely applicable where the maintenance of complete import freedom was exposing vulnerable industries to serious risks, at a moment when they had just suffered the effects of a general strike. The French Government did not, however, consider that it was necessary to invoke Articles XII and XIX of the General Agreement to justify the measures it was taking. Article XXIII of the General Agreement recognized that situations might arise that might be such as to impair the benefits that each contracting party was entitled to expect from its participation in the Agreement, and it authorized the protection