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Chapter 10


§ 1

International Monetary Law

International Monetary Reform

The Interim Committee of the Board of Governors of the International Monetary Fund (IMF), meeting in Jamaica January 7 and 8, 1976, reached agreement on the main elements of a monetary reform package involving a major revision of the IMF Articles of Agreement (TIAS 1501; 60 Stat. 1401; entered into force for the United States December 27, 1945). An IMF quota increase of about one-third and a number of measures to provide a sizable augmentation of IMFrelated balance of payments financing were also decided upon.

The monetary reform package included agreement on two principal elements. The first involved amending the IMF Articles so as to bring alternative exchange arrangements, including floating rates, within the legal framework of the Fund. The second established arrangements on gold to remove it from the center of the international monetary system. The amended Article IV, dealing with exchange rate obligations of Fund members, was based on a U.S.French compromise reached at the Rambouillet summit in 1975, meeting a primary U.S. negotiating objective of allowing countries freedom to choose among exchange rate arrangements those best suited to their own circumstances; e.g., independent or joint floating arrangements or pegging to another currency, or the Special Drawing Rights (SDR), provided that the countries observe basic obligations, such as promoting exchange stability, or not manipulating exchange rates for competitive advantage. A provision for reestablishment of a general par value system is included, subject to agreement by 85 percent of the Fund's voting power. However, even after such decision is reached, individual countries could opt not to observe par values.

The gold compromise was intended as a step toward ultimately phasing the metal out of the monetary system. It would also permit IMF gold to be a source of funds to give concessional payments assistance to the poorest developing countries over their next difficult years. The use of a portion of the IMF gold for the benefit of developing countries is to be matched by an equal portion to be returned to all IMF members in proportion to their IMF quotas.

Three major IMF-related measures agreed upon would expand official balance of payments support for less developed countries. First, a major liberalization of the IMF compensatory financing facility, in line with Secretary of State Kissinger's 1975 proposal at the Seventh Special Session of the General Assembly of the United Nations for a "Development Security Facility." See the 1975 Digest, pp. 501, 577. Second, the agreement on gold paved the way for establishment of the Trust Fund, also a U.S. initiative, that would use profits from the sale of a portion of Fund gold for concessional payments assistance to IMF members with a per capita income not exceeding SDR 300. Finally, pending enlargement of the IMF quotas, access to each IMF credit tranche would be expanded by 45 percent, bringing total access to Fund credit to 145 percent of the IMF quota, with the possibility of additional assistance in exceptional circumstances. The 45 percent increase was equivalent to about $3,500,000 for non-oil exporting developing countries.

Provisions of the agreement involving amendment of the IMF Articles and the quota increase required submission to the IMF Board of Governors for approval, after which ratification by individual countries would be required for implementation. However, the measures designed to meet balance of payments needs were to be made available "without delay."

For the text of the press communique issued at the conclusion of the fifth meeting of the Interim Committee of the IMF Board of Governors, see Dept. of State Bulletin, Vol. LXXIV, No. 1912, Feb. 16, 1976, pp. 197-199. For a statement by Ambassador Daniel P. Moynihan, U.S. Representative to the United Nations, before the Governing Council of the U.N. Development Program, on Jan. 27, 1976, regarding the decisions reach-1 by the IMF Interim Committee, see Press Release USUN-12(76), Jan. 27, 1976.

On October 19, 1976, the President signed Public Law 94-564 (90) Stat. 2660), "To provide for amendment of the Bretton Woods Agreements Act, and for other purposes." The amendatory Act authorizes the U.S. Governor of the International Monetary Fund (IMF) to accept the amendments approved by the Fund's Board of Governors in January 1976, supra. It also authorizes the United States to accept the approximate $2 billion increase in its IMF quota approved by the Board at the same time. In addition, the new Act makes related changes in other U.S. laws pertaining to participation in the international monetary system and U.S. intervention in the foreign exchange markets.

Section 3 provides for congressional oversight of certain U.S. activities in relation to IMF. It amends section 5 of the Bretton Woods Agreements Act to prohibit U.S. representatives to the IMF from proposing a par value for the U.S. dollar and from voting to approve the establishment of any additional trust fund whereby resources of the IMF would be used for the special benefit of a single member, or

of a particular segment of the membership of the Fund, unless Congress authorizes such action by law.

See also H. Rept. 94-1284 and S. Repts. 94-1148 and 94-1295. For statement by the President on signing P.L. 94-564, see Weekly Compilation of Presidential Documents, Vol. 12, No. 43, Oct. 25, 1976, p. 1547.

Exchange Rates

In Truong Xuan Truc v. United States, 212 Ct. Cl. (slip opinion of November 17, 1976), the U.S. Court of Claims construed the phrase "legal rate of exchange" in the payment clause of the contracts between ten South Vietnamese contractors and the defendant acting through the U.S. Department of the Navy.

The rate of exchange system prevailing in South Vietnam during the period of December 29, 1966, to August 28, 1967, when the contracts in question were negotiated, was described by the Court of Claims as follows:

In substance, the official rate of exchange . . . was 80 Vietnamese [piasters] to 1 [U.S. dollars]. Parenthetically, this was also the rate at which the United States was authorized by the Government of the Republic of South Vietnam to buy piasters in South Vietnam. There also existed another rate of exchange called a "Consolidation Premium" or "Consolidation Tax," which consisted of a subsidy of 38 piasters to the official rate of exchange of 80 piasters to produce a rate of exchange of 118 to 1. This subsidy, which was made available to selected entities [other than the U.S. Government]..., enabled those entities to purchase piasters in South Vietnam at the exchange rate of 118 to 1. . . . It seems clear that very few, if any, private transactions took place at the rate of 80 to 1 and that the exchange rate of 118 to 1 was the rate at which most transactions occurred.

Of the ten contracts in question, nine contained the following language:

The consideration under this contract in the lump sum amount of [stated contract price in dollars] is expressed in U.S. dollars; however, the U.S. Government reserves the right to make payments in Vietnamese piasters at the legal rate of exchange between the U.S. dollars and Vietnamese piasters in effect on the date approved invoices are presented to Finance Officer for payment. [Emphasis added.]

The tenth contract had the identical language up to the word "exchange" after which the following language appears:

... between the two currencies in effect at the time any invoice is presented for payment. [Emphasis added.]

As a result of a South Vietnamese decree law effective October 1, 1967, the U.S. Government was authorized to buy piasters at the

exchange rate of 118 to 1. The plaintiffs then asserted that under the quoted payment clauses the "effective legal rate" of exchange changed from 80 piasters to 118 piasters to the dollar as of October 1, 1967, and that the United States became obligated to convert contract dollars into piasters at the new and higher rate of 118 piasters for each contract dollar. The Armed Services Board of Contract Appeals denied the plaintiffs' claim in a decision dated October 27, 1971 (71-2 BCA 9149), and denied plaintiffs' motion for reconsideration of its decision on August 3, 1972. The plaintiffs then filed ten separate petitions in the Court of Claims challenging the Board's determinations.

The Court of Claims denied the plaintiffs' request for review and affirmed the Board's decision as the basis for its judgment in this case, stating:

Accepting plaintiffs' view, arguendo, that the clauses were designed to protect the contractors against any change in the legal rate of exchange, it is clear that no changes occurred in either of the two existing legal rates of exchange during contract performance. The official rate remained at 80 to 1 and the "Consolidation Premium," which plaintiffs are wont to describe as the "effective legal rate," remained at 118 to 1. Having contracted with the defendant at the official legal rate of 80 to 1, at a time when the "effective legal rate" of 118 to 1 was also prominently in existence, no persuasive claim can be made that the "effective legal rate" of 118 to 1 should now be adopted as reflecting the intendment of the parties at the time they entered into the contracts.

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Generalized System of Preferences

On February 26, 1976, President Ford issued Executive Order 11906, amending the generalized system of preferences (GSP) by deleting five items from the list of eligible articles and updating the "competitive need" limitations on GSP.

Fed. Reg., Vol. 41, No. 56, Mar. 22, 1976, pp. 8758-8763.

The Chairman of the Trade Policy Staff Committee of the Office of the Special Representative for Trade Negotiations filed with the Federal Register on March 19, 1976, a paper setting forth the following information about the U.S. system of GSP: (1) The current list of beneficiary countries and territories; (2) a descriptive list of the articles currently eligible for GSP benefits; (3) the list of eligible

articles for which products of certain beneficiary developing countries will not receive duty-free treatment by virtue of the provisions of section 504 of the Trade Act of 1974 (88 Stat. 2070; 19 U.S.C. 2464).

The publication had no legal effect. Its purpose was to facilitate understanding of the changes that had been made in the GSP and to supplement the information contained in the basic implementing documents: E.O. 11888 of Nov. 26, 1975 (40 Fed. Reg. 55275, Nov. 26, 1975), as amended by E.O. 11906, supra. The Chairman's paper contained the following additional explanation:

Executive Order No. 11888, dated November 24, 1975, modified the Tariff Schedules of the United States to implement the Generalized System of Preferences (GSP) authorized by title V of the Trade Act of 1974. The Executive order designated beneficiary countries and eligible articles for the GSP. Products which are eligible articles and meet the conditions stipulated in title V of the Trade Act are duty free if imported into the United States directly from a beneficiary country on or after January 4, 1976.

Section 504(c) of the Trade Act provides that eligible articles will not receive dutyfree treatment, however, if the are (1) the product of a beneficiary country which in the preceding calendar year accounted for 50 percent or more of total U.S. imports of the article (unless the President has determined that the article was not produced in the United States on January 3, 1975) or (2) the product of a beneficiary country which supplied imports valued at $25 million or more in the preceding year. (This provision is referred to as the "competitive-need limitation" on GSP.) The list of beneficiary-country exceptions to eligibility for particular products resulting from the provisions of section 504(c) must be updated within 60 days after the end of each calendar year.

Fed. Reg., Vol. 41, No. 56, Mar. 22, 1976, pp. 11956-12006.

President Ford issued Executive Order 11934, dated August 30, 1976, deleting Laos from status as a beneficiary developing country under the generalized system of preferences (GSP) and adding Portugal to the list of GSP beneficiaries. The order also modified the limitations on preferential treatment for certain eligible articles from countries designated as beneficiaries, adjusted the original designation of eligible articles, and made technical identifying changes in the list of beneficiary developing countries.

Fed. Reg., Vol. 41, No. 171, Sept. 1, 1976, p. 37084.

Petroleum and Petroleum Products

The Supreme Court, on June 17, 1976, in Federal Energy Administration v. Algonquin SNG, Inc., 426 U.S. 548 (1976), unanimously upheld the authority of the President to impose license fees on imported oil to limit the imports of oil for national security reasons. The decision reversed the ruling of the U.S. Court of Appeals for the District of Columbia, in Algonquin SNG, Inc. v. FEA, 518 F.2d 1051 (1975), that the President had authority to limit imports only through "direct" methods, that is, import quotas. See the 1975 Digest, p. 521.

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