1981 CONSULTATION WITH GREECE. Background Paper by the Secretariat

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1 GENERAL AGREEMENT ON RESTRICTED BOP/W/SS 0 October 98 TARIFFS AND TRADE Limited Distribution Committee on BalanceofPayments Restrictions 98 CONSULTATION WITH GREECE Background Paper by the Secretariat. This paper has been prepared In accordance with paragraph 7 of the Declaration on Trade Measures Taken for BalanceofPayments Purposes adopted by the CONTRACTING PARTIES on 8 November 979 (BISD, 6S/0509).. Greece's previous consultations in the Committee on Balanceof Payments restrictions. Since its accession in 949 Greece has consulted nine times In the Committee, namely in 960, 96, 964, 970, 97 (simplified), 974, 976 (simplified), 978 (simplified) and 980..,.A. In the last full consultation, which took place on 7 May 980, the Committee noted with satisfaction that the 5 per cent surcharge and the 75 per cent additional import deposit scheme introduced on 0 November 979 had been removed on 5 April 980 (L/497). It also noted that these measures had been partly replaced by a system of voluntary selfrestraint of importers to be applied until the end of 980 and it asked the Greek authorities to bring more transparency to the system by communicating further details to the GATT, in particular the list of products covered, and to notify the termination of the system as of the end of the year. The Committee concluded that the seriousness of Greece's balanceofpayments situation justified the temporary maintenance of the remaining restrictive import measures. It noted with satisfaction that a fixed timetable had been set up for the progressive removal of the remaining preimport deposits by the end of 98 visavis all contracting parties. The Committee expressed concern about the complexity of the Greek import regime, in particular about the cumulative application of different restrictive import measures to certain product categories. The Committee welcomed the efforts towards simplification that Greece had so far undertaken and was about to undertake in connexion with its accession to the EEC and it noted that these were in conformity with paragraph (b) of the Declaration on Trade Measures Taken for BalanceofPayments Purposes according to which the simultaneous application of more than one type of trade measure for balanceofpayments purposes should be avoided.

2 Page II. Actions taken since the last full consultation 4. The system of voluntary selfrestraint of importers, introduced in April 980, was terminated on 5 November 980 (L/5096). The list of products covered was not communicated to the GATT as had been requested by the Committee. 5. On January 98 Greece became the tenth member of the European Communities. Most quantitative restrictions have been eliminated immediately upon accession. For 4 classes of sensitive products, including fertilizers and certain transport and electrical equipment, quantitative restriction will be gradually phased out over a fiveyear transitional period in accordance with an agreed timeschedule. The policy changes that resulted from Greece's EC accession are being examined in the Working Party on Accession of Greece to the European Communities which will hold its next meeting on 6 November 98 (GATT/AIR/769). III. Restrictive import measures presently applied by Greece for balanceofpayments purposes. 6. Greece now maintains only one restrictive import measure for balanceofpayments purposes, namely a system of advance deposits applied to goods included in the Lists F50/ + and F00/ +. This system consists of a security deposit requirement for import charges and of a prepayment requirement. The security deposit rates vary between 4.8 and 0 per cent of the invoice value depending on the product category; a security deposit is not required for imports of certain capital goods and spare parts that are exempt from import duties. The prepayment rates vary between and 75 per cent of the invoice value in the case of payment by sight drafts. If payment is made by letter of credit the importer must deposit in addition 00 per cent of the amount in drachmae as security against default. The deposits are returned after two or four months, also if the payment of import charges and the final settlement takes place earlier. 7. The following table indicates the main products included in the Lists F50/+ and F00/+ and the security deposit and prepayment rates, applicable as of January 98, for imports paid with sight drafts.

3 Page Import List Some items covered Security Prepayment Total Deposit (percentage of invoice value) List F50/ List F50/ Filets of fish, fresh milk, tea, sugar beets, manganese ore, bars of iron and steel Lard, paraffin, candles, matches, tyres and inner tubes, fuel wood and wood charcoal, toothpicks, plywood, lorries and vans List F00/ Dates, pulses, rice 0.0 flour, eggs, fish, fats, oils, citrus fruit, certain steel products List F00/ Bread, macaroni, chocolate, canned condensed milk, cotton fabrics, glass and glassware, electric refrigerators, brooms and brushes, alcoholic and nonalcoholic beverages, cigarettes, furniture, soap and perfumery products The secretariat does not have at its disposal the complete Lists F50/ + and F00/ +. As pointed out in the technical note on the inventory of measures applied by Greece, which the secretariat prepared for the Working Party on the Accession of Greece to the European Communities (Spec(8)44), the Greek notification to the Working Party specifies only which product categories in the Greek customs tariff are subject to the deposit requirement but not which deposit rates (6.8,.6, 5.5 or 05 per cent) and which retention periods (two or four months) are applied to each product category.

4 Page U 9. Article 8 of Greece's accession treaty with the EEC provides for a phased reduction of the deposit rates as follows: On January 98 by 5 per cent» on January 98 by 5 per cent» on January 98 by 5 per cent» on January 984 by 5 per cent. The first reduction was implemented as scheduled on January 98. IV. Recent developments in the Greek economy 0. In 980, there was a further decline in the growth rate of both Greece's real GDP (to / per cent, against about 4 per cent in 979) and manufacturing production (to per cent, compared with 6 per cent in the previous year). Seasonally adjusted estimates indicate that manufacturing production was actually declining in the two last quarters of 980 and in the first quarter of 98 (Chart I). Although it is reported that a slight recovery took place in the second quarter of the current year, the level of manufacturing production in the first half of 98 is estimated to have remained significantly below that of the first half, as well as of the second half, of 980. CHART I INDICES Of GREECE'S IHDUSTRIAt PRODUCTIOlt AND TRADE VOLUME (975» 00; seasonally adjusted).index 00 Index p " 60 "** x EXPORT VOLUME luo U l_jl I. I I I I ' ' I. I. I C Sources: International Monetary Fund, International Financial"Statistics. September 98; Organisation for Economic Cooperation and* Development, Main Economic Indicators. September 98.

5 Page 5. The rate of increase in consumer prices accelerated from / per cent in 978 to 9 per cent in 979 and 5 per cent in 980. In the first half of 98, there was a marginal decline in the inflation rate, as is evident in Chart II (the chart also gives recent statistical information on a few variables usually thought to be linked to inflation). CHART II GREECE'S COKaUMER PRICES AMD OTHER SELECTED VARIABLES 0 P 0 CHANGES IH CONSUMER PRICES 0 CHANGES IN MONEY STOCK (MlT Billion $ Drachmas per ECU. CONVERSION RATE DRACHMA/ECU (Rifchthand scale) GROSS INTERNATIONAL RESERVES. EXCL. GOLD (Lefthand scale) * 9T* ' EXCHAHGE RATE DRACHMA/$ (Righthand scile). uo 'Quarterly averages: change oyer same quarter of the preceding year. b. Endctfquarter position: month rate of change. Sources: IMF, International Financial Statistics; OED, Main Ecanor.ic Indicators ; Statistical Office of the European Communities,

6 Page 6. The drachma depreciated by 8 per cent against the dollar in the course of 980 and by a further per cent in the seven months to endjuly 98. The conversion rates between the drachma and the ECU, used by the EC Statistical Office, have also been plotted in Chart II. Given that member countries of the EC account for a substantial share of Greek trade, these rates offer a relatively close approximation to the drachma's nominal effective exchange rate.. In 9J0, exports rose by per cent, in volume terms, and imports fell by 7 / per cent (Chart I shows quarterly trade volume indices, adjusted for seasonal variations). Greece's trade deficit contracted somewhat in 980, as the dollar value of exports expanded by onethird, while imports were up by less than 0 per cent. Exports to Eastern Europe and developing countries, and imports from China and developing countries increased at a particularly fast rate in 980. Available information indicates that there was a sharp reduction in Greece's trade deficit in the first quarter of 98: compared to levels in the corresponding period of last year, the dollar value of imports had declined by onehalf and the value of exports, by nearly 40 per cent (Chart III); the figure for April 98, however, shows a large increase in the deficit. CHART III DEVELOPMENTS IN GREECE'S MERCHANDISE TRADE* (Monthly averages) $ million a Customs basis. Exports (f.o.b.) minus imports (c.i.f. Sources: 0ECD, Statistics of Foreign Trade. Series A; Statistical Office dt the European Communities, Monthly External Trade Bulletin.

7 Page 7 Economic aspects of Greece's import deposit scheme 4. The system of advance deposits applied to goods in the lists F50/ and F00/ represents an additional cost to importers of those goods. The forced immobilization of funds which the deposit system entails causes the importer,to pay or forego an estimated annual interest of about 5 per cent, during a two or a four month period. The following table gives rough estimates of the additional cost resulting therefrom. Import list Total deposit requirement Additional cost of imports month deposit 4month deposit F50/ F50/ F00/ F00/ The lack of information on the product coverage of Lists F50/+ and F00/+, and on the retention periods applied to each product category, make it impossible for the secretariat to provide a more detailed analysis of the effects of the deposit scheme, in particular to investigate its monetary impact and its incidence on particular suppliers. On the last point, however, the annexed table showing Greece's imports by main product categories and supplies in 980 may provide some guidance to the members of the Committee. The secretariat has no information on the rates of interest presently paid or foregone by importers in connexion with the deposit requirement. The rate chosen approximately corresponds to Greece's rate of inflation and is about 5 percentage points above the discount rate applied in the first six months of 98.

8 GREECE'S IMPORTS, BY COMMODITY GROUP, AND AREAS/COUNTRIES OF ORIGIN, 98C (a,b (Milli on dollars,, c.i.f.) BOP/ Page Developed countries Developing countries Eastern World EC9 EFTA Other Western Europe Japan United States Other c Brazil Republic of Korea Other Europe Primary products = 6 5 Food Raw materials Fuels (Crude petroleum) Ores and other minerals Nonferrous metals ( ) () () () 5 () () () () _ () ( ) (65) 7 Manufactures Chemicals Textiles Iron and steel Other semimanufactures Engineering products Clothing Other consumer goods TOTAL IMPORTS For detailed commodity group and area definitions, see GATT, International Detail may not add, due to rounding. Australia, Canada, New Zealand and South Africa, including the USSR. Trade 979/80, Appendix. Source: United Nations, commodity trade tapes.