chapter 11 Categories of Dependency
- International Monetary Fund
- Published Date:
- October 1985
The drafting of Article XX, Section 2 (g), was complicated by the variety of dependencies under the authority of some countries, the confusing use of terminology,1 and uncertainties about the legal status of some territories.2 The problems of establishing categories into which the dependencies of various countries could be marshaled were made even more difficult by the necessity to take account of political sensibilities.
The Fund has never found it necessary to develop precise definitions of the various classes of dependencies included in Article XX, Section 2 (g). No problem has ever turned on the classification of a particular dependency. Even the issue involving the gold subsidy of Southern Rhodesia raised no question about its status as a “colony.” The problem was whether the United Kingdom was responsible for a self-governing colony. It is well known that the main draftsman of the provision was the late E. W. Beckett, Legal Adviser of the British Foreign Office, and that the provision was influenced by British practice. By 1944, the word “colony,” which is defined in various ways in British statutes, had taken on a loose meaning in British practice and implied no particular form of government. Some territories were self-governing colonies in which the executive was responsible to the lower house of a colonial legislature, and some were “Crown colonies,” which lacked responsible government. All colonies were subject to legislation by the then Imperial Parliament, which was unlikely, however, to adopt legislation for a colony beyond a certain limited range of topics, although it had the paramount constitutional authority to regulate the affairs of a colony. Colonial legislation was void if it was repugnant to an act of the Imperial Parliament that applied to the colony. Characteristics such as these might be the indicia of a “colony” for the purposes of Article XX, Section 2 (g), if it ever became necessary to define the term, but it need hardly be said that the practice of a single member, although persuasive, would not be regarded as authoritative.
The case of the United States is a good example of some of the problems that affected the drafting of Article XX, Section 2 (g). In response to the letter of June 1946 from the Secretary-General of the United Nations that has been referred to in Chapter 10, the United States enumerated Alaska, Hawaii, Puerto Rico, the Virgin Islands, the Panama Canal Zone, Guam, and American Samoa. These territories were classified in a variety of ways in U. S. constitutional law, and there had been some controversy about the precise classification of some of them, but the word “colony” would have caused shudders. Public opinion and constitutional law in the United States may have been among the reasons for the incorporation of “overseas territories” as well as “colonies” in the provision, although in 1944 Alaska 3 would not have been covered by the former term. It would have been regarded, however, as under the “authority” of the United States.4 The U. S. Bretton Woods Agreements Act employs the familiar expression “the United States and its Territories and possessions.” 5
Before the Second World War the French Empire was divided into colonies, protectorates, and countries or territories under mandate. The terms “territories under the jurisdiction of the Ministry of Colonies” and “colonies and overseas territories” were used to refer to the colonies proper, the Indochinese protectorates, and the African territories under mandate (Togo and Cameroon). Algeria constituted a separate category under the jurisdiction of the Ministry of the Interior. The protectorates of Morocco and Tunisia and the territories under mandate (Lebanon and Syria) were under the jurisdiction of the Ministry of Foreign Affairs. In addition, there were “territories” that did not fall into any of these categories (e.g., the Algerian Sahara, known as “the territories of Southern Algeria,” and the southern part of Guyana). In the constitution that was prepared by the Vichy Government during the war but was never enacted, the Empire was defined as consisting of the “overseas territories,” i.e., “territories on which … the French state exercises sovereignty or to which it extends protection” (Article 41). The 1946 Constitution no longer used the term “colonies” but referred to “overseas departments” and “overseas territories” as separate and precisely defined categories. It is probable that the term “colonies” was considered derogatory, particularly in view of the part they had played in the war.
The concept of “colony” was not troublesome for the United Kingdom or for Belgium. The drafting commission that prepared the revision of the Netherlands Constitution in 1922 proposed that Article 1 should read as follows: “The Kingdom of the Netherlands encompasses the territory in Europe, as well as the colonies in other parts of the world,” This formulation was opposed in Parliament by those who objected that both the former term “possessions” and the proposed term “colonies” would inhibit constitutional development. The provision as adopted read: “The Kingdom of the Netherlands encompasses the Netherlands, the Netherlands Indies, and Curacao.” In Dutch legal literature, the last two of these territories were referred to as “overseas parts of the realm.”
Territories Under Protection
Article XX, Section 2 (g), refers to “territories under … protection,” probably in order to avoid the distinction between “protected states” and “protectorates” (or “colonial protectorates”) in British practice. The former result from a treaty acknowledged as valid in international law; the latter result from treaties that are not acknowledged in this way or from the acquiescence of native tribes.6 In the latter, the British Crown exercises powers of government without annexation; in the former, administration is conducted by and in the name of a local sovereign with British advice. The distinctions of terminology in British practice are not observed in the discussion that follows.
The concept of the protectorate is as difficult to define as the concept of suzerainty. A protectorate involves some element of ascendancy over or guardianship of the protected territory, but each case is sui generis because its characteristics are determined by the treaty between the protecting state and the protected territory that often defines their relationship.7 The Permanent Court of International Justice has said in an Advisory Opinion:
The extent of the powers of a protecting State in the territory of a protected State depends, first, upon the Treaties between the protecting State and the protected State establishing the Protectorate, and, secondly, upon the conditions under which the Protectorate has been recognised by third Powers as against whom there is an intention to rely on the provisions of these Treaties. In spite of common features possessed by Protectorates under international law, they have individual legal characteristics resulting from the special conditions under which they were created, and the stage of their development.8
A protectorate has been defined as “(a) a legal relationship (b) between two States in which the superior State is (c) bound by an international treaty or some other legal title (d) to lend protection to the other, subordinate State and entitled to control its foreign relations (e).” 9 Notwithstanding this definition, the protecting state may have considerable authority over internal affairs as well.10 The concept of a protectorate can be distinguished from suzerainty in that the protected state is always an international person for some purposes, one consequence of which is that the head of state or the government of a protectorate always has jurisdictional immunities in the courts of the protecting state and probably in the courts of other states. The protected state is not considered part of the territory of the protecting state, and treaties concluded by the latter do not automatically bind the former. The protected state is not necessarily at war because the protecting state is waging war.11
The protecting state usually conducts all the external affairs of the protected state, including entry into treaties. The protecting state may do this directly, or it may have the right to pass upon the decisions of the protected state in connection with external relations, but the protected state may have the power to conduct some of its foreign relations without hindrance.12
Although the interpretation of “protection” or “suzerainty” in Article XX, Section 2 (g), or the classification of a particular territory as the one or the other, has not been a problem for the Fund, the status of a protectorate under the Articles was the subject of argument before the International Court of Justice in the Case concerning rights of nationals of the United States of America in Morocco (France v. United States of America).13 The General Act of Algeciras of April 7, 1906, a multilateral treaty defining the status of Morocco, recognized the principle of “economic liberty without any inequality” in Morocco. By the Treaty of Fez of March 30, 1912, Morocco became a protectorate of France. The United States objected that a decree of December 30, 1948 was in violation of the General Act of Algeciras and other treaties because it required licenses for certain imports from all sources except from France and the French Union. Part of the argument advanced by France was that a system of equal treatment in commercial matters did not preclude exchange control. The right to introduce exchange control was recognized by the Articles of Agreement of the Fund, which applied to Morocco under Article XX, Section 2 (g). France contended that the drafters could not have intended to exclude from that provision protectorates subject to a system of equal treatment because the drafters expressly included mandated territories, and these were always subject to such a system. France also argued that its notice to the Fund that it would avail itself of the transitional arrangements of Article XIV, under which members were authorized to maintain, adapt, or introduce exchange restrictions, applied to all protectorates, and had not been objected to by the Fund. Exchange control never applied uniformly and the decree in issue had been adopted without any intention to discriminate unjustly against the United States. The Court held in favor of the United States, but did not find it necessary to discuss the legal issues based on exchange control or the Articles of the Fund.14
The concept of suzerainty is feudal in origin and the relationship between a vassal state and its suzerain is said to have feudal characteristics. The precise relationship depends on the circumstances of each case, and it is therefore difficult to provide a general definition. The vassal has independence in internal affairs, but its external relations are conducted by the suzerain. Some vassal states have had the power to conduct certain of their external relations, including entry into some treaties, and to that extent they have had the status of international persons. Nevertheless, they are regarded as a portion of the suzerain state, and therefore treaties entered into by the suzerain apply to the vassal unless this effect is expressly or implicitly precluded. War by the suzerain is automatically war by the vassal.15
There are said to be no vassal states now, although the authorities do not agree on the date of their final disappearance.16 Probably, the last vestige of suzerainty was the relationship of the British Crown to the Indian States, a relationship that was ended by section 7 of the Indian Independence Act, 1947. It is possible that suzerainty was mentioned in Article XX, Section 2 (g), of the Fund’s Articles because of the Indian States, but another reason might have been the difficulty of distinguishing between protection and suzerainty in some instances.
The system of mandates was established by Article 22 of the Covenant of the League of Nations and by treaties of peace entered into after the First World War in order to deal with the territories detached from Germany and Turkey. The territories were entrusted to a mandatory state for administration on behalf of the League of Nations in accordance with the terms of a written mandate entered into between the League and the mandatory. The dominant idea of the mandate was a trusteeship for the benefit of the inhabitants of the mandated territories as “peoples not yet able to stand by themselves under the strenuous conditions of the modern world.” The mandate involved no cession of territory. There were three types of mandate (known as A, B, and C), classified according to a descending order of development and fitness for independence.
The system of mandates was replaced by the system of trusteeships under Article 75 of the Charter of the United Nations. On February 9, 1946, the General Assembly invited all states administering territories under mandate to propose trusteeship agreements for approval and welcomed the declaration of the United Kingdom as mandatory to terminate the mandate of Trans-Jordan and establish the independence of that territory. Iraq, Syria, and Lebanon, which formerly had been subject to mandates, had become independent already. On December 13, 1946, the General Assembly approved eight trusteeship agreements for territories that had remained subject to mandates, and other trusteeship agreements were approved during 1947. The trusteeship agreements had the effect of terminating mandates. The administering authorities under the trusteeship agreements were Australia, Belgium, France, New Zealand, the United Kingdom, and the United States.17
The Articles of Agreement of the Fund entered into force on December 27, 1945, on which date the membership of Belgium, France, the United Kingdom, and the United States became effective. These members, therefore, were affected for a time by the reference to mandates in Article XX, Section 2 (g). Australia became a member of the Fund on August 5, 1947 and New Zealand on August 31, 1961. Neither was affected by the reference to mandates, except that Australia was a joint mandatory with New Zealand and the United Kingdom over Nauru, for which a trusteeship agreement was approved on November 1, 1947.
South Africa has not entered into a trusteeship agreement with respect to South-West Africa and has declared it to be part of South Africa’s territory. In its Advisory Opinion on the International Status of South-West Africa, the International Court of Justice came to the opinion, by twelve votes to two, that the mandate had not lapsed because the League of Nations had ceased to exist. The mandate had been undertaken in the interests of humanity and was not governed by the notions of mandate in national law. South Africa remained subject to the international obligations of both Article 22 of the Covenant and the mandate. The Court was of the unanimous opinion that South Africa acting alone was not competent to modify the international status of the territory, and that the competence to determine and modify the international status of the territory rests with South Africa acting with the consent of the United Nations.18
Paragraphs 5 and 6 of Article 22 of the Covenant of the League of Nations provided that the mandatory must be responsible for the administration of the territory under conditions that would achieve certain aims and also “secure equal opportunities for the trade and commerce of other Members of the League.” Therefore, to take one example, Article 7 of the class B mandate for Tanganyika declared that “… the Mandatory shall ensure to all nationals of States Members of the League of Nations, on the same footing as to his own nationals, freedom of transit and navigation, and complete economic, commercial and industrial equality.”
Article 76 (d) of the Charter of the United Nations provides for an open-door policy, by declaring that one of the basic objectives of the trusteeship system is “to ensure equal treatment in social, economic, and commercial matters for all Members of the United Nations and their nationals.” To take the example once again of Tanganyika, Article 9 of the trusteeship agreement for that territory provided that “… the Administering Authority shall take all necessary steps to ensure equal treatment in social, economic, industrial and commercial matters for all Members of the United Nations,” but under Article 11 no Member was entitled to claim the benefits of Article 9 “for itself or for its nationals, companies and associations” in any respect in which “it does not give to the inhabitants, companies and associations of Tanganyika equality of treatment with the nationals, companies and associations of the State which it treats most favourably.” 19
Provisions dealing with the open-door policy have not been understood to cover exchange arrangements. Mandatories and trustees among members have been able to provide that their exchange controls applied in the territories subject to mandate or trusteeship without objection based on the open-door policy.
Article XX, Section 2 (g), refers to territories in respect of which a member exercises a mandate, but it does not mention trust territories because the Articles of the Fund were drafted before the drafting of the Charter of the United Nations.20 It has never been doubted that a member accepts the Articles in respect of any trust territory for which it is the administering authority. The trusteeship system was preceded by the concept of the mandate but is not the legal successor of mandates.21 In addition, the International Court of Justice concluded in its Advisory Opinion on the International Status of South-West Africa that the Charter of the United Nations imposed no obligation on South Africa as the mandatory power to negotiate and conclude a trusteeship agreement for South-West Africa.22
A member’s responsibility under the Articles for a territory of which it is trustee cannot rest on the mention of mandates in Article XX, Section 2 (g). Trust territories, however, are clearly within the category of territories under the “authority” of a member. Responsibility would be imposed on a trustee-member by Article XX, Section 2 (g), even in the absence of the provision in trusteeship agreements by which the administering authority undertakes to apply in the trust territory the provisions of the agreements and the recommendations of specialized agencies of the United Nations. It is necessary to make the point because Article XX, Section 2 (g), gives a member no discretion in the application of the provisions of the Articles to a dependency except for such discretion as is permitted by the Articles themselves, whereas a trusteeship agreement may give the administering authority a broader discretion. For example, under the Covenant of the League of Nations, a mandate in respect of Nauru was conferred on the Governments of Australia, New Zealand, and the United Kingdom and was administered on their behalf by the Government of Australia. When the trusteeship system was inaugurated, the three Governments were designated again as joint authorities, with the Government of Australia as the administrator on their behalf.23 Under Article 4 of the trusteeship agreement, Australia exercised full powers of legislation, administration, and jurisdiction in and over the territory. Article 6 provided that “[t]he Administering Authority … undertakes to apply in the Territory the provisions of such international agreements and such recommendations of the specialized agencies referred to in Article 57 of the Charter as are, in the opinion of the Administering Authority, suited to the needs and conditions of the Territory and conducive to the achievement of the basic objectives of the Trusteeship System.”24
There has been no debate in the Fund on the question whether Australia alone was responsible to the Fund under Article XX, Section 2 (g), in respect of Nauru or whether the three members had joint responsibility, but prima facie it would appear that Australia was responsible. The absence of a systematic procedure by which members have been required to inform the Fund of their dependencies under Article XX, Section 2 (g), has been responsible for a number of obscurities in addition to the one noted in connection with Nauru.
Many of the trusteeship agreements have provided that the trust territory shall be “an integral part” of the territory of the trustee, but this expression does not mean that the territory was annexed by the trustee. The words mean that the trustee has the same powers of legislation and jurisdiction as it has over its own territory. The trusteeship agreements in which the expression appears do not have the effect of taking the territory out of Article XX, Section 2 (g).25
Nothing that has been said above must be taken to imply that any member has ever questioned the principle of the responsibility under Article XX, Section 2 (g), of an Administering Authority with respect to a trust territory. One of the two examples discussed in Chapter 10 of differences in the exchange arrangements observed by a member and its dependencies involved the trust territory of Ruanda-Urundi. The decision that Belgium could continue to have the benefit of the transitional arrangements of Article XIV in respect of Ruanda-Urundi assumed without question that Article XX, Section 2 (g), applied to the territory. Sometimes, responsibility has been made explicit in the member’s memorandum of law when joining the Fund. The document submitted by New Zealand included the following passage:
The executive government of all territories for whose international relations New Zealand is responsible, is vested in the Government of New Zealand. In New Zealand Acts relating to the Cook Islands and Western Samoa, powers to make some laws for the peace, order and good government thereof have been conferred on legislative bodies set up therein, but such powers have all excluded “external affairs”, which phrase has been defined to include the relations of the territory with international organisations. The New Zealand Government therefore has power to become a Member of the Fund … so as to bind the territories for whose international relations New Zealand is responsible, as required by Article XX, Section 2 (g) of the Fund’s Articles of Agreement. …
Western Samoa was a trust territory until it became independent on January 1, 1962.
According to Sir H. Lauterpacht:
A territory under a condominium is a clear example of division of sovereignty or of joint exercise of it in respect of a given territory, or of both. … International law cannot, without admitting a condition of anarchy, contemplate any territory as not being subject to some ultimate authority capable of taking final decisions. But that authority need not be a single State. If two States jointly exercise territorial sovereignty, the ultimate authority is provided by the existence between them of special or general machinery for reaching a decision on disputed points.26
A condominium may be defined as the joint exercise of sovereignty by two or more states in respect of a territory that is not part of the territory of any state. Condominium is not mentioned expressly in Article XX, Section 2 (g), and it would be covered therefore by the residual concept of “authority.”
At the date when the United Kingdom and Egypt became members of the Fund, the main international instruments governing the status of the Sudan were the Anglo-Egyptian agreements of January 19, 1899 and August 26, 1936. Under the first agreement, the supreme military and civil command in the Sudan was vested in a Governor-General, who was to be appointed by Egyptian decree on the recommendation of the British Government, and who could be removed by the same procedure. The legislative power was vested in the Governor-General, and the contracting powers were to be notified of all laws adopted by him, but they were to have no power of veto, and the right of the Egyptian Government to legislate for the Sudan was canceled. The authority of the Governor-General was to be exercised on the joint behalf of the two contracting parties. No consular agents were to be accredited to the Sudan without the prior consent of the British Government. The later agreement maintained the status quo with minor modifications, but the treaty relations of the Sudan were defined in detail. It was provided, inter alia, that unless the contracting parties agreed to the contrary, international conventions were to become applicable to the Sudan only by the joint action of the two parties. This provision established “the general principle” on which the Sudan could become a party to treaties, but it would not have enabled the two Governments to prevent the application of Article XX, Section 2 (g), to the Sudan if it was within the scope of that provision. The term “condominium” was used in British official documents to describe the relationship of the contracting parties to the Sudan.
On February 12, 1953, the two Governments signed an agreement “concerning Self-Government and Self-Determination for the Sudan” and providing for a transitional period of not more than three years “to enable the Sudanese people to exercise Self-Determination in a free and neutral atmosphere” and for “the effective termination of the dual Administration.” 27 The transitional period began on January 9, 1954, the day on which the institutions of self-government, the Council of Ministers and the Parliament, were created. During the transitional period, the Governor-General was to be the supreme constitutional authority, and “the sovereignty of the Sudan shall be kept in reserve for the Sudanese until Self-Determination is achieved.” The Governor-General was to remain directly responsible to the two contracting parties with respect to external affairs. The Sudanese Parliament was asked by the Sudanese Prime Minister on December 15, 1955 to declare the Sudan independent, and Parliament made the declaration of independence on December 19, 1955 and took final action in compliance with this request on December 22, 1955, more than a year earlier than the end of the transitional period. The action was accepted by the United Kingdom and Egypt even though it was not preceded by the plebiscite on which the two Governments had agreed on December 3, 1955, after the wish to hold a plebiscite had been expressed by the Sudanese Parliament in a resolution of August 29, 1955. The plebiscite was to have been held in order to enable the Sudan to choose between a link with Egypt and complete independence.
Neither the United Kingdom nor Egypt gave the Fund notice that it had accepted the Articles in respect of the Sudan. Egyptian currency was legal tender there, which explains why Egypt did not communicate an initial par value for it under Article XX, Section 4 (g), as a “separate currency.” The staff considered the question whether Egyptian currency as the currency of the Sudan was a separate currency of the United Kingdom for the purpose of Article XX, Section 4 (g), but the question was not resolved. The United Kingdom seems to have taken the view that the currency of another member that circulated within a territory in respect of which the United Kingdom had accepted the Articles, such as the Indian rupee in Kuwait at one time, was not a “separate currency” of the United Kingdom for which an initial par value had to be communicated under Article XX, Section 4 (g), or for which changes in par value had to be proposed under Article IV, Section 9. Acceptance of this view would not imply the absence of responsibility for a dependency under Article XX, Section 2 (g). This proposition, stated in other words, is that a dependency, to be subject to Article XX, Section 2 (g), does not have to possess a “separate currency.”
In the nineteenth century, France had become the dominant power in the Archipelago of the New Hebrides, but had not annexed it, although both France and Great Britain had been urged by traders and missionaries to take that step. In 1878 there was the prospect that Australia might annex the Archipelago, and the French and British Governments then agreed on a joint declaration of the independence of the Archipelago and gave equal rights to the two parties. The presence of British and French settlers under independent authority produced an unsatisfactory administration, but Australian opposition would have precluded a partition or transfer of full authority to France. On October 20, 1906, France and Great Britain signed a convention in London, confirming a protocol of February 27 of the same year, which provided that “the Group of the New Hebrides, including the Banks and Torres Islands,” should form a region of “joint influence,” that neither signatory should exercise a separate authority over the Group, and that French and British subjects would have equal rights. Each power was to retain jurisdiction over its own subjects or citizens, and the subjects of any other power who were resident in the islands had to be under British or French jurisdiction. A British and a French High Commissioner were appointed, each assisted by a Resident Commissioner. The High Commissioners were given joint authority over the native chiefs, two police forces of equal strength were established, a joint court was created under the presidency of a judge who was not of French or British citizenship and who was appointed by the King of Spain, and the joint naval commission of 1887 was retained to keep order. The Convention of 1906 was superseded by the Anglo-French Convention that was ratified on March 18, 1922, in which most of the earlier provisions were reproduced.
In a letter dated October 9, 1946, France communicated a par value under Article XX, Sections 2 (g) and 4 (g), for the CFP franc circulating in the New Hebrides. The United Kingdom took no similar action at that time, but later the question arose whether the New Hebrides should be regarded as a territory in respect of which both the United Kingdom and France had accepted the Articles. The question also arose whether the United Kingdom was responsible in respect of the “New Hebrides franc,” but it was clarified that this was the CFP franc overstamped New Hebrides. The Australian dollar, however, is a second currency that circulates in the Archipelago. Moreover, although formally the New Hebrides has never been part of the sterling area, it has been treated by the exchange control authorities of the United Kingdom as if it were. After the par value of the Australian dollar was changed on December 22, 1972, the United Kingdom informed the Fund that it had accepted the Articles in respect of the New Hebrides and that the Australian dollar would continue to circulate there.
The point has been made already in this chapter that the word “authority” serves as a residual category for those dependencies that do not fit snugly into the other categories. The breadth of the word makes disputation about the definition of the other categories unnecessary. Nevertheless, the word “authority” itself is not beyond controversy, as is illustrated by a case decided by the Court of Appeals of Hamburg on July 7, 1959.28 The plaintiff company, a resident of the Federal Republic of Germany, agreed in June and July 1957 to sell certain merchandise to the defendant, a resident of the Saar Territory, and the plaintiff brought an action for the unpaid price. The invoices under which payment was to be made were expressed in deutsche mark. The plaintiff claimed that the contract required the defendant to take delivery at a railroad depot in German territory but that the defendant had failed to perform. The defendant replied that the contract was void because the import of the merchandise had been prohibited by a regulation of June 4, 1958 of the Ministry of Commerce, Traffic and Agriculture of the Saar Territory, and also because the license that was required under foreign exchange legislation had not been obtained.
The court gave judgment for the plaintiff on the ground that the contract was for delivery within German territory and that importation into the Saar Territory was at the sole risk of the defendant. Moreover, even if the contract provided for importation into the Saar Territory, the regulation provided only that a license was necessary for movement across the border, but did not invalidate the contract if no license was obtained, although there would then be a violation of the customs regime.
Passing to the argument based on exchange control, the court held that the regulations in force in the Saar Territory were foreign law because the Agreement of October 27, 1956 between France and Germany provided that until the full reintegration of the Saar Territory into Germany, French foreign trade and exchange control was to continue to apply to the Saar Territory. The court concluded that because the exchange control regulations that were relied on by the defendant were foreign public law, a German court would not apply them. The court went on to consider the effect of Article VIII, Section 2 (b), of the Fund’s Articles and concluded, for reasons that need not be recalled here, that the provision did not require a different result.29
The court showed no enthusiasm for Article VIII, Section 2 (b), but did not reject it as inapplicable in principle. Instead, the court discussed the meaning of the provision and concluded that it did not support the defense. It is the assumption that the provision might have been applicable that prompts the question of the scope of Article XX, Section 2 (g). In order to explain this question, it is necessary to say something of the status of the Saar Territory.
In 1920 the Saar Territory was placed under a commission of the League of Nations for 15 years, at the end of which period a plebiscite was to be held in order to enable the inhabitants to choose whether the Saar Territory was to be part of France or part of Germany or was to continue under the authority of the League. The Saar Territory reverted to Germany as a result of the plebiscite of 1935. In 1945 the Saar Territory became part of the French zone of occupation, and in 1947 the French military government arranged for the election of a representative assembly and accorded the Saar Territory separate international status within an economic union with France. France conducted the foreign relations and defense of the Saar Territory by virtue of the preamble to the Constitution of the Saar Territory and Article 11 of the General Convention of March 3, 1950 between France and the Saar Territory. The status of the Saar Territory was disputed by Germany, however, which argued that conventions between France and the Saar Territory were contrary to international law because France was a trustee of the French zone of occupation.30
The controversy was resolved by the Treaty of October 27, 1956 between France and Germany for the Settlement of the Saar Question, which took effect on January 1, 1957. The Basic Constitutional Law and legislation of Germany became applicable on that date, in accordance with the provisions of the treaty, to the Saar Territory, which politically became a part of Germany as one of the Länder. In the period before the next federal elections, the Land was to be represented in the Federal Parliament in Bonn by ten deputies elected from among the members of the Saar Diet that had been established under the pre-existing regime. The political reintegration of the Saar Territory in Germany was recognized internationally without delay. For example, on January 8, 1957, the President of the Consultative Assembly of the Council of Europe welcomed the settlement of the question of the Saar and noted that it was no longer represented in the Assembly. Formerly, it had been an Associate Member of the Council of Europe.
The treaty provided, however, that until December 31, 1959 at the latest, the Saar Territory was to remain a part of the customs and currency area of France. The transitional period was terminated by agreement with effect from July 5, 1959. The French franc was to remain legal tender in the Saar Territory during the transitional period, and French regulations concerning the credit system and the control of foreign exchange and trade that were in effect on January 1, 1957 were to continue in force. The treaty provided procedures for the application of new French regulations. Article 6 (4) of the treaty provided that “France shall share with the Saar economy the international finance facilities which result from her sovereignty in the matter of currency.” According to Article 13:
- (1) In international conferences and organisations France shall represent the Saar Territory … in matters which have a direct influence on customs and currency questions.
- (2) International agreements in the sphere of customs and currency, which have been or will be concluded by France with third countries, shall be applicable to the Saar Territory during the transitional period. …
It is not clear why the Court of Appeals of Hamburg assumed that Article VIII, Section 2 (b), required it to consider the exchange control regulations in force in the Saar Territory during the transitional period.31 It is possible that the court considered the problem as no more than a problem of the application of French law. But the Saar Territory was not part of France in the view of either France or Germany, and a possible theory, therefore, is that a German court might have been required to recognize the effect of the exchange control regulations of the Saar Territory under Article VIII, Section 2 (b), because of Article XX, Section 2 (g). This theory would rest on the proposition that the Saar Territory was under the “authority” of France for the purposes of the latter provision.
There would be nothing surprising about the application of Article VIII, Section 2 (b), to the exchange control regulations of the Saar Territory during the transition. There were four possible versions of the status of the Saar Territory for the purposes of the Articles: it was (a) part of Germany, (b) part of France, (c) a territory under the authority of France, and (d) nonmember territory. The third version is most persuasive, particularly in view of the protection by the treaty of French monetary and economic interests in the Saar Territory during the transition. If this version were accepted, it would mean that a territory may be under the “authority” of a member for the purposes of Article XX, Section 2 (g), even though the member does not conduct all the foreign relations of the territory. The member might conduct those foreign relations that involved the subject matter of the Articles, while another member conducted the other foreign relations of the territory. During the transition, Germany conducted all of the foreign relations of the Saar Territory that were not reserved to France. It would also follow from this analysis that a territory might be under the “authority” of one member even though the territory was legally part of the territory of another member. It is interesting, but without legal significance, that a discussion of the economic development of the Saar was included in the staff’s report on its consultations with Germany in 1957.
Belligerency creates at least two kinds of problem in connection with the application of the Articles. The first involves the effect of hostilities between members on their obligations under the Articles, and the second the obligations of a member in respect of territory under its military occupation.
There is much uncertainty about the effect of hostilities between parties to a multipartite treaty on their obligations under the treaty. There is broad acceptance of the proposition that international law permits a belligerent to suspend the performance of obligations if the observance of them would impede its prosecution of the war. The Articles contain no express provision by which to resolve this problem. The Fund may suspend the operation of certain provisions for limited periods “in the event of an emergency or the development of unforeseen circumstances threatening the operations of the Fund,” but any suspension would apply to all members.32 The Fund has suspended the operation of Article XXV, Section 8 (a), with respect to transactions in special drawing rights entered into by agreement between two participants under Article XXV, Section 2 (b) (i). If, “in an emergency,” the Executive Directors decide that liquidation of the Fund may be necessary, they may suspend all transactions for a temporary period pending a decision on liquidation by the Board of Governors.33
The suspension of the operation of provisions or of transactions cannot be confined to belligerents. The continued application of the provisions of the Articles to belligerents is evidenced by the decision of the Executive Directors with respect to restrictions on the making of payments and transfers for current international transactions that are imposed “solely for the preservation of national or international security.” The Fund affirmed that these restrictions were subject to Article VIII, Section 2 (a), but because the Fund was not “a suitable forum for discussion of the political and military considerations leading to actions of this kind,” it established a special procedure under which the restrictions might be approved.34
The Fund has not adopted any decision on the question whether territory subject to occupation is under the “authority” of the occupying country for the purposes of Article XX, Section 2 (g). For the proposition that the provision does not apply, it might be argued that it was intended to describe imperial or colonial associations, and that the words “all territories under their protection, suzerainty, or authority” were intended to describe a single category and not three categories in which the last was a broad and residual one. According to this latter argument, “authority” would take on color from “protection” and “suzerainty” and all would be understood to cover the variations among protectorates. If “authority” had been designed to serve as a residual category, it would have been more natural to place it at the end of the provision.
It has been seen that the word “authority” is considered to establish a distinct category and one that performs a residual function. Occupied territories can be fitted into this category without verbal or other difficulty. It is interesting to note the use of the word in Article 42 of the Hague Regulations of 1907: “Territory is considered occupied when it is actually placed under the authority of the hostile army. The occupation extends only to the territory where such authority has been established and can be exercised.” If this view were not adopted, the Articles would cease to be effective in occupied territory even though it belonged to one member and was occupied by another. That result would be strange in view of the rule of customary international law under which an occupying power has duties in respect of the monetary system of the occupied territory. The occupying power may allow the currency of the occupied territory to go on circulating, it may introduce its own currency, or it may issue a new currency, but whichever course it follows it must protect the public interest of the occupied territory, without being bound, however, to sacrifice its own military interests.35 Special provisions in the Articles deal with the effects on members of the occupation of, or major hostilities in, their metropolitan or nonmetropolitan territories during the Second World War.36 The absence of any express reference to the future occupation of one member’s territory by another member can be explained on the theory that Article XX, Section 2 (g), applies to occupied territory.
The Fund did not consider the question whether Germany, Japan, Italy, and Austria were territories under the authority of the occupying powers within the meaning of Article XX, Section 2 (g). The absence of any discussion of this question by an organ of the Fund is of little assistance on the question of interpretation. The U. S. S. R., a nonmember, was one of the occupying powers. Another reason may have been the known intention of the negotiators of the Articles that ex-enemy countries should not be allowed to join the Fund until some future date at which entry might be deemed appropriate. That intention may have been responsible for an unwillingness to give these countries some of the benefits of the Articles at an earlier date by holding that Article XX, Section 2 (g), applied to them. A more compelling reason may have been the reluctance of the infant organization to grapple with so political a problem. The Fund would have found it extraordinarily difficult to hold the occupying powers accountable for their monetary policies in the ex-enemy countries. Some efforts were made to get the Fund to examine these policies. For example, in 1947 Belgium requested that there be added to the agenda of the Economic Commission for Europe (ece) the questions of the stabilization of economic conditions in Germany and the establishment of a rate of exchange for the reichsmark.
The Belgian delegation at a session of the ece pointed out that the occupation authorities were fixing differential rates of exchange for different commodities or for individual transactions. “This policy, which, in fact, if not in name, amounts to ‘multiple currency practices’ is contrary to the Bretton Woods Agreement, to which the British and American Governments have subscribed, not only for themselves but also for the territories under their mandate.” The staff of the Fund wrote a study agreeing that there were multiple rates of exchange for the reichsmark, but no action was taken. The memorandum stated that it did not deal with the legal question whether the rates applied by the occupation authorities were compatible with the Articles.
In later years, the staff considered the question in relation to such territories as Trieste and the Saar Territory but never presented an opinion to the Executive Directors. As time went by, it seemed particularly unfortunate if the territory of one member occupied by another were deemed to be beyond the reach of Article XX, Section 2 (g), whatever might be said of the logic of requiring a member to observe the obligations of the Articles in respect of the territory of a nonmember that the member was occupying. In one case in recent years in which the territory of one member was occupied by another member, the Managing Director and staff responded to an appeal by the member to which the territory belonged. That member objected to a change in the exchange rate for its currency in circulation in the occupied part of its territory. The change was made by the occupying power and did not correspond to the relationship between the par values of the two currencies for which the rate was fixed. The occupying power rescinded the change so that thereafter the rate did reflect the parity between the two currencies. It was unnecessary to clarify whether the Fund’s action was based on “good offices” or on Article XX, Section 2 (g).