Economic relations of the United Kingdom with developing countries

DWC- 7904 July 10, 1979 THE ECONOMIC RELATIONS OF THE UNITED KINGDOM WITH DEVELOPING COUNTRIES Ernst Lutz Aeran Lee Working Paper No. 8 International Trade and Capital Flows Division Economic Analysis and Projections Department Development Policy Staff  THE ECONOMIC RELATIONS OF THE UNITED KINGDOM WITH DEVELOPING COUNTRIES I. Introduction and Summary 1. The economy of the United Kingdom has in the recent decade not grown as fast as that of the other major OECD countries. But after a period of high inflation and increasing unemployment, the economic situ- ation has recently improved with a reduction of the inflation rate, a more stable exchange rate, and a positive current account balance. Some of these improvements are directly or indirectly related to the increasing production of North Sea oil and gas. Table 1. COMPARATIVE ECONOMIC PERFORMANCE OF THE UNITED KINGDOM 1977 Current 1976 - - 1961-76 1977 1977 Account Per Capita GDP Growth Inflation Unemployment Balance GDP(US$) a/ Rate (7) Rate (x) Rate (%) (US$ Billion) United Kingdom 2,433 2.0 13.3 5.7 0.7 Federal Republic 3,511 3.2 3.8 3.6 3.7 of Germany European Community 2,855 3.2 8.9 n.a. 0.8 United States 5,413 2.5 5.9 6.9 -15.3 Japan 2,420 7.1 5.6 2.1 10.9 OECD Total 3,362 3.2 7.4 5.4 -27.6 a/ at 1970 prices. 2. The United Kingdom has had close relations with a number of developing countries through its British Commonwealth ties, but since it joined the Common Market in 1973, trade relations with the developing countries have become increasingly influenced by EEC policies. The latter  -2- mostly affected agricultural imports where trade diversion clearly has occurred. The share of developing countries in total exports of the United Kingdom has increased from 28.3 percent in 1968 to 30.2 percent in 1977 while the share of exports from developing countries in total imports of the United Kingdom has declined from 28.2 percent to 24.9 percent during the same period. In manufactures the share of developing countries in exports of the United Kingdom has increased from 29.9 percent in 1968 to 32.8 percent in 1977. During the same time the share of developing countries in imports of manufactures declined from 12.6 percent to 10.4 percent. Merchandise trade of the United Kingdom with non-oil exporting countries has been balanced in 1970 and 1977 while trade with the OPEC nations evolved from a deficit in 1970 to a surplus in 1977 due to a high rate of export growth and reduced oil imports. Table 2. TRADE-OF 1THE UNITED KINGDOM WVTE DEVELOPING COUNTRIES UK Imports from UK Exports to 1970 % change per annum 1970 % change per annum (US$m) 1960-70 1970-77 (US$m) 1960-70 1970-77 Non-oil 3,834 2.0 13.2 4,279 3.8 13.3 Exporting Developing Countries Oil Exporting 1,932 4.2 18.5 966 2.9 32.6 Developing Countries (OPEC) 3. The ODA flows of the United Kingdom as a percentage of GNP have remained stable within a range of 0.36 to 0.38 from 1970 to 1977. This is somewhat higher than the DAC average. Private capital flows to developing  -3- countries exceed official flows by a wide margin. Export credits have remained almost stable between 1970 and 1977. But direct investments have increased substantially from 1970 to 1976. Also, Eurocurrency borrowings of developing countries in the United Kingdom financial markets have been increasing. Since 1939 strict capital outflow controls have been in effect. Only recently, in June 1979, the new Conservative Government decided to introduce several measures to liberalize capital movements. Table 3. FINANCIAL FLOWS OF THE UNITED KINGDOM WITH DEVELOPING COUNTRIES 1970 1975 1976 1977 ODA $ million 446.9 863.2 834.8 914.1 % GNP 0.36 0.37 0.38 0.37 Total Flows $ million 794.0 1,459.3 1,541.5 4,942.1 a/ % GNP 1.01 1.02 1.08 1.58 a/ Includes Eurocurrency flows. II. Background: The Comparative Performance of the British Economy 4. The 1960s and early 1970s saw a very poor economic performance in the United Kingdom. While the GDP of the European Community was growing at 4.5 and 2.9 percent during 1961-71 and 1971-76, respectively, the United Kingdom achieved real rates of GDP growth of only 2.7 and 1.8 percent. In absolute terms the per capita GDP of the United Kingdom in 1976 surpassed only two of the Common Market countries namely Italy and Ireland. Private consumption in Great Britain measured on a per capita basis expanded at an average rate of 1.7 percent from 1961-76, increasing twice as fast for the OECD as a whole.  Table 4: INDICATORS OF COMPARATIVE ECONOMIC PERFORMANCE, 1961-76 GDP Private Consumption Per Capita 1976 1961-76 1976 1961-76 (at 1970 prices) (US$) (1961=100) % Growth p.a. (US$) (1961=100) , Growth p.a. United Kingdom 2,443 135 2.0 1,499 129 1.7 Federal Republic cf Germany 3,511 160 3.2 1,958 167 3.5 European Community 2,855 161 3.2 1,709 163 3.3 United States 5,413 145 2.5 3,541 153 2.9 Japan 2,420 280 7.1 1,284 261 6.6 OECD Total 3,362 161 3.2 2,088 164 3.4 Gross Fixed Capital Imports of Goods Exports of Goods Domestic Savings Formation and Services and Services In % of GDP (at current prices)a (at current prices) (at 1970 prices) (at 1970 prices) 1961 1976 1961 1976 1961 1976 1961 1976 United Kingdom 18.0 18.3 17.3 19.2 19.2 25.3 19.1 27.4 Federal Republic of Germany 29.3 24.2 25.2 20.7 12.8 23.6 15.5 26.7 European Community 24.1 .22.3 21.6 21.0 15.8 26.0 17.1 28.2 United States 18.4 16.7 17.3 16.2 3.7 5.7 4.6 6.9 Japan 38.9 32.3 33.2 29.6 7.9 11.0 7.2 16.1 OECD Total 21.8 21.4 20.1 20.6 9.4 15.0 10.1 16.3 GDP Imports of Goods Exports of Goods 2 Growth p.a. and Services and Services (at 1970 prices) 1961-71 1971-76 1961-71 1971-76 1961-71 1971-76 United Kingdom 2.7 1.8 4.6 3.8 5.3 4.2 Federal Republic of Germany 4.5 2.4 9.3 5.7 8.0 6.8 European Community 4.5 2.9 8.3 5.8 8.0 6.4 United States 3.9 2.9 8.4 2.9 6.1 6.9 Japan 10.1 5.1 12.2 8.2 16.1 11.1 OECD Total 4.7 3.3 8.5 5.6 8.2 6.5 /a GDP minus private and public final consumption expenditure. Source: OECD, National Accounts 1976, Vol. 1. EPDIT 4/10/79 /~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~  -5- 5. The propensity to save in the United Kingdom is considerably below that of the European Community, although it is higher than in the United States. The savings rate in Great Britain has increased slightly from 18.0 percent of GDP in 1961 to 18.3 percent in 1976, while the European Community, the United States and Japan experienced declines from 24.1 to 22.3, 18.4 to 16.7, and 38.9 to 32.3 percent, respectively, during the same time period. The gross fixed capital formation ratio in the United Kingdom has improved from 17.3 percent in 1961 to 19.2 percent in 1976 and is now only slightly below the OECD average of 20.6 percent. 6. The British economy had a high degree of openness already in 1961 with both imports and exports of goods and services amounting to slightly over 19 percent of GDP while that for the OECD as a whole was less than half that level. Historically the United Kingdom has been a very open, liberal economy with Commonwealth trade playing an important role. However, while the United Kingdomts foreign sector was in 1961 relatively more important than that in the European Community, by 1976 it was slightly below the EC average because trade of the United Kingdom has not expanded as rapidly as that of other European countries. 7. Labor productivity between 1960 and 1973 has increased at an annual rate of 2.8 percent. This was lower than that of the other major European countries but higher than in the United States. Labor union actions resulted in an annual increase of unit labor costs by 5.3 percent. The obvious objective of the unions was to get a higher share of GDP. However, their actions may have resulted in higher inflation rates so that it is questionable whether labor has actually gained. Exports prices of the  Table 5: LAZOR COSTS AND PRICES: CONPARATIVE PERFORMANCE 1960-1973 (% increase p.a.) Memorandum Items Compensa- Labor Unita t GDP tion per produc- labor deflator Indicator Price of goods and employee tivity cost of gross services exports c (1) (2) (3) (4) profit (in marging/-b domestic (in us$) currency) Federal Republic of Germany 9.2 4.4 4.6 4.2/d -0.4 2.2 5.7 France 9.9 4.8 4.9 4.9 0 3.0 3.8 United Kingdom 8.2 2.8 5.3 5.2 -0.1 4.3 3.1 Italy 11.6 5.6 5.7 5.4 -0.3 3.3 3.9 United States 5.6 2.0 3.5 3.4 -0.1 3.3 3.3 Canada 5.8 2.5 3.2 3.8 0.6 3.1 3.3 Japan 14.0 8.9 4.7 5.5 0.8 2.0 4.4 /a Column 1 i column 2. lb Column 4 . column 3; a minus sign indicates a decline in the share of non-labor income in total income. /c 1961-1973. 7d 1961-1973. Source: OECD, Working Party No.2, CPE/WP2(78)4. OECD, National Accounts 1976, Vol.l. EPD-IT 2/8/79  -7-. United Kingdom from 1960-73 have increased faster than those of any other major OECD countries, probably accounting for export difficulties. 8. Inflation in the United Kingdom began to accelerate in 1974 and reached a peak of almost 28 percent in 1975. Rapidly increasing wage costs were an important factor. Following an "incomes policy" leading to more moderate wage settlements, through a restrictive fiscal policy, and a moderation of world inflation reflected in lower import prices despite the depreciation of the Pound, inflation slowed to. about 10 percent by 1978. The reduction in inflation was to some extent achieved at the cost of an increase in unemployment rates from 2.6 percent in 1974 to 5.2 percent in 1976. But unemployment rates have been close to the OECD average, while inflation was substantially higher than that of the OECD since 1974. The current account balances of the United Kingdom showed deficits for 1973 to 1976, but in 1977 and 1978 small surpluses were achieved. 9. The Pound Sterling was fixed at $2.80 for most of the 1960s. In 1978 it was devalued to $2.40 and in 1975 it started a steep deterioration down to about $1.70 in early 1977. Then with the improvement in economic performance and increasing North Sea ail and gas production, it has strength- ened-to about $2.15. Part of the increase in the dollar value of the Pound Sterling and its stabilization at a higher level can be explained by a shift in government policy. Earlier the policy objective was to "maintain com- petitiveness" but since 1978 the emphasis shifted to "preserving stability". However, with inflation running at about 10 percent and a stable exchange rate the export sector may lose some of its competitiveness.  -8- Table 6: COMPARISON OF INFLATION, UNEMPLOYNENT, AND CURRENT ACCOUNT BALANCES IN THE UNITED KINGDOM AND THE OECD 1970-1978 Inflation Unemployment Current Account Balance UK OECD UK OECD UK OECD ---(%)--- ----() ($ Billion)------- 1970 7.3 5.7 2.5 a/ 1.39 6.95 1971 9.0 5.8 3.4 a/ 2.75 10.0 1972 8.0 5.3 3.7 a/ 0.25 7.75 1973 7.4 7.4 2.6 3.0 -2.1 9.5 1974 14.6 11.7 2.6 3.3 -8.0 -27.5 1975 27.9 11.0 3.9 5.4 -3.8 0.25 1976 15.3 7.4 5.2 5.4 -2.0 -18.75 1977 13.3 7.2 5.7 5.4 0.7 -27.6 1978 10.2 7.2 5.6 5.3 0.2 5.9 a/ No comparable figures available. Sources: World Bank, EPD, Prospects for Real Growth and Inflation in OECD North, February 1979. OECD, Outlook, various issues. OECD, Economic Survey, United Kingdom, various issues.  -9- 10. The production of oil and gas in the North Sea has made a substantial contribution to the growth of GDP and to the balance of trade. In 1978, the increase in oil production added more than 0.5 percent to total GDP with a balance of trade effect of $6.5 billion. In 1979, three fourths of all oil consumed in Great Britain is expected to come from domestic sources. Thus, of all major OECD countries, the United Kingdom's balance of payment is least affected by price increase of OPEC. III. Trade Relations with Developing Countries 11. The United Kingdom's colonial connections with developing countries were transformed into more equitable trade relations in the British Common- wealth framework. When the United Kingdom joined the European Community on January 1, 1973, its trade relations became largely determined by EC policies. In 1970, the share of developing countries in the United Kingdom's total imports was 27 percent. For Germany it was 19 percent, the United States 28 percent and Japan 40 percent (Table 7). On the export side the intensity of trade with developing countries was also lower in Germany and higher in the United States and Japan. Table 7 indicated that the increase of the developing share in the increase in imports of the United Kingdom has been lower than for any other country listed for both 1960-70 and 1970-77. The share of United Kingdom exports to the developing countries has declined from 1960 to 1973, but then stablized. The United Kingdom's trade with developing countries grew much less rapidly than its trade with the EEC even before the United Kingdom became a full member of the EEC.  - 10 - Table 7: CO'PARATIVE TXADE PERFORMNCE OF THE UNITED KINGDOM, 1960-77 Im,ports frn- EN gports to- Hon-otIOil 01 on-oi1 011 Exporting Exportinm European Exporting Exporting European WD 1 D Conmmnity other Total LDC LDC / Comunity other Total 1. United Kingdom 1970. =illion US$ 3.834 1,932 , 5,852 10,110 21,728 4,279 966 5,553 8,454 19.353 1970, shares in total C%) 17.7 8.9 26.9 46.5 100.0 22.1 5.0 29.2 43.7 100.0 federal Republic of Germany 1970, millLon US$ 3,980 1,836 14,852 9,288 29,956 5,114 945 15,868 12,306 34,233 1970, shares in total t%) 13.3 6.1 49.6 31.0 100.0 14.9 2.8 46.4 35.9 100.0 D.wopean Comnunity (excl. Germany) 1970, million USS 11,617 1,452 42,025 25,480 86,574 12,849 2,972 40,543 22,025 78,389 1970, shares in total (7) 13.4 8.6 48.6 29.4 100.0 16.4 3.8 51.7 28.1 100.0 United States 1970, million US$ 10,54 1,657 9,800 20,841 42.452 12,615 1,918 11,300 17,398 43.231 1970, shares in total ('I) 23.9 3.9 23.1 49.1 100.0 29.2 4.4 26.1 40.3 100.0 JiPAt 1970, million US$ 4,668 2,835 1,553 9,825 18,S81 6,674 971 1.862 9,811 19,3tS 1970, shares in total (Z) 24.7 15.0 8.2 52.1 100.0 34.6 5.0 9.6 S0.8 100.0 11. United Kingdom 1960-70, percent growth p.a. 2.0 4.2 8.4 5.9 5.5 3.8 2.9 10.1 6.6 6.5 1960-70, incremental shares in total (Z) 7.6 7.3 36.2 48.9 100.0 14.7 2.6 38.6 44. 100.0 Federal Republic of Cerrany 1960-70, percent gro-th p.a. 7.0 11.5 14.7 9.5 11.4 8.5 8.6 13.9 10.7 11.6 1960-70, incremental shares in total (hS 9.9 6.2 56.0 27.9 1o0.0 12.5 2.3 50.7 34.5 100.0 European Community (excl. Cernany) 1960-70, percent growth p.a. 5.1 8.7 13.1 7.7 9,6 6.5 2.5 13.0 8.8 9.9 1960-70Q increcencal shares in toca1 (l ) 8.8 8.2 57.3 25.7 1000. 12.6 1.3 59.9 26.2 100.0 United States 1960-70, percent growth p.a. 7.8 1.3 11.2 14.4 10.9 7.5 7.1 8.4 7.5 7.7 1960-7n, incremental shares La total (2) 19.6 0.7 23.4 56.3 10Q.0 28.7 4.2 27.6 39.5 100.0 Japan 1960-70, percent growth p.a. 13.5 19.4 17.4 15.2 15.4 14.1 11.2 19.4 19.7 16.9 1960-70, incrLmental shares in total ( 7) 23.3 16.4 8.6 51.7 100.0 32.0 4.2 10.1 53.7 100.0 MII. United Kingdom 1970-77, percent Srowth p.a. 13.2 18.5 22.7 13.5 16.8 13.3 32.6 20.6 13.0 17.0 1970-77, incremLental shares in total (2) 12.3 10.3 43.7 33.7 100.0 15.4 15.5 39.6 29.5 100.0 Federal Republic of Germany 1970-77, percent growth p.a. 20.1 27.4 18.6 16.9 19.0 18.1 41.3 19.0 17.2 19.3 1970-77, incremental shares in total (2) 14.5 11.4 48.4 25.7 100.0 13.5 11.5 45.0 30.0 100.0 Eropean Cocamunity (excl. Germany) 1970-77, percent growth p.a. 17.2 26.1 19.1 16.0 18.7 17.4 33.8 19.3 16.0 18.9 1970-77. incremental shares in totAl (2) 11.7 15.1 50.1 23.1 100.0 14.4 10.7 53.2 21.7 100.0 unted states 1970-77, percenc growth p.a. 21.3 54.6 13.4 16.0 20.5 15.0 32.1 12.9 15.1 15.7 1970-77. incremental shares in total () 25.4 29.2 12.0 33.4 100.0 27.3 15.0 19.7 38.0 100.0 apQn 1970-77, percent growth p.a. 18.6 36.6 15.4 15.3 20.9 20.8 43.0 24.9 20.1 22.8 1970-77, inccemental shares La total. (7) 20.4 42.6 5.1 31.9 100.0 29.8 17.6 11.2 41.4 100.0 Xelua all OPEC ceuntries. S*cgat VW, Pirectin ot Trsde. 1958-62. 1970-76. 1971-77. tt/PDIr 5/23179  - 11 -/ 12. The formation of the EEC led to a decline of the EEC as a market for products from developing countries. The decline is even sharper when the Southern European developing countries are, excluded from the developing countries. The imposition of common external tariffs, and the rapid dismantling of all internal import duties and other restrictions, resulted in a rapid expansion of trade within the EEC. Although most studies agree that the trade diverting impact of the EC customs union at the level of total merchandise has not been very large, the fact remains that it has led to a much more rapid increase in intra-EC trade and consequently to a relatively lower intensity of trade relations with the rest of the world and the developing countries in particular. Table 7 shows that intra-EC trade contributed more than 55% to the Community's overall trade expansion (exports and imports) in the period 1960-70. The developing countries' share (including the oil exporting countries) was limited to about 15%, far less than their share in the trade expansion of the US and Japan. Part of the explanation for this, of course, lies in the Community's high degree of self-sufficiency in food production, fostered by the discriminatory common agricultural policy. In particular commodity categories such as sugar, serious trade diversion has clearly occurred. The Community's external tariff barrier has been considerably reduced since its creation, particularly in manufactures, and is now the lowest among the industrialized countries (Table 8). 13. The United Kingdom had merchandise trade deficits of about $2.4 billion in the 1960s. In 1977 it had increased to $6.4 billion (Table 9).  - 12 - Table 8: TARIFF BARRIERS FACING DEVELOPING COUNTRIES IN MAJOR DEVELOPED MARKETS (Average tariff in percent) United States Japan EC Others All products 2.7 4.3 0.8 2.2 of which: Primary commodities 1.8 6.9 2.5 3.7 Fuels 0.9 3.2 0.0 0.0 Manufactures 8.3 5.7 3.6 5.1 Source: UNCTAD, Handbook of International Trade and Development Statistics, 1977 Supplement.  Table 9: THE BALANCE OF MERCHANDISE TRADE OF THE UNITED KINGDOM BY REGION a/ (in millions of US$) 1960 1970 1977 Exports Imports Balance Exports Imports Balance Exports Imports Balance European Community 2158 2603 - 445 5653 5852 - 199 21024 24565 -3541 of which Original EEC 1573 1854 - 281 4209 4373 - 164 16767 20898 -4131 United States 960 1589 - 630 2263 2818 - 555 5405 6448 -1043 Japan 82 118 - 36 355 323 32 818 1861 -1043 Other OECD 2843 3549 - 676 4954 5874 - 920 12244 12538 - 294 Non-oil LDC 3188 3156 32 4246 3931 315 9110 9090 20 OPEC 750 1318 - 568 966 1932 966 6973 6349 624 CPE 270 389 - 119 777 970 - 193 1624 2419 - 795 World b/ 10297 12758 -2461 19352 21728 -2376 58169 64557 -6388 a/ Trade figures represent merchandise excluding non-f actor setrvlces; figures are se4sou4lly not 4djusted. b/ Including unspecified origin, destination and special categories, Source; IMF, Direction of Trade, various issues,  -14- The regional distribution of the balance shows some interesting features: (a) a large increase of the deficit with Japan, particularly between 1970 an 1977, due to strong market penetration of Japanese products in the markets of the United Kingdom, (b) a stable and slightly positive balance with non- oil developing countries, and (c) a switch from a deficit to a surplus in the trade balance with the OPEC countries. It is worth noting that the United Kingdom has had, in recent years, an increasing surplus of the non-factor services trade balance ($5.3 billion in 1977), indicating an increased com- petitiveness of that sector. 15. A detailed commodity composition of the imports and exports of the United Kingdom, both for total trade and trade with developing countries, is shown in Annex Table 4. On the export side the developing countries become more important trade partners buying 30.2% of all exports in 1977 compared to 28.3% in 1968. On the import side a reverse trend is clearly apparent with the United Kingdom only importing 24.9% from developing coun- tries as compared to 28.2% in 1978. 16. It is difficult to determine to what extent protectionist measures or other factors have had a negative influence on the share of developing countries in the imports of the United Kingdom. The Labor Government instituted an ongoing program to study the competitiveness of exports from Newly Industrializing Countries (NICs) in the markets of the United Kingdom. l/ The first report concludes that NIC competition does not yet present a major adjustment problem for the United Kingdom and that the main "adjustment problem" is still to technological change and to competition from the manu- factures of other OECD countries. 1| "The Newly Industrializing Countries and the Adjustment Problem", Report by a Working Group, Government Economic Service Working Paper No.18, Foreign and Commonwealth Office, January 1979.  - 15 - 17. In 1977 the share of developing countries in the manufactures imports of the United Kingdom was only 10.4% (Annex Table 4). In specific commodity categories the shares were as follows: textiles 26.0%, clothing 58.0%, and electrical machinery 10.7%. Competition in these sectors has been limited by the Multi-Fibre Agreement, bilateral agreements, safeguard actions, and other measures. However, the small share of the developing countries in total United Kingdom imports should not pose a serious problem to domestic industries. As the above mentioned report concludes: "Expe- riences suggests that rigidities in the UK economy have made it more difficult for British industry to adjust, and the slowness of that adjust- ment is a central problem. This is recognized by the priority which govern- ment policy now accords to the industrial strategy." IV. Financial Flows of the United Kingdom to Developing Countries 18. Although the United Kingdom accepted the 0.7 percent of GNP ODA target in 1974, the ODA/GNP ratio has shown little improvement since that date. It remains in the 0.37 to 0.38 percent range (see Table 10), partly because of cutbacks in overall government expenditures, but also because of some dibursement difficulties. Thie government plans to increase the ODA contributions by 6 percent annually in real terms. The aid performance of the United Kingdom was a above the 0.31 average of all DAC countries in 1977. 19. The aid program of the United Kingdom is well centralized and shows high concessionality. Since 1975 aid has been directed mainly toward the poorer developing countries. All government aid to the least developed countries is in the form of grants. In 1978 the government announced that it was offering relief of repayment of principal and interest on past loans  Table 10: NET FLOW OF FINANCIAL RESOURCES FROM THE UNITED KINGDOM TO DEVELOPING COUNTRIES (In million US dollars) 1970 1975 1976 1977 I. Official Development Assistance (ODA) 446.9 863.2 834.8 914.1 Grants and grant-like flows 204.7 366.9 565.2 539.5 Developing lending and capital 194.3 199.4 15.5 15.9 Contributions to multilateral institutions 47.9 296.9 254.0 358.7 II. Other Official Flows (OOF) 6.5 30.8 31.4 23.0 III. Private Flows 794.0 1,459.3 1,541.5 4,942.1 Direct investment 340.6 796.5 953.9 610.9 Bilateral portfolio investment and others -16.6 194.0 122.8 3,859.6a/ Multilateral portfolio investment - - - - Guaranteed export credits 436.4 415.5 417.8 471.6 Private grants 33.6 53.3 47.0 50.0 IV. Total 1,247.4 2,353.3 2,407.7 5,929.2 Memo: ODA as % of GNP: United Kingdom 0.36 0.37 0.38 0.37 : Total DAC countries 0.34 0.35 0.33 0.31 Total net flows as % GNP: United Kingdom 1.01 1.02 1.08 1,58 Total DAC countries 0.78 1.05 0.98 1.05 a! Includes Eurocurrency flows. Source: OECD, Development Cooperation, 1978 Review.  - 17 - to seventeen of its poorest recipients. The cost of these retrospective terms adjustments is about $105 million per year. The contribution of the United Kingdom to multilateral institutions has shown substantial increases in recent years, accounting for about 40 percent of total ODA in 1977. 20. The bilateral aid program is divided in about equal parts among project aid, program aid, and technical cooperation. Project aid is directed toward all sectors but an increased emphasis has recently been placed on rural development. Program aid consists mostly of funds for the maintenance of previous projects. About two-thirds of all bilateral aid is extended to members of the Commonwealth. 21. Private financial flows of the United Kingdom are also very important. Net private direct investment has increased considerably up to 1976 but it experienced a decline in 1977 (Table 10, Annex Table 5). From Annex Table 6 it can be noticed that a large proportion of direct investments is directed to Commonwealth Countries. Also, according to Annex Table 7, the largest proportion of investments is made in manufacturing, followed by trade related investments and by investments in agriculture. 22. Export credits guaranteed by the Exports Credits Guarantee Department ranged from about 400 to 470 million dollars from 1970 to 1977 and no clear trend is apparent. 23. The United Kingdom is an important intermediary in financial markets. In 1977, Eurocurrency borrowing of developing countries in the United Kingdom amounted to about 3,800 million US dollars. 24. In 1939, strict capital outflow controls were introduced which have been in effect up to very recently, when the new Conservative Government decided, in June 1979, to introduce, as a first step, the following measures  - 18- to liberalize capital movements: (a) official exchange to the extent of 5 million Pound Sterling per project per year will be made available for new outward direct investment, Cb) a law which restricted the re-investment of profits earned overseas has been abolished, (c) the Sterling facility to finance third country trade (that was discontinued during the Sterling Crisis of 1976) will be restored as soon as the details have been worked out, and (d) significant relaxations have been made in the rules concerning travel and immigration allowances, overseas property, cash gifts, and payments to dependents. In the field of portfolio investment, the requirement to main- tain 115 percent cover for overseas portfolio financed by foreign currency borrowing has been abolished. Also, official exchange will be made available for meeting interest payments on such borrowings. It is the intention of the- government to progressively dismantle other remaining exchange controls.  ANNEX Table 1: UNITED KINGDOM INPORTS (c.i.f.) BY CONMMDITIES AND REGIONS:La 1977 (Millions of US dollars) of Developing Countries Centrally World Developed Developing Planned Latin Middle Asia & TotalLb Countries Countries/C Economies EEC Africa America East Pacific Europe (OPEC) 1. Food & Beverages (0+1+22+4) 11,384 7,007 4,225 152 4,640 1,669 791 144 881 740 218 2. Non-Food Agriculture (2-22-27-28) 3,620 2,189 991 440 498 345 184 21 302 139 48 3. puel & Energy ( 3 ) 9,119 2,096 6,523 500 1,880 590 165 5,279 0 489 5,796 4. Non-Fuel Minerals & Metals (27+28+68) 3,570 2,340 1,102 128 655 586 361 6 79 70 44 5. Manufactures (5 to 9-68) 35,940 30,105 4,603 1,140 16,805 1,154 308 344 1,936 861 229 6. Total (O to 9) 63,633 43,737 17,444 2,360 24,478 4,344 1,809 5,794 3,198 2,299 6,335 /a Definition of Developed Countries, Centrally Planned Economies, and European Developing Countries are the same as WDR II. 7-' World Total may not add up due to unspecified origin. /c Includes OPEC. Sources- OECD, Trade by Commodities, Country Summaries, Series B, January-December 1977, various issues. EPDIT 3/15/79  ANNEX Table 2: UNITED KINGDOM EXPORTS (f.o.b.) BY CONMODITIES AND REGIONS:1a 1977 (Millions of US dollars) Centrally of Developing Countries World Developed Developing Planned Latin Middle Asia & Total/b Countriea Countries/k Economies EEC Africa America East Pacific Europe (OPEC) 1. Food & Beverages (0+1+22+4) 3,980 2,804 1,150 26 1,824 290 231 315 122 192 423 2. Non-Food Agriculture (2-22-27-28) 1,057 758 212 82 559 36 7 25 53 91 29 3. Fuel & Energy C 3 ) 3,609 3,212 390 6 2,116 87 153 50 20 80 93 4. Non-Fuel Minerals & Metals (27+28+68) 1,928 1,498 344 86 1,028 73 33 63 46 129 78 5. Manufactures (5 to 9-68) 46,862 29,023 16,296 1,376 15,486 4,778 1,911 4,725 2,470 2,412 6,124 6. Total (0 to 9) 57,436 37,298 18,392 1,577 21,013 5,264 2,335 5,178 2,711 2,904 6,747 /a Definitions of Developed Countries, Centrally Planned Economies and European Developing Countries are the same as WDR II. /b World Total may not add up for some commodity categories due to unspecified destination. /c Includes OPEC. Sources: OECD, Trade by Commdities, Country Summaries, Series B, January-December 1977, various issues. EPDIT 3/22/79  - 21 - Table 3: UNITED KINGDOM'S TRADE WITH DEVELOPING COUNTRIES BY RFGION (SELECTED COUNTRIES): /a 1960-1977 (SELECTED YEARS) (Millions of US dollars) Average Percentage Share Growth Rate (x) 1960 1965 1970 1975 1976 1977 1960 1970 1977 1960-77 Exports (f.o.b.) to: 1. Southern Europe 342 631 964 2,076 2,268 2,752 8.3 15.8 15.0 13.1 2. Africa 1,373 1,744 1,968 4,703 4,625 5,269 33.4 32.4 28.6 8.2 Nigeria 231 205 275 1,126 1,388 1,865 5.7 4.5 10.1 13.1 Egypt 55 56 45 236 311 333 1.4 0.7 1.8 11.2 Libya 35 61 58 237 242 303 0.9 1.0 1.6 13.5 Algeria 9 20 40 174 183 172 0.0 0.7 0.9 19.0 3. Latin America & Caribbean 801 727 1,048 2,065 1,865 2,332 19.9 17.2 12.7 6.5 Brazil 54 30 146 358 313 428 1.3 2.4 2.3 13.0 Venezuela 78 70 81 200 230 306 1.9 1.3 1.7 8.4 Argentina 118 77 106 152 114 227 2.9 1.7 1.2 3.9 Mexico 58 54 82 246 218 138 1.4 1.3 0.8 5.2 4. Middle East 419 631 951 3,914 4,072 5,346 10.2 15.6 29.1 21.4 Iran 102 107 159 1,097 921 1,143 2.5 2.6 6.2 15.3 Bahrain 42 48 135 576 739 993 1.0 2.2 5.4 20.5 Saudi Arabia 18 36 85 440 710 1,007 0.4 1.4 5.5 26.7 Israel 46 152 231 528 448 478 1.1 3.8 2.6 14.8 5. Asia 1,167 1,132 1,125 2,177 2,175 2,657 28.4 18.6 14.4 5.0 Singapore 98 0 150 349 303 351 2.4 2.5 1.9 7.8 Hong Kong 112 184 239 348 366 473 2.8 3.9 2.6 8.8 Malaysia 105 263 152 275 239 288 2.6 2.5 1.6 6.1 India 424 326 175 365 371 485 10.5 2.9 2.6 0.8 Pakistan 113 144 118 169 166 211 2.8 2.0 1.1 3.7 Indonesia 54 26 28 134 144 151 1.3 0.5 0.8 6.2 6. Oceania 13 21 27 43 36 37 0.3 0.4 0.2 6.4 7. LDC Total (I to 6) 4,115 4,886 6,083 14,978 15,041 18,393 100.0 100.0 100.0 9.2 8. Total Exports 10,297 13,710 19,351 43,756 46264 57,517 10.7 (Percent of LDC Total, 7f8) (40.0) (35.6) (31.4) (34.2) (32.5) (32.0) Memo: OPEC 702 695 1,020 4,542 5,128 6,760 14.3 Centrally Planned Economies 270 395 728 1,477 1,311 1,578 - 10.9 Imports (c.i.f.) from: 1. Southern Europe 350 454 663 1,678 1,853 2,145 7.4 10.3 12.3 11.3 2. Africa 1,244 2,015 2,414 3,942 3,759 4,352 26.4 37.5 25.0 7.6 Nigeria 227 316 297 684 575 383 4.9 4.6 2.2 3.1 Kenya 123 45 65 87 109 271 26.4 1.0 1.6 4.8 Libya 2 207 401 289 297 247 0.0 6.2 1.4 32.8 Ghana 61 48 93 129 149 221 1.3 1.4 1.3 7.9 Zambia 0 213 243 204 131 163 0.0 3.8 0.9 - 3. Latin America & Caribbean 1,173 1.099 1,056 1,987 1.794 1,806 25.4 16.4 10.4 2.6 Brazil 82 79 151 387 428 525 1.8 2.3 3.0 11.5 Argentina 275 200 157 120 161 210 6.0 2.4 1.2 -1.6 Jamaica 0 79 66 178 115 137 0.0 1.0 0.8 - Chile 95 87 156 138 145 134 2.1 2.4 0.8 2.0 Venezuela 201 207 122 366 215 117 4,4 1.9 0.7 -3.1 4. Middle East 892 881 1.238 5.931 6,567 5,938 18.9 19.3 34.2 11.8 Saudi Arabia 27 79 250 1,913 1,762 1,911 0.6 3.9 11.0 28.5 Iran 136 115 183 1,553 1,880 1,379 2.9 2.8 7.9 14.6 Kuwait 449 254 397 936 1,042 945 9.7 6.2 5.4 4.5 Iraq 152 196 45 226 491 579 3.3 0.7 3.3 8.2 Bahrain 54 88 154 396 415 476 1.2 2.4 0.3 13.7 5. Asia 1,046 977 1,035 2,286 2.678 3,054 22.2 16.1 17.6 6.5 Hong Kong 121 197 308 679 792 793 2.6 4.8 4.6 11.7 India 418 360 255 522 638 669 9.1 4.0 3.8 2.8 Malaysia 117 138 112 258 282 391 2.5 1.7 2.2 7.4 South Korea 0 0 15 165 243 312 0.0 0.2 1.8 - Taiwan 0 0 14 . 161 172 242 0.0 0.2 1.4 - Singapore 61 0 81 142 169 179 1.3 1.3 1.0 6.5 6. Oceania 16 30 25 117 53 94 0.3 0.4 0.5 11.0 7. LDC Total (1 to 6) 4,7r 5,456 6,431 15,941 16, 704 17,389 100.0 1O00.O 100.0 8.0 8. Total Imports 12,758 16,138 21.723 53,252 5 967 63699 9.9 (Percent of LDC Total, 748) (37.0) (33.8) (29.6) (29.9) (29.8) (27.3) Memo: OPEC 1,300 1,523 1,919 6,591 6,870 6,182 9.6 Centrally Planned Economies 389 700 956 1,653 2,029 2,360 11.2 /a Including OPEC. Source: OECD, Statistics of Foreign Trade, Series A, various issues. EPDIT 4/11/79  -22- Table 4: WIT20ED laGD0K TRADE Wmh DEVELOP0= COUl4zS_- AND WITi WOtID SY CODITIES1t 1966-77 (To current .lIo US dollar.) _ - ~~~~~~~~~~~~~~~Slhres nO Anumal AnfltM Developing Countries lPreoatag* Crovth Percenage Greoth in Unitcd KL;ngdt CommoitUs 5D Ctd -Wh.rs Rate (7l Shore, Rares ('. 7r.de ytth :.'r-S 1968 1977 1968 1977 196a- 7 1968 1977 1966 .977 No8-77 196o 1977 1. Food and bevereg (0+1+22+4) 292 1.120 7.0 6.4 16.1 07!. 3.9s0 6.6 6.9 16.9 30.0 2.1 of which: retrag& (11) 100 337 2.4 1.9 14.5 473 1,099 3.2 1.9 9.8 21.1 30.7 2. N-food aSncultur* (2-22-27-28) 50 199 1.2 1.1 16.6 2Sb 1.057 1.9 1.8 15.5 17.4 18.8 of wbicht leztile fibers. (not Manufactured) (26) 40 140 1.0 0.8 14.9 214 538 1.4 0.9 10.8 18.7 26.0 S. Fuel and energy (3) 60 379 1.4 2.2 22.7 400 3.609 2.7 _.3 27.7 15.0 10.5 of Vt4ch: Petroleuc & petroleum products (33) 56 340 1.3 2.0 22.2 353 3,411 2.4 5.9 29.7 15.9 10.0 4. Son-fuel ,insrals & cetas (27+28+68) 101 326 2.4 1.9 13.9 775 t g23 5.2 3.4 10.7 13.0 16.9 of obich: son-ferrous octal. (68) 78 240 1.9 1.4 13.3 652 1,484 4.4 2.5 9.4 12.0 16.4 S. Mlanufactures (546+748+9-68) 3.698 15.350 88.0 38.4 17.1 12,385 466362 83.6 81.6 15.9 29.9 32.3 of vhicb: t5eoiedas (5) 495 2,019 1l.4 11.S 16.9 1,438 6,753 9.7 11.3 18.8 34.4 29.9 Medical & pharmaeutical products (54) 101 423 2.4 2.4 17.3 231 969 1.6 1.7 17.3 43.7 43.7 Textil.e ',cu, fabrics, c. (65) 168 4d8 4.0 2.8 12.6 717 2.003 4.8 3.5 12.1 23.4 24.4 ku-metallic niacral czar- fatur.a (66) 176 650 4.2 3.7 15.6 902 4,427 6.1 7.7 19.3 13.5 14.7 Worked or ue k ed peoras & precious or semt-iprecious scones (667) 125 365 3.0 2.1 12.6 673 3,528 4.5 6.1 20.2 18.6 10.3 Iren and steel (67) 212 584 5.1 3.4 11.9 639 1.775 4.3 3.1 12.0 33.3 32.9 2anufzctures of etsal (69) 170 820 4.0 4.7 19.1 441 1.767 3.0 3.1 16.7 33.5 46.4 .ichinery other than ele cric (71) S86 3,953 21.1 22.3 13.1 3,045 10,615 20.5 18.5 14.9 29.1 37.2 Transport equipnent t73) 737 2,586 17.5 14.9 15.0. 2,le4 5,547 14.7 9.7 10.4 33.7 46.6 tlscellaneous ,anuftur=e* (3) 250 1,364 4.0 7.9 20.7 1,Z44 5.436 3.4 9.5 17.5 20.1 25.1 6. Total exports (C to 9) 4. M 17,374 100.0 10C 0 17.1 ..022 571 15 LeC.0 -- .C 1S.2 23.3 30.2 Icuorts C.rt.f.) 1. food1 snd beverages (0.1+22+4) 1.441 3.986 39.2 42.7 12.0 4,J831 .I a4 2.38 20.9 10D0 29.8 35.0 of whticih Coffee, tea, cocoa & pice. (07) 389 1,350 10.6 14.4 14.3 451 1.604 2.7 2.9 14.9 84.4 84.2 Tobwcco, u=anufactured (121) 59 231 1.6 2.3 16.4 269 392 1.6 0.7 4.3 21.9 58.9 Fined vegetable oils 6 facs '42) 77 229 2.1 2.5 12.9 116 281 0.7 0.5 10.3 66.4 31.5 2. Fon-food aSriculture (2-22-27-28) 482 786 13.1 8.4 5.6 1.847 3.620 11.0 6.6 7.8 26.0 21.7 of *ich_ Wood, tusSer & cork (24) 90 189 2.4 2.0 8.6 555 1.104 3.3 2.0 7.9 16.2 17.1 Textile fibers, (not osnufactured) (26) 226 265 6.1 2.8 1. 5n27 815 3.1 1.5 5.0 42.9 32.5 3. Son-fuel mdnarA1s & octals (27+28+6a) 756 845 20.5 9.0 1.2 28 3.570 .8 65 5.8 35.0 23.7 Oef ,hick- letalliferous ores sad octal er.?. (281 192 289 5.2 3.1 4.7 643 1.205 3.8 2.2 7.2 29.9 24.0 lou-ferrous ctaet# (68) 515 440 14.0 4.7 -1.7 1,352 2.002 8.1 3.7 4.4 37.8 22.0 4. Usnufactures (5+6+7+4+9-68) 1.001 3,729 27.2 39.9 15.7 7.950 5.940 47.4 66.0 15.2 12.6 10.4 of obicht lextils yarns, fabrics, etc. (69) 198 508 5.4 5.4 11.0 2223 1.952 1.3 3.6 27.3 88.8 26.0 MAchinery other than *lectric (71) 44 296 1.2 3.2 23.6 1.517 6.916 9.0 12.7 18.4 3.0 4.3 Electrical nachinery. tc. (72) 31 331 0.8 3.5 30.1 568 3.084 3.4 5.7 20.7 5.5 10.7 Clothing (84) 139 769 3.8 8.2 20.9 264 1,337 1.b . 5 19.1 52.7 37.5 All clothing (except fur) (641) 139 761 3.8 8.1 20.8 258 1,313 1.5 2.4 19.a 53.9 5S.0 J. TOC1 I-perts exclud:ng __ fu1 aad cnersy (0 to 9-3) 3.679 9.346 '.71.a 100.0 10.9 16.tS6 54.514 103.0 lGO.3 14.0 21.9 17.1 6. ree nd energy (3) 641.Z 31.2 41. 4 Z .173 9,119 1:.5 14.3 I:.J 76.7 71.5 of which-7 Ictrolan, crude and partly refined (331) 1,417 6,277 26.5 35.6 18.0 1.506 7,141 7.9 11.2 1.S9 94.1 S7.9 7. Total epeort including fuel and energy (0 to 9) 5.345 15,869 100.0 100.0 12 9 63,63t 100.0 70 14.4 28.2 24.9 La Including OPEC. lowest OECD TrE'4. by Co-ditles, Country SurItes, Saris C for 1968 *nd Series a for 1977. 4.18.79  -23 ANNEX a/ Table 5: UNITED KINGDOM NET DIRECT INVESTMENT AND EARNINGS : 1961-1978 (in million US dollars)b/ of Which to Percentage Shares Developed Developing Developed Developing Total Countries Countriesr Countries Countries 1961 633 n.a. n.a. n,a. n.a. 1962 585 n.a. n.a. n.a. n.a. 1963 661 n.a. n.a. n.a. n.a. 1964 736 434 302 59.0 41.0 1965 862 412 450 47.8 52.2 1966 773 493 280 63.8 36.2 1967 777 462 315 59.5 40.5 1968 984 691 293 70.2 29.8 1969 1,318 792 526 60.1 39.9 1970 1,310- 811 499 61.9 38.1 1971 1,646 1,320 326 80.1 19.8 1972 1,844 1,396 448 75.7 24.3 1973 3,975 2,782 1,193 70.0 30.0 1974 3,685 2,213 1,472 60.1 39.9 1975 2,431 1,131 1,300 46.5 53.5 1976 3,808 2,255 1,553 59.2 40.8 1977 3,125 1,918 1,207 61.4 38.6 1978 3,676c/ n.a. n.a. n.a. n.a. Cumulative Investment and Earnings: 1964-67 3,148 1,801 1,347 57.2 42.8 1968-72 7,102 5,010 2,092 70.5 29.5 1973-77 17,024 10,299 6,725 60.5 39.5 1964-77 27,274 17,110 10,164 62.7 37.3 Average Annual Investment and Earnings: 1964-67 787 450 337 1968-72 1,420 1,002 418 1973-77 3,405 2,060 1,345 1964-77 1,948 1,222 726 Note: Definition of developed countries in this table is a sum of "North America" and "Western Europe" and developing countries is a sum of "other Western Europe'" and "Rest of the World". Excluding investment in oil. b_ Yearly average exchange rates at partmarket rate were used in conversion of Pound Sterling into US dollar. For 1961-70, the average exchange rates were obtained from Department of Statistics, IMF. For 1971-78, see International Financial Statistics. c/ Preliminary. Source: U.K. Department of Industry, Trade and Industry, various issues. EPDIT ELutz:mk July 10, 1979  ANNEX a/ Table 6. U.K. DIRECT INVESTMENT FLOW TO DEVELOPING COUNTRIES BY SELECTED RECIPIENT COUNTRIES (NET): 1970-1975 (in millions of US dollars) Percent Share 1970-75 1970-75 (excl. Tax Havens) 1970 171 172 1973 9714 1975 Total Average 10-17 175 Southern Europe 21 I . 1 105 100 105 9.6 Spain 17 22 .11 -B5 7 25 51 271 5 9.2 . 7.5 Africa 100 6 __ 206 293 M6 22 49 GhLn a i778l1i7 37 141.3 0.9 Kenya 8 6 4 16 21 -3 52 9 1.8 a -0.4 Malawi 3 3 8 4 7 21 146 8 1.6 3.1 Nlgeria 56 43 55 44 71 99 368 61 12.4 114.6 Rhodesia 19 22 . 24 31 33 25 .151 26 5.2 3.7 Zambia 9 10 20 21 214 33 117 20 4.0 4.9 latin Amerlca and the Caribbean 107 -22 111 222 164 i 14 886 148 latin America . Tax Havens) TIT. (1