130. At present the United Kingdom operates certain exchange cont restrictions in respect of capital movements to all Non-Sterling Area countries including those in the Community. We have put forward proposals for making the necessary adjustments in our exchange control policies in consultation with member countries, so as to move by stages to full compliance with EEC obligations by the end of a transitional period of five years. We have proposed that we should adjust our rules first on direct investment and then on personal capital other than portfolio investment; portfolio investment would be dealt with later in the transitional period. Thus the cost to the official reserves of these changes would be spread over the transitional period, during which we may expect some additional inward investment which will help to offset that cost.
131. Our proposals on this matter are still under consideration by the Community.
FISCAL HARMONISATION
132. The Community countries have all adopted, or will shortly introduce, a Value Added Tax (VAT). Initially, we sought to ensure reasonable transitional arrangements for moving over to that system after entry. Subsequently, in the 1971 Budget the Chancellor announced the introduction of a VAT in this country in 1973 as a means of improving our own tax system. There is therefore no longer any need for a transitional period. It should be noted that members of the Community are at present free to determine their own rates and coverage for VAT, although it is envisaged that in due course harmonised rates and coverage may be introduced by unanimous agreement.
133. During the course of the transitional period our present customs duties (on hydrocarbon oils, beer, spirits, wines and tobacco) will need to be converted into internal taxes in order to conform with the Treaty of Rome. As with the VAT, members of the Community are at present free to determine the rates of these duties.
EUROPEAN INVESTMENT BANK
134. The Bank provides loans for economic development, principally in member countries; it has provided finance for such things as road construction and factory building. Development projects in the United Kingdom would, after our accession, be eligible for such assistance from the Bank.
135. The Bank's finance is supplied by the subscriptions of member countries and by borrowing on capital markets. It was agreed that we should make the same subscription to the capital of the Bank as France and Germany (£187.5 million, of which £37.5 million will be paid up). The subscription will be wholly payable in sterling and will fall due in instalments over a period of two-and-a-half years from our accession. It is expected that the greater part of this sum will remain in the United Kingdom and will not be transferred across the exchanges. Negotiations on a United Kingdom contribution to the Bank's statutory reserves have not yet been completed.
136. We will be represented on the Bank's management on the same footing as France, Germany and Italy.
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