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metals, machinery, wire, and chemicals. Specialty steels comprise the most important category of exports to China. Sweden's relatively small imports from China include foodstuffs, ores, chemicals, textile yarns and threads, and clothing.

The importance of foreign trade to Sweden's economy is reflected in the country's liberal commercial policy. Sweden actively supports the concept of free multilateral trade and follows a policy aimed at the progressive lowering of trade barriers to encourage an expansion of trade. As a participant in the General Agreement on Tariffs and Trade (GATT), Sweden actively engaged in the Kennedy Round of tariff negotiations, Sweden is an active member of the Organization for Economic Cooperation and Development (OECD), International Monetary Fund (IMF), and International Bank for Reconstruction and Development (IBRD). Additionally, Sweden has signed the General Agreement to Borrow and regularly takes part in the Group of Ten meetings.

Sweden's customs tariffs are among the lowest in the world. Nonagricultural products are virtually free from quantitative restriction and import licensing. Goods from Japan require licenses, but these are usually issued freely. Imports of specified textiles and clothing from certain countries, such as South Korea, are subject to licensing. All imports from Rhodesia are prohibited. Swedish exports of ships, scrap iron, and arms are subject to licensing, and the Swedish Board of Trade has standby authority to license exports of other goods to assure adequate supplies for the domestic market.

To insure farm incomes, adequate to meet rising costs of living, Sweden employs variable levies on certain imported food products. Farm prices are annually adjusted upward with increases in the consumer price index in excess of 3%. This adjustment is part of the annual agricultural price agreement concluded between the government and the farm associations.

Although its policies toward capital flows traditionally have been liberal, Sweden has followed a somewhat restrictive policy since 1969. Direct investment in other industrial countries is normally permitted only if the investment is of obvious benefit to Sweden's foreign exchange position. Preferential treatment is accorded to direct investment in countries that are the main recipients of Swedish development aid. The purchase of foreign securities by Swedish residents requires authorization that is usually not granted. Commercial banks' foreign assets and liabilities are also controlled. The authorization necessary for foreign direct investment in Sweden is normally given, and authorization for the liquidation of such investments and repatriation of profits is always granted. Investment in real estate, however, is restricted to residents.

2. Balance of payments (U/OU)

Until the mid-1960's, Sweden's chronic trade deficits were comfortably financed by net receipts from services, especially shipping earnings, and from substantial inflows of capital. The rising level of imports induced by economic expansion and domestic prosperity, however, resulted in a widening of the trade deficit. There was also a marked increase in foreign travel by Swedish nationals, in remittances abroad by foreign laborers (largely Finns) employed in Sweden, and in the propensity of Swedish firms to invest abroad, all of which contributed to a general weakening of the overall balance of payments (Figure 19). In consequence, Sweden's external reserve position declined sharply between 1966 and 1969. In the latter year, a US$350 million deficit resulted from an unusual outflow of capital and larger-than-normal government transfers abroad, combined with the worsening trade and services accounts. By the end of 1969, Sweden's official external reserves of $696 million corresponded to only 1.4 months' imports.

The worsening of the trade balance during 1968-70 was to some extent a temporary condition reflecting an upturn in imports for inventory in anticipation of future increases in import prices. Similarly, the sudden reversals in the net flow of capital in 1969 and 1970 has their origins in transitory conditions. In 1969, much of the capital outflow resulted from the comparatively low Swedish interest rates and from speculation against a revaluation of the West German mark. Rising interest rates in Sweden from mid-1969 to mid-1970 and tightening of controls of capital exports reversed the flow and contributed to the substantial capital account improvement in 1970.

With import growth virtually halted in 1971 as a result of the recession, Sweden posted a sizable trade surplus — its first since 1951. Imports grew less than 1%, while exports grew 9%. The 1971 trade surplus, largely the result of a sudden but temporary check in demand and a reversal of inventory build-up, was probably an aberration. As demand revives, imports again will tend to exceed exports. Moreover, although a net long-term capital inflow was maintained throughout 1971, there are indications that Swedish long-term investment and lending abroad will increase as restrictions on capital exports are gradually lifted.

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