Guidelines/Framework for Fund Staff Collaboration with the New World Trade Organization

The Executive Board decides that the draft guidelines/framework for Fund staff collaboration with the World Trade Organization (WTO), set forth in EB/CGATT/95/1, Supplement 1 (4/18/95), may be used by the staff to discuss cooperation with the WTO staff, with the goal of reaching agreement on collaboration between the institutions. (EBD/96/56, 4/18/95)

Decision No. 10968-(95/43),

April 21, 1995

EB/CGATT/95/1

Supplement 1

Guidelines/Framework for Fund Staff Collaboration with the New World Trade Organization

This note is intended to provide Fund staff with guidelines for cooperation with the World Trade Organization (WTO), established on January 1, 1995. It builds upon the close, formal and informal collaboration that existed between the Fund and the GATT. These guidelines will be periodically reviewed and extended or modified as necessary, in the light of the evolution of the collaborative relationship between the Fund and the WTO.

The ministerial Declaration included in the Final Act concluding the Uruguay Round called upon the Director-General of the WTO to consult with the heads of the Fund and the World Bank on enhanced inter-institutional cooperation, especially with a view to achieving greater coherence in global economic policymaking. Cooperation between the Fund and the WTO is expected to cover the following areas:

• • balance of payments consultations

• • coherence in global economic policymaking

• • consistency of policy advice and obligations

• • resolution of open jurisdictional issues

• • staff contacts

• • representation

• • document exchange

• • research and information exchange

Balance of payments consultations

An important aspect of Fund/WTO collaboration is through the Fund’s participation in the consultations of the WTO Committee on Balance of Payments Restrictions with common members. A WTO member applying restrictions on trade in goods and/or services to safeguard its balance of payments must consult with the WTO Committee. In carrying out these consultations, the WTO Committee is required to consult with the Fund regarding the member’s macroeconomic situation, particularly its balance of payments position and level of international reserves. In reaching its decision as to whether the trade restrictions are justified on balance of payments grounds, the WTO Committee must accept the Fund’s findings of statistical and other facts relating to foreign exchange, monetary reserves, and balance of payments, and its determination as to the seriousness of the member’s international reserve situation. Thus the Fund should stand ready to provide the WTO Committee timely information and assessment of the consulting member’s balance of payments situation. Towards this end, the Fund and WTO will consult on the appropriate timing of the consultation. The Fund will provide the WTO Committee on a timely basis the latest RED report of the consulting member. When a recent RED is not available or where there have been significant changes in the country’s external position since the last RED, the Fund will provide updated information on recent economic developments; transmittal of such supplementary information is submitted for Board approval on a lapse of time basis. In the case of a full consultation by the WTO Committee (when detailed discussion of the external financial justification for the restrictions is required), the Fund representative will also provide a statement that has been cleared by the Fund’s Executive Board.

Coherence in global economic policymaking

The WTO’s charter calls for cooperation with the Fund and the Bank with a view to achieving greater coherence in global economic policymaking. The Fund, given its responsibilities in the macroeconomic policy area, including with respect to exchange rates, can contribute to assessing issues of coherence between macroeconomic and trade policies. The Fund can also contribute to greater policy coherence by taking into account in its work the concerns of the WTO in the trade area. In the period ahead, Fund and WTO staffs will work closely to define better the elements and mechanisms for achieving coherence in economic policymaking, including formal and informal channels for communication between the Fund and the WTO.

Consistency of policy advice and obligations

In the conduct of their surveillance functions, the Fund and the WTO should ensure policy consistency and avoid duplication. In its surveillance, the Fund examines a member country’s trade policy, along with its other economic and financial policies, with respect to their impact on the member’s own adjustment and on other Fund members. The WTO exercises surveillance over specific aspects of trade policies (such as the implementation of the Multifiber Arrangement) and over individual countries’ overall trade policy (through the trade policy review mechanism (TPRM)) with a view to enhancing the transparency of the trade regime. In surveillance, Fund staff should place greater emphasis on specific macroeconomic/trade linkages. The staff should also take into account the WTO’s views of the trade stance of particular member countries, as enunciated, for example, in the WTO’s conclusions of the Trade Policy Reviews (TPRs) with individual countries; when TPR reports are out of date or not available, the staff could seek the relevant information from the WTO Secretariat including in some cases through informal staff visits. The WTO Secretariat’s reports for the TPR contain as background information the macroeconomic environment of the consulting member. To assist the WTO’s surveillance, Fund staff should stand ready to provide information on the macroeconomic policies of common members in the preparation of TPR reports. This would be particularly so in cases where a recent Article IV consultation report is not available.

Fund staff need also to ensure that, in the context of surveillance and use of Fund resources (UFR), and bearing in mind the aim of achieving medium-term external viability, recommended policy measures and program conditionality are consistent with the member’s agreements under the auspices of the WTO. This has assumed particular importance in the light of the more extensive commitments undertaken by members under the Uruguay Round. To promote structural reform, Fund policy advice often encompasses features that require reforms that are consistent with (though they may go beyond) a member’s undertakings in the WTO. For example, tariffs may be reduced under a Fund-supported program to below levels “bound” in the relevant WTO agreements; this would promote economic efficiency without conflict with obligations under these agreements. However, if tariffs were to be raised above bound levels, this would breach the member’s obligations in the agreements under the auspices of the WTO. To avoid such situations, Fund staff should seek information from the member and from the WTO on the nature and level of its tariff obligations under WTO-administered agreements, and take this information into account in policy formulation. Internal staff review procedures should assist in identifying potentially inconsistent policy measures. Where there is ambiguity or doubt about the WTO-consistency of specific measures, Fund staff should consult with WTO staff on member countries’ WTO obligations and would expect WTO staff to provide the necessary input promptly so as to allow timely implementation of Fund-supported adjustment programs. The authorities should also be urged to consult with the WTO to clarify potential conflicts before the measures are implemented.

Fund-supported programs should continue to avoid cross conditionality. That is, Fund-supported programs should continue to avoid directly linking the use of Fund resources to the performance of obligations under the WTO-administered agreements. Fund-supported programs may include reductions in subsidies or trade barriers that are consistent with or go beyond the commitments undertaken under the Uruguay Round when the Fund finds that such measures are necessary to achieve the objectives of the Fund-supported program, but not to enforce commitments to agreements under the auspices of the WTO. Thus, for example, under the Uruguay Round, countries are required in principle to reduce their agricultural export subsidies over a six year period by certain percentages from those prevailing during a specified base period. Fund-supported programs may also call for a reduction in such subsidies, which could be more rapid and comprehensive than under the Uruguay Round, if this is necessary to achieve the program’s fiscal and resource allocation objectives. Moreover, provisions in a Fund arrangement constitute conditions for the member’s use of Fund resources and do not alter obligations vis-à-vis other WTO members. For example, if program design calls for a reduction in applied tariffs to below WTO “bound” levels, this does not constitute a requirement by the Fund for the member to “bind” its WTO-administered commitments at the lower applied level. Fund staff will continue to consult and coordinate with Bank staff in the design of trade reforms included in Fund-supported adjustment programs.

Resolution of open jurisdictional issues

The Final Act of the Uruguay Round includes a Declaration on the Relationship of the World Trade Organization with the International Monetary Fund, which confirms the continued application of Article XV of GATT 1947 (now GATT 1994) on collaboration with the Fund in the area of trade in goods. Article XV requires the WTO to seek cooperation with the Fund in order for the WTO and the Fund to pursue a coordinated policy with regard to exchange questions within the jurisdiction of the Fund and questions of quantitative restrictions and other trade measures within the jurisdiction of the WTO. These provisions also recognize the right of a WTO member that is a Fund member to maintain exchange controls or restrictions in accordance with the Fund’s Articles. Similarly, in the area of services, Article XI of the General Agreement on Trade in Services (GATS) safeguards the rights and obligations of Fund members under the Fund’s Articles with respect to restrictions on current international transactions. Thus, it is expected that the WTO will not authorize countermeasures against exchange measures that are consistent with the Fund’s Articles, or find measures consistent with the Fund’s Articles to violate one of the Multilateral Agreements on Trade in Goods or the GATS, or subject exchange measures to remedies in the absence of violation for “nonviolation, nullification or impairment.” The Fund and the WTO will work on clarifying jurisdictional issues in order that the rights and obligations of Fund members are protected.

Staff contacts

Effective cooperation and interaction among the two staffs will be crucial in ensuring that policy inconsistencies and duplication are avoided, and there is full mutual awareness of the interests and concerns of each institution. The Fund’s Geneva Office will continue to provide liaison between the Fund and the WTO on an ongoing basis, supplemented by contacts at headquarters. This will include periodic meetings (at least annually) between appropriately senior staff of the Fund and the WTO to identify issues of common concern and the means of dealing with them, including specifically the manner of enhancing collaboration. Bank staff will be invited to some of these meetings for trilateral discussions on issues of mutual interest. Meetings at head of institution level would be arranged as needed. In cases involving important trade policy issues, there should be more active use of informal Fund staff visits to exchange views with WTO staff, for example en route to Article IV and/or UFR consultations. Similarly, WTO staff should be encouraged to visit Fund headquarters periodically to informally discuss specific country cases (including in the context of preparing TPR reports) or policy issues. Staff secondments could also be given consideration.

Representation

Observer status in the WTO and the Fund is under discussion.

It is envisaged that representation in the Fund could be on several levels. The Director-General of the WTO (or his representative) could be regularly invited as an observer to the meetings of the Interim and Development Committees and to the joint Annual Meetings by the Chairman of the relevant Committee. The WTO Director General (or his representative) would also be invited as an observer in selected meetings covering general trade policy issues of the Fund’s Executive Board, and there would also be some contact with the Committee on Liaison with the WTO (CWTO). In parallel with arrangements for Bank staff observers, the WTO staff representative could be invited to intervene in Fund Board/CWTO meetings by an Executive Director or the Chairman. The WTO Secretariat would be expected to treat the deliberations of the Fund Board/CWTO as strictly confidential information not available to other organizations or to the public. Similarly, Fund staff would be expected to treat the deliberations of the WTO with strict confidentiality.

Document exchange

As mentioned earlier, the Fund will transmit to the WTO Committee on Balance of Payments Restrictions the latest RED report or similar document on the consulting member (in addition to a Fund statement where relevant). The Director-General of the WTO will be regularly provided, for the confidential use of the Secretariat, Article IV Consultation reports (staff reports and REDs) on common members. For these members, consideration might be given in the future to transmitting the Chairman’s Summing Up of the Board discussion to the WTO Director-General, as long as the concerned Executive Director raises no objection. For Fund members that are seeking accession to the WTO, consideration might also be given to transmitting to the WTO Director-General Article IV Consultation reports, provided that the concerned Executive Director raises no objection. Fund staff will also ensure that an up-to-date assessment of a country’s macroeconomic situation is available to WTO staff at the time of preparation of the latter’s TPR reports or as needed; where there is considerable interval between the Article IV discussion and the TPR, Fund staff should be able to provide WTO staff updated factual information on the macroeconomic situation. As in arrangements with the GATT, Fund staff expect to continue to receive on a confidential basis most WTO documents (i.e., minutes and reports of councils and other bodies, the reports of member countries to these bodies, and TPR reports).

Research and information exchange

Fund staff will seek the WTO Secretariat’s views on selected reports in which international trade policy issues are prominently featured. Fund staff expect to be able to comment on selected WTO staff reports in which macroeconomic issues are discussed. Joint studies on topics of mutual interest could be considered from time to time. Fund and WTO staff could participate in seminars at respective institutions involving topics of mutual interest. To improve awareness and reduce duplication, Fund and WTO staffs could make greater use of each other’s basic data, taking into account confidentiality requirements of the respective organizations. This could also help reduce the burden on officials in member countries caused by duplication of requests for basic information. With a view to better investigating the economic and financial implications of the Uruguay Round on individual countries,¹ Fund staff have requested access to the WTO’s Integrated Database; this should not involve setting up new communications links as Fund staff would be able to obtain relevant data from the World Bank which has already been granted access to the Integrated Database.

¹ Such investigations would also help assessment of possible adverse effects of the Round on particular developing countries as recognized by the WTO ministerial decision.