WORLD TRADE
ORGANIZATIONWT/WGTDF/W/17
13 November 2002
(02-6289)
Working Group on Trade, Debt
and Finance
"TOWARDS GREATER COHERENCE"
Note by the Secretariat
I. INTRODUCTION
1. This Note has been prepared in response to a request from the Working Group for a
background paper relating to Item III of the Group's work programme.1  The Note aims to describe
what is being done under the Marrakesh Ministerial Declaration on Coherence and under the
cooperation agreements that exist between the WTO, the IMF and the World Bank.  It also aims to
examine possible orientations for future work on coherence based on Members' comments in theWorking Group and a review of other potential inter- linkages that do already, or may in the future,
arise out of the evolving architecture of the multilateral economic system.
II. THE MARRAKESH COHERENCE MANDATE AND REGULAR ACTIVITIES
A. T
HE MANDATE
2. According to Article III.5 of the WTO Agreement, achieving greater coherence in global
economic policy-making through cooperation with the IMF and the World Bank is one of the five
core functions of the WTO.2  The Mandate for doing so is contained in the WTO Ministerial
Declaration on Coherence3 and in the General Council decision approving the cooperation agreements
concluded with the IMF and the World Bank in 1996.4  These decisions delegate responsibility to the
Director-General to carry out work on Coherence.  The Director-General is required to keep Members
informed of his activities in this area, to cons ult with them regularly on matters relating to the
implementation of the cooperation agreements5, and to submit any conclusions reached to the General
Council  for approval.6
                                                     
1 WT/WGTDF/M/3, paragraph 52.
2 The other four are to facilitate the implementation, administration and operation of the trade
agreements, to provide a forum for negotiations, to administer the Dispute Settlement Understanding, and toadminister the Trade Policy Review Mechanism.
3 Declaration on the Contribution of the World Tr ade Organization to Achieving Greater Coherence in
Global Economic Policy-Making.
4 WT/L/194.
5 Consultations with Members through the General Council shall be held at least twice a year.
6 The IMF and World Bank have nothing by way of a “Coherence” mandate, but in practice that hardly
matters.  Both have the promotion of balanced growth of international trade as one of their main purposes, and
both have formally approved the 1996 cooperation agreements with the WTO.This document has been prepared under the Secretariat's own
responsibility and without prejudice to the positions of Members
and to their rights and obligations under the WTOWT/WGTDF/W/17
Page 2
3. The Marrakesh Declaration on Coherence recognizes that the structural, macroeconomic,
trade, financial, and development aspects of economic policy-making interact.  The task of achieving
"harmony" between these policies falls primarily on governments at the national level, but "their
coherence internationally is an important and valuable element in increasing the effectiveness of these
policies at national level".  It recognizes also that “successful cooperation in each area of economicpolicy contributes to progress in other areas”.  It gives examples in this regard of the importance of
exchange rate stability, of an adequate and timely flow of concessional and non-concessional financial
and real investment resources to developing countr ies and of efforts to address debt problems, and of
support for the adjustment involved in trade lib eralization.  It notes that the Uruguay Round
agreements made a major contribution towards more coherent and complementary international
economic policies, which meant that trade policy could play a more substantial role in ensuring the
coherence of global economic policy-making.  It recognizes, however, that difficulties whose originlies outside the trade field cannot be redressed through measures taken in the trade field alone, which
underscores the importance of efforts to improve other elements of global economic policy-making to
complement the effective implementation of the Uruguay Round results.  It points to the importance
of international institutions with responsibilities in each of these policy areas following consistent and
mutually supportive polices and instructs the WTO to pursue and develop cooperation with the IMFand the World Bank, while respecting the mandate, the confidentiality requirements and the necessary
autonomy in decision-making procedures of each institution, and avoiding the imposition on
governments of cross-conditionality or additional conditions.
B. O
VERVIEW OF THE COHERENCE PROCESS
4. Informal meetings of the General Council have been convened by the Chairman of the
General Council, at the request of the Director-General or of Members, to allow Members to discuss
Coherence issues with the staff of the WTO, the IMF and the World Bank.  For its part, the IMF
Executive Board periodically convenes special meetings of it Committee on the WTO to discuss trade
and WTO-related issues;  WTO staff are generally invited to participate.
5. The Director-General consults regularly with the Managing Director of the IMF and the
President of the World Bank on a range of trade-related and Coherence issues.  Recently, this has
included the functioning of the international trade and financial systems since the Doha Ministerial
Session, the role of Finance Ministers in pushing forward the trade agenda, IMF support in a variety
of issues – such as the Working Group on Trade, Debt and Finance, the issue of sequencing and
financial services liberalization and prudential regulation, and the provision of trade-related technical
assistance, capacity building and training in support of the mandates contained in the Doha Ministerial
Declaration.
6. The WTO-IMF and WTO-World Bank cooperatio n agreements set out working procedures
and provide a framework under which regular staff activities are conducted. The Director-General
reports annually to the General Council on these activities.7  Routine cooperation between the three
institutions takes place through, inter alia :
• Staff participation/observership in each other's meetings:  the WTO Secretariat is routinely
invited, in an observer capacity, to attend meetings of the Executive Boards of the IMF and the
World Bank on general and regional trade policy matters.  Equally, IMF and World Bank staff are
routinely invited, in an observer capacity, to attend meetings of most WTO bodies.  IMF staff
participate in consultations of the Committee on Balance-of-Payments Restrictions, and IMF and
World Bank staff have recently been invited to make contributions to meetings of the Working
Group on Trade, Debt and Finance.  The IMF and World Bank report regularly to the Committee
                                                     
7 WT/TF/COH/S/1 to 5, "Coherence in Global Economic Policy-Making:  WTO Cooperation with the
IMF and the World Bank".WT/WGTDF/W/17
Page 3
on Agriculture on support they provide in the context of the Marrakesh Decision on Measures
Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net
Food-Importing Developing Countries.  In this contex t, they participated in the inter-agency panel
of financial and commodity experts which the Committee on Agriculture agreed would be
convened to report on the scope for improving access by least-developed and WTO net food-importing developing countries to multilateral programmes and facilities to assist with short-term
difficulties in financing commercial imports of basic foodstuffs, as well as on the concept and
feasibility of the proposal for establishing a revolving fund.
• Staff research and analysis, and exchange of data and information:  the WTO Secretariat is often
conducting research that is complementary to research undertaken by the IMF and the World
Bank in the area of trade, such as the recent WTO Special Study on Market Access (no. 6), which
established good grounds for the joint IMF/World Bank paper on "Market Access for Developing
Countries Exports", and research on financial services liberalization, which has involved in thepast staffs of three organizations.  Under the cooperation agreements, the WTO provides the IMF
and the World Bank with access to its Integrated Database and schedules of commitments, the
IMF provides access to its financial, balance-of-payments and other macroeconomic data, and the
World Bank provides access to its Economic and Social Database.
• Cooperation in the area of trade policy surveillance and advice:  although there is no formal
process of consultation between the WTO Secretariat and IMF and World Bank staff on trade
policy surveillance and advice, informal contacts take place regularly, both with regard to the
preparation of TPR and Fund/Bank staff country reports, and with regard to trade policy advice
contained in IMF country programmes.  This informal process has been found to work well and to
be effective in avoiding any inconsistencies between the trade policy advice provided to a
Member and that Member’s WTO obligations.
• Technical assistance and training:  cooperation in these areas has expanded in the past few years,
through the efforts that have been made to link the Integrated Framework for Least-Developed
Countries more deliberately to the preparation of Poverty Reduction Strategy Papers by the IMF
and World Bank, and more recently through the technical assistance and capacity building
activities that are associated with implementation of the Doha Ministerial Declaration.  There has
been increased cooperation in training activities too, through the WTO Training Institute and theJoint Vienna Institute (in which the WTO cooperates with the World Bank, IMF, BIS, OECD and
EBRD).
C. O
VERVIEW OF COHERENCE ISSUES
7. A set out in their respective mandates – the WTO Agreements and the Articles of Agreement
of the IMF and the World Bank – all three organizations have complementary objectives, among themto facilitate the expansion and balanced growth of international trade, raising living standards and of
supporting sustainable development and developing cooperative policies.  Based on the above-
mentioned preambles and principles, the GATT/WTO, IMF and Work are working towards the same
objectives of expanding world trade and incomes, and have thus far not been at serious cross-purposes
with one another.  Activities carried out under th e Coherence mandate therefore start from a solid
systemic foundation.
8. There are, nonetheless, significant conceptual and practical challenges involved for all three
organizations in achieving harmony at the internat ional level in the interaction between structural,
macroeconomic, trade, financial and development aspects of economic policy-making.  Account
needs to be taken of the fact that there is no single, one-size-fits-all approach to policy-making at the
national level.  Account needs also to be taken of the fact that international economic integration of
markets and countries (“globalization”) is a dynamic process, so that the challenge of creating aWT/WGTDF/W/17
Page 4
coherent policy mix changes over time.  This has to be factored into multilateral frameworks of policy
rules (the WTO and IMF Agreements) and guidance (e.g., the World Bank’s Comprehensive
Development Framework, and the IMF/World Bank Poverty Reduction Strategy process), particularly
if the Coherence exercise is to achieve its aim of increasing the effectiveness of policies at the
national level.
9. Account needs also to be taken of the fact, reflected in the Marrakesh Ministerial Declaration
on Coherence, that each organization operates according to its own mandate, yet the task of achieving
greater policy coherence is, by its very nature, one that very often crosses the lines of individual
organizational responsibility.  Some of the challenges of enhancing coherence can be dealt with
through routine cooperation between the WTO, IMF and World Bank at the staff level under the
existing cooperation agreements – an example is cooperation with individual Member countries to
organize the appropriate timing and sequencing of technical assistance and capacity-building in
support of elements of the Doha Ministerial Declaration.  Others can raise matters of a more systemic
nature, which require the involvement and consideration of Members.
1. Trade and Development Policies
10. As emphasized on many occasions during the discussions of the Working Group on Trade,
Debt and Finance, the relationship between trade, debt and finance and other global economicparameters has to be seen in a holistic manner embedded in the issue of how to mobilize development
finances and resources for development.  The issue of finance and the issue of debt can no longer be
seen in isolation, but in the light of trade policies pursued by developed and developing countries.  In
this respect, the Group made clear that issues of market access, decline in commodity prices and debt
relief needed to be taken into account in a coor dinated manner, from a Coherence point of view.
8
11. This "holistic approach" to international proble ms is in the spirit of the Monterrey Consensus,
which in its paragraph 8, mentions that "in the increasingly globalizing world economy, a holistic
approach to the inter-connected national, international and systemic challenges of financing for
development.  It says also "that international trade is an engine for international development, and that
a universal, rules-based, open, non-discriminatory and equitable multilateral trading system cansubstantially stimulate development world-wide, benefiting countries at all stages of development.
9
In the following paragraph of the consensus, it is al so highlighted that "meaningful trade liberalization
is an important element in the sustainable development strategy of a country."10
12. The introduction of the joint IMF/World Bank Poverty Reduction Strategy process (PRSP)
was already a recognition that only a consistent mix of macroeconomic policies, structural reforms,
anti-poverty measures, and even debt relief, defined in the context of a participatory process involving
civil society and greater country ownership, would allow the outcomes of the Fund and Bankprogrammes in low-income countries to be pro-poor.  The PRSP provided the WTO with the
opportunity to encourage the World Bank to "mainstream" trade issues into its work, as recalled in the
tripartite Statement issued in Seattle and in the April Development Committee communiqué.  While
mainsteaming trade into the PRSP has been a slow process to date, the renewed focus of the World
Bank toward trade issues is welcome.  The importance of the World Bank's support in this area is not
only the financing they can help mobilize, but also their country-level involvement and policy
expertise11.  Our understanding with World Bank staff on cooperation is that the WTO will take
                                                     
8 See in particular WT/WGTDF/M3, paragraph 22.
9 Paragraph 26 of the Monterrey Consensus.
10 Paragraph 27 of the Monterrey Consensus.
11 Between 1990 and 1998, 68 per cent of World Bank adjustment programmes included support for
reform of trade and exchange rate policies.  World Bank lending for trade-related activities, broadly defined toWT/WGTDF/W/17
Page 5
responsibility for assisting developing-country Memb ers to implement their legal obligations, and the
World Bank will complement that through assistance for related human, institutional and
infrastructural capacity-building.
13. The complementarity of trade and development is a natural basis for enhanced cooperation
between the WTO and the World Bank (as well as other agencies active in development-orientedissues).  The WTO fully backs the "Monterrey Consensus", and, as indicated above, to ensure that
trade works for growth and development, policy and trade priority areas need to be anchored in the
overall national development plans and strategies of poverty reduction. In the absence of this, trade
cannot work for development.  So far, the Integration Framework (IF) has been the principal
mechanism in the international community toda y for mainstreaming (integrating) trade into
development plans and strategies for poverty reduction.  The current challenge in the IF process is
with implementation and follow-up to the results of  the diagnostic trade integration studies.  So far
modest success has been achieved.
12  The Director-General of the WTO and the President of the
World Bank recently announced that they woul d produce joint regular reviews of the IF.13
14. Effective trade mainstreaming is linked to the ability of countries and international
institutions to address the "behind-the-border" agenda, i.e. in building-up the trade potential and
infrastructures of developing countries (through customs reform, improving transportation anddistribution networks, easing access to trade finance,  improving export marketing, etc...).  It also
depends on developing and sustaining a domestic trade policy set within the overall development
policy of the country.  Furthermore, the efforts of agencies, donors, and the LDCs in mainstreaming
trade to the benefit of the LDCs, need to be linked to effective movements in market access to enable
the LDCs to take advantage of appropriate supply-side responses that will be stimulated through trademainstreaming.  Improvements in market access, therefore, remain indispensable.  As indicated in his
recent speech
14, the Director-General of the WTO has set the broad objectives of the Integrated
Framework if it is to contribute successfully to the Doha Development Agenda (DDA):  (a) by
ensuring that trade is effectively mainstreamed in to the development plans and strategies for poverty
reduction, so that trade works for the development of the LDCs and to help reduce poverty;  and,(b) by building the human and institutional capacity to  enable them to participate effectively in the
multilateral trading system.  This mainstreaming will be an essential priority of WTO-World Bank
cooperation in the future, at least within the objective of completing the DDA by 1 January 2005.
2. Trade, Monetary and Financial Policies
15. As stated in WT/WGTDF/W/4, the expansion of international trade depends on a well-
functioning international financial system in several respects.  One of the main concerns of traders
and trade officials has always been to depend on a stable international price mechanism forconducting cross-border transactions, for taking decisions on investment and production of tradeable
goods and services, and for setting price-based trade policies.  In this regard, a key reference in the
Marrakesh Ministerial Declaration on Coherence is the need for a high degree of exchange rate
stability to reduce risk for investors and traders, and to give WTO Members confidence that they can
live with a good degree of comfort within the rules-based trading system, without recourse to
quantitative restrictions or excessive contingent protection.
                                                                                                                                                                    
include infrastructure, accounted for around 26 per cent of its total lending from 1994 to 1999 (about $2 billion
a year).  World Bank staff are currently creating a detailed inventory of their trade-related lending activity.
12 Speech by the Director-General of the WTO, 1 November 2002, Second Integrated Framework
Mainstreaming Seminar.
13 WTO News brief, 10 October 2002.
14 Speech by the Director-General of the WTO, 1 November 2002, id.WT/WGTDF/W/17
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16. After the end of the Bretton Woods system, GATT Contracting Parties and then WTO
Members expressed concerns, at the beginning of each new round (Tokyo Round, Uruguay Round),
about the adverse effects of "excessive" exchange rate volatility and inappropriate exchange rate
parities on the ability of governments to enter into new, binding trade commitments.15  While small
and short-term fluctuations in nominal exchange rates may, to some extent, be "hedged" throughmodern financial instruments, concerned re-emerged before the Seattle and Doha Ministerial
Conferences, since emerging economies had been hit hard by the widest and deepest fluctuations in
their histories.  At the time, it was acknowledged that capital account instability had played a much
more significant role than in the more traditiona l current account/balance-of-payments crises of the
1970's and 1980's, which had been linked to fiscal spending, high inflation and excessive public debt.
Large swings in exchange rates in Asian and Latin America exacerbated fundamental weakness in the
prudential oversight of the financial and corporate sectors, and contributed to the collapse of domesticeconomies.
17. While the issue of exchange stability is at the heart of our Coherence mandate, the IMF or the
WTO can do little by themselves to correct major exchange rate disequilibria.  However, the
competent institutions can improve their compleme ntarity by developing their respective roles as
shock absorbers of economic crisis transmitted through large exchange rate fluctuations.  As
emphasized by the Chairman's conclusion on the examination of the relationship between trade and
finance, the WTO system plays an important role  in providing stability and economic security in
periods of financial crisis, by making recourse to protectionism more difficult and by keeping markets
open so as to ensure that crisis-hit economies are able to continue to count on exports.  In addition, the
dispute settlement system ensures that specific sectors, that are prone to large cyclical swings, do notcontribute to deteriorate the trade relations; the Chairman also emphasized the role of trade
liberalization in efficient resource allocation and in building the resilience of economies to external
shocks.  On its side, the IMF aims at strengthening the financial sector of emerging economies, which
in turn limit rapid reversals in market sentiment.   Early warning indicators of crises have been
developed, and appropriate facilities have been developed for crisis-hit economies.  All theseinitiatives aim at increasing the role of international financial institutions as "shock-absorbers" of
financial crises and at avoiding the transmission of its effects to the "real economy".
18. One of the most concrete messages left by the Working Group at the end of its examination
was, based on the experience gained in Asia and also on events in Latin America, the need to improve
the stability and security of sources of trade-financing, especially to help deal with periods of
financial crisis when access to traditional instruments, such as letters of credits, is denied by
international banks.  Several WTO Members have insisted on the need to progress on this issue,whether at the multilateral or regional level.  The issue was referred to again during the examination
of the relationship between trade and debt, when speakers recognized that "there was a clear link
between trade and financing during debt crises, which should involve deeper cooperation between the
WTO and International Financial Institutions in terms of greater availability of trade-financing and
compensatory financing".
16
19. On a bilateral basis, the WTO follows IMF surveillance on exchange rates as a matter of
routine.  During the Asian financial crisis, the WTO Director-General discussed matters regarding the
                                                     
15 Concerns related to the adverse effects of "e xcessive" exchange rate volatility and inappropriate
exchange rate parities on the ability of government to enter into new, binding trade commitments.  In 1982-93,
the GATT Contracting Parties formally expressed such concerns to the IMF via the GATT Director-General,
and requested that the IMF produces a study on the effect of exchange rate fluctuations on international trade.The IMF study acknowledged that exchange rate fluctuations could affect trade adversely, but concluded thatthis was only one of many factors in play and that em pirically no such effects could be detected ("Exchange
Rates Fluctuations and International Trade", IMF, March 1984).
16 WT/WGTDF/M/3 of 15 October 2002, paragraph 5.WT/WGTDF/W/17
Page 7
impact of devaluations on trade (in order to prev ent ill-conceived trade policy reactions) with the
Managing-Director of the IMF, and communicated our Member's concerns with respect to exchange
rate and monetary policy reactions.
3. Trade and Debt Policies
20. International debt and financial problems have developed several times over the past thirty
years, particularly in 1997 with the Asian financial crisis and most recently in Latin America.
Typically, the IMF and the World Bank are called on to manage orderly work-outs, with a growing
question being how the cost of adjustment has to be shared between debtor governments and their
public and private sector creditors.17
21. Trade enters the calculation as a means of reducing the overall adjustment burden, since the
long-term solution in all cases is for indebted or fi nancially-stricken countries to increase their export
earnings.  International borrowing is equivalent to de ferred trade, even when it is purely speculative.
In the case of the Asian financial crisis, the crisis-hit countries shouldered most of the adjustment
burden under IMF-World Bank supported-programmes, with consequences for their domestic
economic activity.  This general point about sharing the costs of adjustment is the same one that the
Heads of the IMF, World Bank and WTO made in their tripartite Declaration, prior to the
3rd Ministerial Conference, when they pressed the WTO for new, preferential, market access
opportunities to be created for HIPC countries to complement the debt relief programmes of the IMF
and World Bank.
22. Trade-debt linkages have been subject to examination by the Working Group in September,
with Members insisting that the main contribution the WTO could make was to press ahead with
increased market access in areas of interest to indebted countries.  Overseas market-access restrictions
were found to impede the ability of indebted countries to earn the foreign exchange they needed toservice their external debt and to avoid resort to further unsustainable borrowing.  Members were
particularly interested that the Secretariat's Note (WT/WGTDF/W/9) had emphasized that all recent
studies had suggested that the gains that could be derived from eliminating barriers on these countries'
exports outweighed the annual flows they received of official development assistance (ODA) and debtrelief under the HIPC Initiative.  In this sense, the Chairman of the meeting also noted that a global,
non-discriminatory reduction of trade barriers in the context of the current WTO negotiations,
especially in areas where distortions affect developing countries exports, could make a significant
contribution to a durable solution to the problem of external indebtedness of developing and least-
developed countries.
23. The linkages between trade and debt were examined in their whole dimension.  While market
access from partner countries is important, trade policies also have a role to play at the domestic level,
to improve the "supply capacity" of individual countries to meet export opportunities.  Liberalizing
imports in developing countries helps boost domestic growth, productivity and exports, althoughcareful consideration should be given to the timing and sequencing of trade reform in this context, as
well as to the costs of adjustment involved in su ch liberalization and the assistance needed to meet
these costs.  Well-run trade reforms contribute to reduce the anti-export bias in domestic policies andpromotes an open business environment.  As emphasized by one Member in its experience of the
Asian financial crisis, it fosters long-term growth by improving the efficiency of resource allocation.
18
                                                     
17 The IMF is currently reflecting on appropriate lending policies in such situations, particularly so as
to limit problems of moral hazard, and examining how the private sector might be encouraged to play a larger
role in resolving crises when they do occur.
18 WT/WGTDF/M/3, paragraph 11.  The representative of Korea said that, in his country's case, debt
affected essentially imports, not exports. In turn, strong export growth helped re-pay the debt.  The problem ofWT/WGTDF/W/17
Page 8
24. The issue of trade finance came up again during the examination of the link between trade
and debt.  This "Coherence" issue was thrown up by the Asian financial crisis when letters of credit
dried up, along with access to all other forms of overseas capital, adding to these countries' problem
of boosting export sales to help ease the adjustment process.  Discussions with IMF and World Bank
staff at the time did not produce the basis for a solution, although considerable analytical work hasbeen done on this issue.
19
4. The Trading System and Capital Account Liberalization
25. The WTO and the IMF are the two principal economic, rule-making organizations.  In both
cases the rules are evolving, and in certain areas our agendas are showing signs of increased
convergence.  One example that has come up for some time is the relationship between GATS rules
and liberalization of financial services, alongside IMF efforts to strengthen international financial
standards and supervision.  This was discussed in the Working Group on Trade, Debt and Finance asan area where responsibilities are clear, but where cooperation needs to be strengthened.
26. Current discussions on investment in the WT O may have a potential impact on capital
account transactions (an area within the remit of the IMF) as well as on existing rules regarding
current payments.  Both WTO and IMF activities in the area of long-term capital movement converge
around the task of introducing greater transparency, predictability and stability in international capitalmarkets.  Clearly it is important that progress is mutually supportive,  since the potential for overlap is
important.  Discussion on "exceptions and balance-of-payments safeguards" in the Working Group on
the Relationship between Trade and Investment (WT/WGTI/W/137) revealed that many participants
view a balance-of-payments clause as essential, to protect them against certain categories of capital
flows (essentially short-term).  Already, the GATS contains a balance-of-payments safeguardprovision, with specific IMF-consistency provisions.
27. In April 1999, the WTO, IMF and World Bank held a joint conference in Washington on
capital account liberalization.  The WTO will continue to exchange views and prepare staff papers on
this subject.
5. WTO Balance-of-Payments Provisions
28. In cases where WTO Members claim balance-of-payments cover for the maintenance of trade
restrictions, both the GATT and GATS require Members to consult with, and accept certain findings
from the IMF, particularly on the existence of a balance-of-payments problem. GATT/WTO
cooperation with the IMF in this area has a very long history.  Methodological as well as substantive
discussion have recently taken place in the Committee on Balance-of-Payments Restrictions on the
criteria used for evaluating whether a balance-of-payment exists, in particular the adequacy of the
level of reserves in a world where capital movements have become larger and more volatile.  TheWTO and IMF recently worked together on this issue, which will also taken up under the Coherence
mandate.
6. Special Exchange Arrangements
29. The formal link between WTO and IMF rules is contained in GATT Article XV, on Exchange
Arrangements.  Among other things, this sets out rules that are to be followed on the establishment of
                                                                                                                                                                    
indebtedness was closely related to that of correct alloca tion of resources (debt being invested in export-related
sectors), and good macroeconomic policies.  Good financial regulation was also key to solving the debtproblem, which Korea had overcome in a short period of time.
19 A consultant's report, prepared for the IMF in September 1998, cast doubts on the viability of any
across-the-board solution and suggested  instead a case-by-case approach.WT/WGTDF/W/17
Page 9
special exchange arrangements with a WTO Member that is not a member of the IMF, and it requires
close cooperation between the WTO and IMF on the issue.  Cases arise from time to time (recently in
the case of the special exchange arrangement contained in a draft protocol of accession), but are
generally dealt with by the staff and management of the WTO and IMF as part of the organizations'
routine cooperation.
7. Surveillance of Trade and Financial Policies
30. The exchange of information and analysis on trade and finance issues is a basic requirement
for coherent policy-making.  The WTO cooperates closely with IMF staff in the preparation of our
TPR reports, and the IMF finds these reports valuable in its own regular surveillance of its members'
policies.  Given the high profile of IMF reports on the industrialized countries, this can usefully
complement the WTO's own efforts to publicize the costs of protection and generate support for
further trade liberalization.  The Fund also plans to exercise stricter surveillance on large importers inthe developing world as part of its Article IV consultations, keeping in mind the need to highlight the
cost of restrictive policies on poorer economic partners.
8. Revenue Implications of Trade Liberalization
31. Concern has been raised by some developing countries, including Jamaica, at a Coherence
General Council meeting in 1999, that reducing their tariffs has negative budgetary effects bydepriving them of tax revenue.  For some developing countries, trade taxes still constitute a high
proportion of their fiscal revenue.  A IMF study (by Ebrill, Stotsky and Gropp (1999)) indicates that
well sequenced  tariff reforms can be revenue-neutral (or in some successful cases, revenue raising) if
part of an overall fiscal reform, which would include, on the one hand, the offsetting of the negative
effect on public finances of the lowering of average tariffs by the elimination of tariff peaks and oftariff exemptions, and, on the other hand, the introduction of internal taxes (such as the value-added
tax).  Another aspect is the fiscal impact of deteriorating terms of trade.  The lowering of export prices
(generally expressed in dollars) does not necessarily lead to reduced incomes of local producers,
whose prices are expressed in local currency.  However, it may affect public finances, for example in
cases of taxes levied on exports.  On the other hand, the deterioration in the terms of trade may have apositive effect on public revenues if taxes drawn from the increase in import values outweigh fiscal
effects of the reduction in export prices.  The IMF conclusions have been subject to discussion at an
earlier General Council meeting on Coherence, and again reviewed by the Working Group on Trade,
Debt and Finance in its examination of the relationship between trade and finance
(WT/WGTDF/W/9).
III. ORIENTATION FOR FUTURE WORK:  WHAT ISSUES AND AREAS FOR
ENHANCED COOPERATION
32. The above processes and areas of current cooperation are already generating considerable
activity across the WTO, IMF and World Bank, but some of them can be re-shaped, and thought
through again, so that the Coherence Mandate provides a better response to Members expectations on
where and how international organizations should collaborate and expand activities.
A. T
RADITIONAL AREAS OF COHERENCE
1. Balance-of-Payments Consultations
33. As described above, there are areas where institutionalized, routine cooperation is taking
place, that do not necessarily call for expansion above and beyond current efforts.  The use of WTO
provisions under Article XVIII:B of GATT may vary over time, according to the world economic
situation, but recent trends have clearly show n – since the conclusion of the Uruguay Round – aWT/WGTDF/W/17
Page 10
downward trend.  Recent cooperation between the IMF and the WTO has focused on the production
of papers explaining the evolution of IMF practice in assessing the levels of reserves for evaluating
whether a balance-of-payments problem existed, and on the incidence of a recent review by the IMF
on international reserve adequacy.  India, which had initiated the discussion on this issue in the
Committee on Balance-of-Payments Restrictions, also raised the question in the Working Group onTrade, Debt and Finance about whether greater flexibility should be accorded in the use of GATT
Article XVIII:B from a development point of view
20, a theme that found little consensus among
Members until now.21
• On-going cooperation between the WTO ,IMF and Members seems to be proceeding well, either
in the process or in substance, as witnessed by  the timely production of methodological papers, in
response to a Member's request.
2. Exchange Rates, Exchange Controls, Capital Liberalization:  Scope for Further
Research
34. The issue of exchange rates, controls and capital liberalization falls within the remit of the
Bretton-Woods institutions, primarily the IMF, but recent discussions on the linkages between trade
and finance in the Working Group on Trade, Debt and Finance, including possible WTO measures
that could help prevent the contagion of financial crises into trade, as well as the prospect of a balance
of payment clause in an future investment agreement, calls for coordinated research.
35. As to the question of exchange rate instability and its impact on trade, and the wider subject
of exchange arrangements, discussions in the Working Group on Trade, Debt and Finance revealed a
desire by some Members to study more closely the effects of greater financial and exchange rate
instability and the liberalization of financial flows on trade.22 
• There was particular interest, during both formal and informal discussions, on an update of the
1984 Fund study on the volatility of exchange rates and trade, focused on the lessons to be
learned from the  capital account crises experienced by emerging economies in the 1990's .
36. During the discussion on the relationship be tween trade and debt, however, some Members
expressed support for greater flexibility in the use of exchange controls on the capital account in case
of financial crisis or high indebtedness.  This question is largely not in the remit of the WTO and falls
under the Fund mandate.  However, interest of WTO Members has arisen since the GATS, whichcontains balance-of-payments provisions, and the possibility of incorporating such a clause is being
examined in the Working Group on the Relationship Between Trade and Investment.
• There are two groups of questions here: the first (falling under the IMF's remit) regards the
ability to raise exchange controls in order to prevent financial contagion to the trade section.This may merit more research, particularly as wide opinions were expressed in the Working
Group on Trade, Debt and Finance on the efficacy of these controls.
23  The other question is one
of basic Coherence, i.e  what are the c onditions under which WTO balance-of-payments
                                                     
20 WT/WGTDF/M/2, paragraph 15.
21 WT/WGTDF/M/3, paragraph 19.
22 See in particular WT/WGTDF/M/2, paragraph 10.  The representative of Kenya indicated that the
points made about exchange rate volatility erasing the value of tariff reduction should be further explored, in
particular the implications that it might not be advisable for developing countries to embark on additionalliberalization of non-agricultural products as envisa ged in the Doha Declaration.  The representative of
Indonesia furthered the discussion by allocating a certain share of responsibility to the role of foreign financialinstitutions in the foreign exchange crisis they expe rienced, which posed problems of corporate governance as
well as trade financing (paragraph 34).
23 WT/WGTDF/M/3, paragraphs 28 and 29.WT/WGTDF/W/17
Page 11
safeguards are fully consistent with the IMF Arti cles of the Agreement.  In the case of WTO
discussion on a possible multilateral framework on investment, a large number of countries have
requested that such a safeguard exists.  A first Secretariat paper (WT/WGTI/W/137) lays the
ground for more detailed research.
37. This subject also falls under the relatively long-standing cooperation between the WTO, IMF
and World Bank on the issue of financial services liberalization and the reform of the financial
architecture, including the strengthening of prudential rules, standards and codes.  Several WTO and
IMF Working Papers have already been published (WT/WGTDF/W/4) on the issue of financial
services and capital account liberalization, and the World Bank has also produced considerable
research on this subject.
• As a new round of services negotiations takes shape, including possible further commitments in
financial services (for example the binding of commitments made by Asian countries under IMF-
supported programmes), the issue of increased research and coherence is likely to arise asconsiderable progress has been made in the reform of the financial architecture and in the
relationship between liberalization and prudential control .
B. N
EW AREAS OF COHERENCE
38. Trade finance:  time has been spent on examining the embryonic system put in place by Asian
countries, along with the Asian Development Bank (which made a specific presentation on it) during
the 1997-99 crisis, to keep trade-finance flowing, particularly on the import side.  The experience of
Indonesia was particularly interesting in this regard (WT/WGTDF/W/4).  Much research has already
been devoted to the subject, at the IMF, World Bank, WTO and regional development institutions (see
the bibliography of WT/WGTDF/W/4), and several WTO Members insisted on the need to progress
on this issue, whether at the multilateral or regional level.
• Instead of waiting for the next regional crisis, a recommendation could be that a steering
committee be put in place to examine the appropr iate mechanisms, including with participation of
the private sector, to ensure that trade-finance be kept alive in exceptional circumstances of
financial crises, without creating a new facility among the already large spectrum of facilities
available to countries facing balance-of-payments problems.  This proposal would not concern
trade in commodities, which is covered by another working group.  Several countries have raisedthe specific issue of export financing, credit and subsidization, which existing rules would need to
take into account.
39. Capacity-building and trade infrastructure:  considerable technical assistance is devoted by
the three international organizations to trade reform (tariff reform under the fiscal affairs department
of the Fund, customs reforms operated by UNCTAD-the World Bank and the IMF, advice provided inthe context of the Trade Policy Reviews by the WTO and its role in the Integrated Framework).
• One concrete area of coherence would be to better schedule and integrate the work of
international organizations in these areas, so as to design reforms and implement it together,
thereby lightening the administrative burden of reform implementation on local authorities.
Common missions could be envisaged.  The same could go for investment reviews (FDI), which
contribute to improving the local business environment insofar as they lead to sensible
modification in the local investment regime.  Currently, the UNCTAD and the OECD are doing
country-investment reviews, competing with the investment sections of trade policy reviews and
surveys by the FIAS (World Bank).  The IMF wants to increase surveillance in this area.
Coherence could reduce administrative competition and lead to less overlap.  More resources
would, on the contrary, need to be put on the follow-up projects of the IF, as proposed by
countries, which have proved to be so far small, down-to-earth and not costly.WT/WGTDF/W/17
Page 12
40. Contributing to better mainstreaming trade in development strategy is an area for increased
research, as this can be done in many ways.  Already some regional development banks were
providing "trade capacity loans" to their Members, but these had attracted little success among finance
Ministers.  The support of Finance Ministers was crucial in the Doha Development Agenda, despite
tax revenue concerns.  Proper sequencing and timing of trade liberalization must be another area forcommon research and decision, as well as the identification of the cost of short-term effects of such
liberalization and possible resources to overcome it.
C. P
ROSPECTIVE AREAS OF COHERENCE
41. Investment and capital account liberalization:  the negotiation of a multilateral investment
framework in the WTO would be of major architectural importance.
• This would have economic and legal implications for both the WTO and the IMF.  One small
example is that of the compatibility of a balance-of-payments clause with the IMF Articles of the
Agreements.  A potentially large issue is the relationship between a "dispute settlement system"for sovereign bonds, governed by the IMF, and a "dispute settlement system" for long-term, cross-
border investment governed by the WTO.  A common paper should be written by the Staffs of the
two institutions to clarify all the potential areas of overlap.
• Another paper, already asked by some Members during informal consultations, would be to
examine the "wider" relationship between a possible investment framework in the WTO and the
issue of capital account liberalization.  From the perspective of most Members of the WTO, apossible agreement on investment should not be  a vector towards further capital account
liberalization and freedom should be left to use existing capital controls.  Such a paper would be
of great interest to Members, and staff from the three organizations (IMF, WB, WTO) could bring
their input.
42. Competition policy, government procurement, good governance, open business environment:
the development of competition rules, even if limited, would reinforce already existing rules on
government procurement, to create a favourable "behind-the-border" business environment that is
competitive and transparent, and that promotes good governance.  The implications of potential rules
have not been evaluated from a welfare point of view, i.e. the dismantling of non-barriers to trade
(UNCTAD) or improvement in trade facilitation (World  Bank).  This is an exploratory area for future
examination and study.
Conclusion
43. As evident from Section II of this paper, Coherence activities are well grounded in the WTO
work and processes, and on-going cooperation is taking place everyday, at every levels of our
respective institutions (from cross-presentation and participation to working groups and committees,to General Council and meetings of the Heads of Organizations).  However, the creation of the
Working Group on Trade, Debt and Finance, which, inscribes itself in the Monterrey process of
looking at global problems and policies in a holistic manner, is now generating ideas, papers, and
research that can provide new inputs to the Coherence mandate.  This does not mean that the two
processes should be organically linked, but there are obvious synergies, in particular in terms of new
research, concrete projects, and forward-looking reflections about architectural problems.  One area
Members may wish to discuss is how the Working Group can, on an on-going basis, fit in Coherenceactivities, and help enhance the Coherence mandate.  In turn, wouldn't this justify that the Working
Group continues its work beyond the fifth Ministerial meeting?
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