WORLD TRADE
ORGANIZATIONWT/WGTDF/W/11
25 September 2002
(02-5147)
Working Group on Trade, Debt
and FinanceOriginal:  English
COMMUNICATION FROM  THE UNITED NATIONS ECONOMIC
COMMISSION FOR AFRICA
The following communication, dated 24 September 2002, has been received from the United
Nations Economic Commission for Africa in advance of their presentation to the Working Group on
30 September.
_______________
THE LINKS BETWEEN TRADE AND DEBT:  THE AFRICAN EXPERIENCE
I. BACKGROUND
1. This Note has been prepared in response to a request made to the Economic Commission for
Africa (ECA) by the Chairman of the Working Group for the Commission to contribute to the
discussions currently taking place on the interrelationship between trade, debt and Finance within the
context of the mandate given to the Group in the WTO Ministerial Declaration adopted at Doha, Qatar
in November 2001. The Declaration specifically called for a Working Group to be established on
"Trade, Debt and Finance" to examine the "interrelationship between trade, debt and finance, and of
any possible recommendations on steps that might be taken within the mandate and competence of the
WTO to enhance the capacity of the multilateral trad ing system to contribute to a durable solution to
the problem of external indebtedness of developing and least-developed countries, and to strengthen
the coherence of international trade and financial policies, with a view to safeguarding the multilateral
trading system from the effects of financial and monetary instability".1
2. Many developing countries continue to face serious external debt problems and a number
have experienced serious financial crises. It was in this context that the Doha WTO MinisterialConference decided to establish a Working Group on Trade, Debt and Finance to look at how trade-
related measures can contribute to finding a durable solution to these problems. This paper attempts to
contribute to the debate on this important subject,  focusing primarily on the "links between trade and
debt and in the context of the African experience".
3. It must be acknowledged that trying to anal yse the links between "trade and finance" and
"trade and debt" are in their own right extremely complex issues, without the added dimension of
trying to understand the links between all three variables (trade, debt and finance).
4. As a starting point we wish to make some general observations.  Firstly, the interrelationship
between trade, debt and finance, has to be perceived within the broader framework of the challenges
that face developing countries, more also African countries, in mobilizing development finance notonly to support development and poverty reduction, but more importantly to meet the Millennium
                                                     
1 World Trade Organization:  The Doha Ministerial Declaration, 14 November 2001.WT/WGTDF/W/11
Page 2
Development Goals (MDGs). Secondly, the interrelat ionship between trade, debt and finance boils
down to trying to understand and appreciate modalities and mechanisms through which "trade
policies" affect a country’s "capacity to mobilize development finance" and hence "service debt".
Thirdly, the financial problems currently being experienced by many African countries need to be
perceived in a broader context of market access problems; declining trends for world commodityprices; de-industrialization of African economies due to imbalances in the multilateral trading system;
problems of transfer of technology; and the digital divide. Our paper before you attempts to contribute
to this important debate by focusing on the link between "trade and debt".
5. The first part of the paper examines the current status of the African debt situation and
observes that despite recent debt relief initiatives many African countries have not found an exit route
from the "debt trap". The paper then  examines the link between trade and debt and the need to analyse
this relationship in a broader context of the challenges that face African countries in mobilizingdevelopment finance. The debt problems of African countries should be perceived in a broader
context of imbalances existing in the internatio nal financial system and the multilateral trading
system. A durable solution to the African debt problem has to be embedded in a holistic approach to
the development challenges of African countries. The final part of the paper examines the scope
within the WTO Agreements and Decisions, which may exist for dealing with the interface betweentrade, debt and finance.
II. THE AFRICAN DEBT SITUATION
6. Many developing countries, including those in Africa, continue to face serious debt problems
and a number have experienced serious financial crises. In general, most African countries have been
unable to escape the "debt trap". A majority of these countries find themselves in a vicious circle of"underdevelopment", "low trade and export-earning capacity", "debt overhang and high debt service"
and "excruciating poverty".
7. The total external debt of Africa stood at nearly US$290.5 billion at the end of 2000,
compared to a high of US$335.2 billion in 1995. Despite this modest fall in the debt stock of African
countries, many continue to experience serious debt service problems. For most African countries, theratio of total debt as a proportion of exports of goods and services exceeded 200 percent and for
several some countries, this ratio was above 500 percent and for a number even 1000 percent.
2 The
average ratio of Africa’s total external debt to GDP remains much higher than most other regions and
was at 77 percent at the end of 2000. For several African countries this ratio was more than 100
percent and for some more than 400 percent at the end of 2000.3 These statistics reveal the stark
reality that the African debt problem is far from being resolved satisfactorily.
8. The various debt relief initiatives that have emerged, including the Highly Indebted Poor
Countries (HIPC) and the Enhanced-HIPC Initiatives represent notable efforts by the international
community to try and address the debt problems of the heavily indebted poor countries. However,
finding a durable and lasting solution is proving elusive. Despite the efforts by the donor community
and African countries, the HIPC and the Enhanced HIPC Initiative have not succeeded in providing
an exit for most of the 33 African countries that were considered eligible for debt relief/ reduction
                                                     
2 The ratio of total external debt to exports of goods and services exceeded 500 percent at the end of
2000 for African countries such as Burkina Faso, Central African Republic, Ethiopia, Malawi, Mozambique,
Rwanda, Sudan, Tanzania, and Uganda. For a number of other countries this ratio exceeded 1000 percent and
included Burundi, Guinea-Bissau, Sao Tome and Principe, and Sierra Leone. It is most likely that Liberiabelongs to this group, since data is not available.
3 The ratio exceeded 100 percent for countries like Angola, Burundi, Comoros, Democratic Republic of
Congo, Côte d'Ivoire, Gambia, Ghana, Madagascar, Malawi, Mali, Mauritania, Mozambique, Sierra Leone,Sudan, Togo, and Zambia. For countries such as Guinea-Bissau and Sao Tome and Principe, this ration
exceeded 400 percent.WT/WGTDF/W/11
Page 3
under the Initiative. Furthermore, only five countries, out of the 33 eligible countries, had reached the
completion point as of July 2002.4 Finding a durable and sustainable solution to the African debt
problem is, therefore, an imperative. The poor trade performance of African countries is intrinsically
linked to their unsustainable debt levels and debt overhang5. Finding a durable solution to the African
debt problem needs to be an integral part of ef forts to find a comprehensive solution to development
financing problems of African countries
9. African countries and the international community  have been calling for improvements in the
HIPC Initiative. These have focused on the need for additionality of resources provided by the HIPC
Initiative; the need for flexibility in the sustainabil ity analysis; the need to take into account fiscal
impact of debt service; and the need to reconsider the cut off period before a country can access
resources of the HIPC facility. A number of changes have been made to the HIPC Initiative in
response to the concerns raised by African countries and others. However, many are still of the viewthat the Initiative still lacks flexibility to deliver appropriate debt relief, and in a timely manner, to be
of help to poor countries achieve sustainable development. Notwithstanding recent debt relief
initiatives, it is generally acknowledged that for many African countries, debt service burdens
continue to exert significant pressures on financial resources of these countries, with a negative
impact on their growth prospects. Accordingly, many  are calling for further debt relief to be provided
not only to the heavily indebted poor African countries, but also to middle income heavily indebted
countries.
10. The origins of the debt crises in developing countries have been extensively researched and
are currently well understood and appreciated. However, the economic and social impact of the debt
service burdens on the economies of developing countries raises serious economic, social and evenmoral issues as often stated by OXFAM.    In the African context, with most countries heavily
dependent on exports of commodities for financing government expenditure, mounting external debts
and debt servicing have siphoned off a significant proportion of export earnings, with critical adverse
implications for poverty reduction and social programmes.
11. As indicated earlier, the basic purpose of this paper is not to provide prescriptions on how to
deal with the debt problems of developing countries, but rather to contribute to a better understanding
of the" links between trade, debt, and finance." Hence, the purpose of this paper is exploratory and an
effort to contribute to this complex subject. The high levels of debt service burdens of many
developing countries could significantly be reduced through a combination of policies focusing on
market access, enhanced resource flows to developing countries, debt relief and effectively dealing
with the issue of declining commodity prices. The high levels of debt service burdens of many
developing countries could be reduced through a combination of policies focusing on market access,enhanced resource flows to developing countries, debt relief and effectively dealing with the issue of
declining commodity prices. Due consideration needs to be given to the development, financial and
trade situation of developing countries. Consideration could also be given on rethinking the use of
Special and Differential Treatment and modalities on how it can be used to deal with the
interrelationships between trade, debt and finance.
III. THE LINK BETWEEN TRADE AND DEBT
12. It must be acknowledged that trying to anal yse the links between "trade and finance" and
"trade and debt" are in their own right extremely complex issues, without the added dimension of
                                                     
4 The countries that had reached completion point, as at end July 2002,were Burkina Faso, Mauritania,
Mozambique, Tanzania and Uganda.
5 United Nations Conference on Trade and Development: "Economic Development in Africa:
Performance, Prospects and Policy Issues", Geneva, Switzerland, September 2001.WT/WGTDF/W/11
Page 4
trying to understand the links between all three variables (trade, debt and finance). The expansion of
trade depends, to a large extent and among other factors, on availability of a reliable, adequate and
efficient source of financing, both long-term and short-term.  Long-term financing is necessary to
support production of goods and services, while short-term capital is essential as working capital and
to support export and import activities (trade financing). An efficient domestic banking system iscritical for the provision of financing as well as financial services related to trade.
6
13. Trade financing provided by banks to exporters and importers usually takes the form of
working capital loans or overdrafts; issuing performance, bid and advance payment bonds; opening
letters of credit (L/Cs); accepting and confirming L/Cs; and discounting such L/Cs. Accordingly, cost
effective and reliable trade finance is essential for the expansion of trade of developing countries.7
Developing countries often find difficulties accessing such financing during periods of financial crisesand/or cyclical downturns. Countries also contract debt in order to invest in infrastructure, human
resource development and information technology essential for building a competitive and an efficient
economy. The relationship between "trade and debt" is a sub-set of this complex relationship and
should be perceived in the broader context of the challenges that face developing countries, including
those in Africa in mobilizing "development finance".
14. Trade policies in both developing and developed countries impinge significantly on the
capacity of developing countries to mobilize development finance. Accordingly, resolving the issues
of the interface between "trade and debt" on one hand and "trade, debt and finance" on the other will
require ingenious thinking by all those involved. More importantly, we need to the recognition that
"trade policies" in both developed and developing countries do affect the capacity of African countries
(and other developing countries) to earn the much needed foreign exchange and contract debt, andhence capacity to service debts.
15. Links between trade and debt have to be perceived within a broader framework of the
relationship between trade and finance. International economics usually tends to look at an open
economy in terms of balance of payments equilibrium: divided into current account (export and
import of goods and services); and capital account (private flows and public loans). It is theinterlocking between trade and finance, which is critical for balance of payments equilibrium.
Countries desire to attain both "external balance" and "internal balance" in order to keep aggregate
demand at full employment level. Serious balance of payments disequilibria may result not only in
inability to finance imports but also to service external debts. Accordingly, it is essential to
synchronize macroeconomic, monetary, fiscal and trade policies in order to restore both balance of
payments equilibrium and ensure sustainable growth.
16. On the debt reduction front, conventional measures, including the HIPC Initiative, aim to link
reduction of debt burden with poverty reduction and long-term growth, but the latter is based on
assumptions on rates of growth of the global, re gional and national economies as well as the nature
and terms of trade, which have tended to be rather optimistic.
17. Trade policies in the context of the interrel ationship between "trade and debt" need to
embrace the nature of trade including the structure of exports/imports, the rate of growth of specificexports, and prices and price fluctuations, as well as the overall terms of trade. In this respect, specific
aspects of trade need to be critically re-examined in the context of trade liberalization in developing
countries.
                                                     
6 World Trade Organization, Working Group on Tr ade, Debt and Finance: The Relationship Between
Trade and Finance: A Review of Selected Literature Related to Financial Crises in the 1990s(WT/WGTDF/W/4, 26 June 2002).
7 World Trade Organization, Working Group on Tr ade, Debt and Finance: Communication from the
Asian Development Bank (WT/WTGTDF/W/6, 3 July 2002).WT/WGTDF/W/11
Page 5
18.  Trade liberalization on its own without a grasp of the underlying forces is likely to severely
constrain the scope of trade leading to structural change in developing and African countries. This
requires adopting an integrated approach encompassing the following aspects:
• Market Access:  A broad-based approach to market access needs to be worked out
encompassing not only removal of all barriers to trade in developed countries but also
positive support to developing countries such as exemptions/food security guarantees/ andsupply increasing capacities coupled with measures which can take full account of the history
of falling terms of trade of developing African nations and hence commodity price support;
• Terms of Trade:  There is need to focus on the global political economy of trade and
development and to mainstream trade in developm ent. First, it is important to separate the
"Barter Terms of Trade" and the "Income Terms of Trade". According to the Prebisch-Singer
thesis, the argument has been that falling terms of trade have basically deprived developing
countries of capacities for restructuring their domestic economies. Hence, protection throughtariffs is required to enable developing countries to develop their infant industries and then
enter into the global market. Accordingly, trade and industrial policies are directly linked.
Under trade liberalization all this has been brushed aside and it is essential that WTO Post
Doha thinking should reassess these issues. This is especially important in the case of
indebted African nations;
• Trade Liberalization and De-Industrialization of African Economies:  Many African
economies have embarked on trade policy reforms, as well as complimentary economies and
financial reforms, in the belief that undertaking such policies will assist in gaining increased
market share of work trade and effective integration in the global trading system. However,
while some have benefited from undertaking such policies, others have seen de-industrialization of their economies as local companies had to compete with foreign forms for
domestic markets. The most vivid example of this has been in the "textile and clothing
industry" where second hand clothing and cheap  textiles imported from abroad have wiped
out local industries. In a recent case in Malawi, the closure of David Whitehead and Sons, a
major textile company, has resulted in a loss of nearly 20,000 jobs, in other words half of themanufacturing capacity of the country, with very serious consequences on employment and
the social fabric. It is important therefore, that the international community take cognisance of
the negative aspects of globalisation and liberalization on the economies of developing
countries.
• Trade Policy, and the Fallacy of Composition and Debt:  It is important to recognize that
many African countries are given the same advice- to increase the exports of theircommodities. This carries the risk of increasing supplies and depressing prices with adverse
implications for export income and, hence capacity to contribute to debt reduction.
• The Link Between International Financial Instability and Trade : Financial policies
should ensure that incapacity to repay debts and the ‘debt burden’ and the movement of
speculative capital, arising from financial liberalization, do not work against trade policies.
There is need to co-ordinate the role of trade institutions such as the WTO supported by
UNCTAD, and those of the Bretton Woods institutions (IMF and World Bank) to tackle the
financial concerns and the interrelationship between trade, finance and debt.  The Tobin Tax
Proposal symbolizes an attempt to control the movement of speculative capital and the use of
resources obtained from such activities for developmental purposes.
19. Furthermore, Africa’s growth prospects have been adversely affected by the precipitous
decline of its terms of trade. The continent continues to rely on exports of primary products for aWT/WGTDF/W/11
Page 6
substantial part of its foreign exchange earnings and a high proportion of its GDP. Available data
indicate that in 1995, the share of primary commodities in exports was 64 percent for Africa, 49
percent for Latin America, and only 5 percent for Asia. The world average was around 24 percent. As
for manufactured products, the share of total exports derived from manufactured goods was only 28
percent for Africa, compared to the world average of 76 percent.
20. The heavy reliance of African economies on primary products, combined with the decline in
Africa’s share of world markets for its main exports as well as the declining relative importance of
these products in world trade, have largely contributed to the decrease in the continent’s share of
world trade. Commodity dependence has also resulted in Africa’s export earnings to be more volatile
due to volatility in commodity prices. Commodity  prices have progressively depicted a downward
trend, due to weak international demand, increased supply and rising stocks (World Bank 1998).
World Bank data indicates that by 1998, oil prices were down by 31 percent from the levels at the endof 1997 and 34 percent from those of June 1997. As for other commodities, the fall in prices between
June 1997 and the end of 1998 were 17 percent for aluminium, 22 percent for wheat, and 30 percent
for cotton. Similar declines were registered for rubber (37 percent), coffee (38 percent) and copper (44
percent). Measured in dollars, the price index for non-fuel commodities is now at its lowest level
since 1993.
21. Sharp decline in the prices of Africa’s principal commodity exports have resulted in
progressive decline in Africa’s terms of trade. World commodity prices have continued their
downward trend. The dollar index of non-fuel commod ity prices has been falling steadily since the
beginning of the decade. Relative to 1995, prices of these commodities declined by an annual average
of 7 percent. The 1999 prices were 8 percent lower than their 1998 level and 25 percent lower thantheir 1995 value (ECA Economic Report on Africa, 2000). Food prices fell sharply during the second
half of the decade. Similarly, beverage prices assumed declining trends, on account of falling prices of
cocoa beans and coffee. Prices of agricultural raw materials increased slightly (0.5%) in 1999.
Generally, commodity prices of Africa’s non-oil exports have remained depressed. The decline in the
terms of trade of Africa is also related to the shifting nature of global production (Stein, 1998).
22. UNCTAD observes that there is a link between dependence on exports of primary
commodities and the incidence of extreme poverty. The level and volatility of world commodity
prices are an important influence on economic gr owth and the incidence of poverty in LDCs.
8
UNCTAD further states that there has been a l ong-term downward trend in real non-fuel commodity
prices since 1960 and that the commodity recession of the 1980s was more severe, and considerably
more prolonged, than that of the Great Depression of the 1930s. Furthermore, not only are the net
barter terms of trade declining in the world poorest countries, but also there is also strong evidence
that the adverse influences on developing countries that Prebish and Singer warned against 50 years
ago are at work in almost all the world’s poorest commodity-exporting countries. The effects of
primary commodity price instability are also particularly significant in the LDCs.
23. UNCTAD observes that the analysis in the Trade and Development Report 1999 showed that,
with few exceptions, trade deficits have been incr easing faster than income in developing countries
during the past decade, and in most countries the trend is one of widening trade deficits with falling
and stagnant growth rates. 9 Three factors have generally been responsible for the deterioration of the
relationship between trade deficits and economic growth in developing countries during the past
decade: terms-of-trade deterioration; rapid trade liberalisation that was not matched by increased
market access in developed countries; and exchange rate instability and misalignments associated
                                                     
8 United Nations Conference on Trade and Development: Escaping the Poverty Trap, The Least
Developed Countries Report 2002, Geneva, Switzerland.
9 United Nations Conference on Trade and Development: Trade and Development Report 1999,
Geneva, Switzerland.WT/WGTDF/W/11
Page 7
with greater capital account openness and increased volatility of private capital flows. Adverse
movements in the terms of trade were of particular importance in this respect.10
24. The International community acknowledges that developing countries need a substantial
inflow of external resources in order to fill the savings and foreign exchange gaps associated with a
rapid rate of capital accumulation needed to overcome widespread poverty. Given that financial flowsare inadequate and volatile and the region is subject to frequent terms-of-trade and natural shocks, it
should come as no surprise that growth in Africa  continues to be erratic and slow to permit an
increase in both living standards and domestic savings. UNCTAD argues that to break this vicious
circle requires, inter alia, a sustained injection of external financing in amounts large enough to give a
"big push" to the region to accelerate and maintain growth at levels higher than in the past.
11 This
initial big push could only come from official sources  of finance, and it would need to be combined
with policies that recognize the need not only for market-based incentives, but also for a greater rolefor the state and for institution building. Such a process could help break the aid dependence
syndrome in Africa. The G8 Africa Action Plan adopted at Kananaskis Summit of the G8 held in July
2002 is a step in the right direction to give Afri ca this needed push in the framework of the New
Partnership For Africa’s Development (NEPAD) . NEPAD is an embodiment of the will and
commitment of African countries to break from the vicious circle of underdevelopment, poverty andmarginalization in the global economy and trade. Dealing with Africa’s position in the world
economy and trade is essential for Africa’s growth and prosperity. UNCTAD reminds us that
"additional aid provided to African countries since the early 1980s has barely compensated for the
resource losses resulting from the decline in the te rms of trade, let alone meeting the resources needs
for rapid and sustained growth.
12 It is in this respect that the link between "trade and debt" should be
perceived.
25. In the last two Economic Reports on Africa (ERA 2000 and 2002), the Economic
Commission for Africa (ECA) has shown some  optimism about Africa’s overall economic
performance. Africa made impressive economic progress in the 1990s and several countries sustained
double-digit growth rates. The climate became more conducive to domestic and foreign investmentand capital market deepened and broadened.
13  Africa grew faster than any other developing region in
2001, reflecting better macroeconomic management, strong agricultural production, and the cessation
of conflicts in several countries. But Africa’s average GDP growth of more than 4 percent in 2001
masked wide disparities among countries. Furthermore, economic growth remains fragile, and at
current rates of progress Africa will not achieve any of the Millennium Development Goals set by the
United Nations.14
26. ECA has observed that to reduce poverty in Africa by half by the year 2015, a goal ratified at
the World Summit for Social Development in Copenhagen in 1995, it will require a 4 percent
reduction in the number of people living in poverty each year. The minimum requirement to achieve
this will have to include an average growth rate of 7 percent per year and this in turn requires an
investment rate equal to 33 percent of GDP. At the current domestic savings rates in Africa, of around
an average of 15 percent of GDP and ODA of 9 percent of GDP, this leaves a resource gap of about 9percent. Africa also faces formidable challenges in  mobilizing development finance, especially in the
                                                     
10 United Nations Conference on Trade and Development: Capital Flows and Growth in Africa,
Geneva, Switzerland
11 Op cit.
12 United Nations Conference on Trade and Development: Capital Flows and Growth in Africa,
Geneva, Switzerland
13 United Nations Economic Commission for Africa: Transforming Africa’s Economies, Economic
Report on Africa 2000.
14 United Nations Economic Commission for Africa: Tracking Performance and Progress, Economic
Report on Africa 2002.WT/WGTDF/W/11
Page 8
face of declining official development assistance a nd difficulties of raising foreign direct investment.
In meeting this challenge, Africa and its development partners will need to mobilise all types of
development finance, i.e. aid, debt relief, foreign direct investment and domestic finance.
Furthermore, to meet this challenge and cover this resource gap, policy-makers will need to take
actions to promote domestic resource mobilisation, reverse capital flight and attract foreign directinvestment. Recent trends in ODA give much cause for concern and a clear indication that large
increases in ODA are unlikely, even as the prospects for aid effectiveness in Africa are improving.
Furthermore, Africa has not benefited from the phenomenal growth in foreign investment and the
continent faces policy challenges and key conditions needed to attract foreign investment. Re-orient
trade policies in order to contribute to both the mobilization of development finance and debt
reduction will be critical for Africa to achieve the Millennium Development Goals.
27. It is also acknowledged that the declining tren ds in commodity prices, especially for primary
products, have impinged negatively on the perfor mance of African countries. As UNCTAD has
accurately stated "additional aid provided to African countries since the early 1980s has barely
compensated for the resource losses resulting from th e decline in the terms of trade, let alone meeting
the resources needs for rapid and sustained grow th". Modalities will need to be worked out to
effectively deal with the "commodity prices issues". The international community like an ostrich hastended to bury its head in the sand rather than face the reality of the existing inequality and
imbalances existing in "commodity markets". When millions of people toil three times as much to
earn the same dollar they were earning fifteen years ago, there must be something wrong in such a
system.
IV. SCOPE FOR A DURABLE SOLUTION TO THE DEBT PROBLEM IN THE
FRAMEWORK OF THE WTO AGREEMENTS
28. The discussions above have highlighted a number of important issues which will need to be
addressed in the WTO Working Group on Trade, debt and Finance" if these discussions are to result
in concrete proposals for effectively dealing with the interface between "trade, debt and finance".
29. The relationship between "trade and debt" is a sub-set of this complex relationship and should
be perceived in the broader context of the challenges that face developing countries, including those
in Africa, in mobilizing "development finance". Trade policies in both developing and developed
countries impinge significantly on the capacity of developing countries to mobilize development
finance. Accordingly, resolving the issues of th e interface between "trade and debt" on one hand and
"trade, debt and finance" on the other will require ingenious thinking by all those involved.
30. A number of fundamental arguments have been raised as to why it is essential to bring "debt"
and "finance" issues within the broader framework of  the "multilateral trading system in view of the
interface among these variables. Among the arguments raised are the following:
(a) That a durable solution to the debt problems of developing countries, including those
in Africa, will prove elusive until a holistic approach is adopted which encompasses
trade policy issues (such as market access, declining commodity prices, supply
constraints of developing countries and imbalances in the multilateral trading system)on one hand, with issues of "development finance (such as ODA, debt relief, and
FDI) on the other hand;
(b) That increased export-earning capacity by developing countries could reduce
significantly the foreign exchange constraint which many face and thereby contribute
towards "debt sustainability" of these countries;WT/WGTDF/W/11
Page 9
(c) That dealing with the commodity problems of developing countries has to be an
integral part of efforts to deal with financing problems of these countries;
(d) That trade liberalizations has led to de-industrialization of economies in a number of
developing countries, thereby highlighting imbalances that exist in the current
multilateral trading system; and
(e) That despite notable efforts to deal with the debt problems of developing countries,
current debt rescheduling and re-negotiation arrangements leave much to be desired
and provide "creditors" with greater levera ge than "debtors". Accordingly there is
need to look for alternative arrangements which will ensure "neutrality" in the
institutions adjudicating on such disputes.
31. The importance of a well-functioning international financial system for the proper functioning
of international trade and the multilateral trading system is broadly acknowledged. Indeed, a numberof provisions exist in many WTO Agreements and related Ministerial Declarations and Decisions,
which could be deemed relevant to the relationship between "trade and finance".
32. However, as the WTO Secretariat acknowledges, there are not many provisions that deal
directly with the topic of "trade and debt".  On  the relationship between trade and finance, a number
of WTO Agreements refer to the need for "exchange rate stability" to provide a predictable pricemechanism for conducting international transactions, price-based policies, and trade negotiations.
33. The Agreements also refer to the need to ensu re that the rules-based trading system is not
frustrated by the undisciplined use of "multiple exchange rate arrangements or exchange restrictions".
The WTO Agreements as well as the Articles of Agreement of the International Monetary Fund (IMF)
also refer to the importance of developing a coherent set of rules and disciplines for the progressiveliberalisation of international trade and payments and for cooperation in pursuing a coordinated policy
with regard to exchange rate questions and questions of quantitative restrictions and other trade
measures.
15
34. The WTO Secretariat has noted that the GATT Contracting parties made a number of
references in the Chapeau to the Punta del Este Ministerial Declaration which launched the UruguayRound negotiations stating as follows, "mindful of  the negative effects of prolonged financial and
monetary instability in the world economy, the indebtedness of a large number of less-developed
contracting parties, and considering the linkage between trade, money, finance and development" a
number of objectives of Part A of the negotiations would focus on:
(i) Increasing responsiveness of the GATT system to the evolving international
economic environment; and
(ii)  Fostering cooperative action at national and international levels to strengthen
the inter-relationship between trade policies and other economic policies
affecting growth and development;
(iii) Enhancing the relationship of the GATT with the relevant international
organizations and taking account of ….the importance of an improved trading
                                                     
15 World Trade Organization, Working Group on Tr ade, Debt and Finance: The Relationship Between
Trade and Finance: A Review of Selected Literature Related to Financial Crises in the 1990s(WT/WGTDF/W/4, 26 June 2002).WT/WGTDF/W/11
Page 10
environment providing , inter alia , for the ability of indebted countries to
meet their financial obligations.
(iv) Strengthening the inter-relationship between trade policies and other
economic policies affecting growth and development, and to contribute
towards continuing, effective and determined efforts to improve thefunctioning of the international monetary system and the flow of financial
and real investment resources to developing countries.
16
35. The Tokyo Declaration of 1973, which launched the Tokyo Round urged Ministers "not to
lose sight of the fact the efforts which are to be made in the trade field imply continuing efforts to
maintain orderly conditions and to establish a durable and equitable monetary system. A number of
WTO Agreements call for "special and differential treatment" in the implementation of the
Agreements in respect of developing countries, especially in the Agreement on Subsidies andCountervailing Measures; Agreement on Technical Barriers to Trade; Agreement on Import
Licensing; the Decision on Measures Concerning the Possible Negative Effects of the Reform
Programme on Least-Developed Countries and Net- Food Importing Countries; and the Decision of 28
November 1979 on Differential and More Favourable Treatment Reciprocity and Fuller Participation
of Developing Countries.
36. Most of these Agreements state that in im plementing such Agreements due consideration
should be given to "the development, financial and trade situation of the developing countries". The
Declaration on the Contribution of the World Trade Organization to Achieving Greater Coherence in
the Global Economic Policy-Making, states " there is need for an adequate and timely flow of
concessional and non-concessional financial and real investment resources to developing countriesand for further efforts to address the debt problems, to help ensure economic growth and
development".
37. There are also a number of provisions in the WTO Agreements, which could be examined to
determine whether they provide scope for dealing with the interrelationship between "trade and debt".
These include the GATS Annex on "Financial Services" which could be examined further in thecontext of the debt/finance interface; GATT 1994 Article XVIII: B on Balance of Payments
Provisions which acknowledges balance of payments difficulties for developing countries that could
arise as a result of instability of their terms of trade; and the Agreement on Agriculture, in which a
link is made between falling commodity prices and "unsustainable debt stocks".
38. Accordingly, there are a number of provisions in the WTO Agreements, which could be
examined in order to determine as to whether th ey provide scope for dealing with the interface
between "trade and debt", and in turn between "trade, debt and finance". The discussions above haverevealed problems of divorcing trade liberalization from the nature of actual trade conditions facing
African nations. A number of critical issues can be raised in this respect. Is there a need to re-examine
the nature and character of trade liberalization programmes being recommended to developing
countries? Should issues of timing and sequencing trade liberalization programmes be re-examined
and if need be modified? How would this affect WT O Agreements in the Post-Doha era?  What would
be the role of WTO in this context?
39. In other words, can the WTO become an effective forum for linking trade and debt? What
would be the WTO’s strengths vis-à-vis the IMF and the World Bank? Can the WTO evolve to
become an institution to negotiate both trade and debts issues as well as arbitrate on these issues? Can
the WTO Dispute Settlement Understanding (DSU ) become an instrument for negotiating and
resolving trade and debt problems? These are some of the questions that the Working Group on Trade,
                                                     
16 Op cit.WT/WGTDF/W/11
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Debt and Finance will need to deliberate on in its future work and find answers. This paper has only
served to raise the stakes further.
40. A number of research issues emanate from these discussions, which may require further work.
These are some of our suggestions:
(i) A detailed examination of the conceptual framework underpinning the link
between "trade and debt" in the context of mobilizing development finance in
developing countries;
(ii) The need to examine interface between trade, commodity prices trends and
development finance;
(iii) The importance of positioning the debt problems of developing countries in a
broader context of the overall development problems of developing countries;
(iv) The need to review WTO Agreements in order to determine the scope that
exists to deal effectively with the interface between trade, debt and finance.
41. African countries are currently consulting extensiv ely in order to effectively contribute to the
discussions in the WTO Working Group on Trade, Debt and Finance. It is the intention of the
Economic Commission for Africa to remain engaged with African countries, and the African WTO
Geneva Group, in further refining Africa’s positions on this important subject. The ECA intends tocommission further work in this area in order to  provide informed research to African trade
negotiators. We note with appreciation some of the suggestions that have already started to emanate
from the African WTO Geneva Group.
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