RESTRICTEDWORLD TRADE
ORGANIZATIONWT/WGTDF/M/3
15 October 2002
(02-5579)
Working Group on Trade, Debt
and Finance
REPORT OF THE MEETING OF 30 SEPTEMBER 2002
1. The Working Group held its third meeting on 30 September 2002 under the Chairmanship of
Ambassador Hernando José Gómez (Colombia).  Th e Working Group adopted the Agenda contained
in WTO/AIR/1895.
2. The Chairman said that, as had been agreed at the last meeting, the focus of the discussion
would be on Item II of the Group's Work Progra mme – "The Relationship Between Trade and Debt".
In this context, he referred to paragraph 36 of the Doha Ministerial Declaration, which mandated
Members to examine the relationship between trade, debt and finance, and "any possible
recommendations on steps that might be taken within the mandate and competence of the WTO toenhance the capacity of the multilateral trading system to contribute to a durable solution to the
problem of external indebtedness of developing and least-developed countries."
3. He said that he would follow the agreed practice of inviting representatives of international
organizations to share their analysis and perspectives with the WTO on issues under examination. In
this context, he had invited representatives of three inter-governmental organizations, namely the
United Nations Economic Commission for Latin Amer ica and the Caribbean (UNECLAC), the United
Nations Economic Commission for Africa (UNECA), and the World Bank, to make presentations at
the present meeting.  After each presentation, delegations would be given the opportunity to provide
comments and ask questions.  When making comments, the Chairman suggested that delegations
identify key themes they believed relevant to it ems II.A and II.B of the Work Programme.  He drew
Members' attention to a Secretariat background Note on the review of relevant literature on the
relationship between trade and debt (WT/WGTDF/W/9).
4. The Chairman also suggested that, following the presentations, it might be helpful to have an
exchange of views on themes that the Working Gr oup might wish to discuss under this part of the
Work Programme.  He reminded Members that by July next year, the Working Group would need to
have agreed on its report to be presented to the Fifth Ministerial Conference.  A useful first step in
that process would be to identify themes and issues to be included in the report and he said that this
could be done incrementally as the Working Group moved through the Work Programme.
Presentation by the representative of UNECLAC
5. The representative of UNECLAC made a presentation on "Mechanisms to Deal with Debt
Overhang" (WT/WGTDF/W/10).  He concluded by highlighting five issues for consideration by
Members in the context of the Working Group;  (i) increased market access was crucial for countries
affected by debt overhang;  (ii) flexibility in the use of balance-of-payments restrictions should be
allowed for highly indebted countries;  (iii) there was a clear link between trade and financing during
debt crisis, which should involve cooperation between the WTO and International Financial
Institutions in terms of greater availability of trade financing and compensatory financing;  (iv) whilespecial and differential treatment in favour of highly indebted developing countries was not justified
in the light of distortions this might create against developing countries not affected by debt, the
question arose as to whether there would be scope, within the WTO framework, for mechanisms that
would limit the use of contingency measures by third countries against the exports of countriesWT/WGTDF/M/3
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experiencing debt overhangs;  and (v) indebted countries should be allowed to use capital account
restrictions.
6. The representative of Cuba said that, like other Latin American countries, external debt had
been one of the main impediments to Cuba's de velopment over the past two decades. The problem
was still unresolved despite the various initiatives launched by the international community to tackle
it.  Latin America currently owed twice what it  owed in 1990 – a progression of five per cent
annually. For this reason, the analysis and conclusions made by UNECLAC should be taken into
account by the Working Group in its examination of the relationship between trade and debt; in
particular, the Group should emphasize the issue of market access, which she regarded as the prime
instrument for resolving external indebtedness.
7. The representative Colombia also believed that UNECLAC's presentation ought to be
reflected in the Working Group's conclusions. She stressed the importance of external financing for
the development of domestic productive capacity, whic h in turn helped generate sufficient growth and
financial resources to repay the debt. In this regard, she underlined the role of domestic financial
systems in properly allocating private and public sources of financing.  Failure to do so was at the
origin of the debt problem, as private enterprises lacked the necessary funds to invest and grow, with
detrimental effects on bank balance sheets and balance-of-payments' sustainability. In order to avoidmisallocation of capital and poor management of risks by banks, one solution was to strengthen the
regulatory environment of domestic financial systems. In this connection, she asked UNECLAC
whether it had conducted any studies on deficiencies in financial monitoring and use of appropriate
standards in this area.
8. The representative of Ecuador indicated that the debt crisis experienced by her country had
led to a dollarisation of its economy, which in turn seemed to undermine the competitiveness of
Ecuador's exports.  In the light of Ecuador's difficulties in obtaining additional sources of financing,
she asked the representative of UNECLAC what his views were on the relationship between high
indebtedness in her country, dollar-peg monetary strategies, and trade.
9. The representative of Mexico commented on the statement by UNECLAC according to which
the strong export growth experienced by Latin America in the 1990's had not fully translated into
proportional increases in GDP growth.  He said that this correlation was not as obvious as it seemed,
and that no wrong conclusions should be drawn fr om it. UNECLAC's analysis included a large mix of
countries, with different weights, different levels of openness, and different degrees of trade
liberalization and exposition to financial problems, with some countries' exporting mainly agricultural
products and others industrial goods. Macroeconomic conditions and the pace of domestic reform also
varied widely among countries. In the case of Mexico, the comparison of the two financial crisesexperienced in the past twenty years led one to believe that the more rapid recovery from the second
crisis (that of 1995, which was of very large magnitude) compared to the first in 1982 was due to the
role of exports, and their beneficial effects on domestic income and employment. On average, wages
in the export sector were 50 per cent higher than in the domestic manufacturing sector.
10. The Chairman commented that the sequencing of reforms was a very important factor in both
the opening up of economies and its impact on the resolution of debt problems. Institutional capacity
and other domestic conditions were important factors in determining the success of such reforms.
11. The representative of Korea said that, contrary to UNECLAC's statement that development of
exports was hampered by high levels of debt, Kor ea's experience during the Asian crisis was that the
rapid expansion in external debt did not prevent strong export growth. Debt affected essentiallyimports, not exports.  In turn, strong export growth helped re-pay the debt. The problem of
indebtedness was closely related to that of correct allocation of resources (debt being invested in
export-related sectors) and good macroeconomic policies. Good financial regulation was also key to
solving the debt problem, which Korea had overcome in a short period of time. He believed thatWT/WGTDF/M/3
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capital market openness had to be linked to a proper level of prudential regulation, otherwise it might
contribute to precipitating the collapse of economic structures in case of financial crisis.
12. The representative of Venezuela welcomed UNECLAC presentations and requested that the
relevant papers be circulated to Members by the Secretariat. He said that the WTO's concern should
be to maximize GDP. However, in Latin America, as outlined by UNECLAC, export expansionseemed not to have been translated into proport ional GDP growth. Foreign direct investment (FDI)
had not served to stimulate the reduction of private debt in the relevant countries. Debt overhang had
exercized a negative effect on exports which had made debt servicing even more difficult. As export
growth was normally an alternative means for de bt reduction, this highlighted the importance of
market access to be granted by developed countries in the context of the current round of negotiations.
He reminded delegations of the new WTO Director -General's priorities for a truly development-
oriented agenda and the need for greater synergies between the WTO and the Bretton-Woodsinstitutions. The development agenda would fail if greater coherence was not achieved. He considered
that Mexico, for example, notwithstanding its str ong export performance, had benefited from a high
level of solidarity from developed countries in the treatment of its debt crisis. Had Venezuela received
only a fraction of Mexico's financial assistance, he believed that Venezuela's export performance
would not have been inferior.
13. Referring to the conclusions drawn by UNECLAC, the representative of Argentina said that
two of the points were of a collaborative nature (trade financing, and possible control of capital flows)
and had to be taken up with other agencies. Two other points were of a more "defensive nature"
(flexibility for balance-of-payments purposes, and the non-application of anti-dumping measures).
The fifth point, which in Argentina's view should be the object of greatest attention by the WTO, wasthat of market access for countries in situations of indebtedness.  His delegation noted the reluctance
of the representative of UNECLAC to recommend special and differential treatment for indebted
countries in regard to the possible adverse effects on other, non-indebted, developing countries.  He
believed that the "trade exit", as a solution to its debt problem, required systematic changes in the
international economic system and a willingness by certain countries to play the role of "locomotive"of the world economy.
14. The representative of Brazil congratulated UNECLAC for its focused presentation on the
issue of trade and debt, in particular with regard to the mandate set out in paragraph 36 of the Doha
Declaration. He emphasized some of the conclu sions made by UNECLAC, which were of direct
relevance to the WTO.  Market access for developing countries was the most important tool for
achieving debt sustainability and the capacity to service it.  In this regard, he referred to paragraph 5
of the Secretariat Note (WT/WGTDF/W/9) and stressed that the comparative advantage of developingcountries was hampered by both subsidies and high protection by developed countries.  He pointed
out that the total sum of ODA represented only half of the total of agricultural subsidies, including
export subsidies.  In addition to market access, developing countries (in debt crisis or not) needed to
have the right conditions to finance their exports. Export finance was increasingly important as
developing countries tried to move to higher  value-added production and exports. At previous
meetings of the Group, Brazil had already commented on the asymmetry between developed and
developing countries in this area and on the role of the relevant OECD Agreement.  He thought that
the point regarding the use of contingency measures against indebted countries merited further
attention by the Working Group.
15. The representative of the European Communities said that the presentation by UNECLAC
had shown how complex the relationship between trad e, debt and finance was. The presentation had
stressed that the increase in exports was a necessary but not sufficient condition to solve financial
imbalances, with examples of countries succeeding in increasing exports but failing to deal with debt
overhang.  A second point was that, excluding FDI,  financial flows in Latin America had generated a
negative transfer of resources (to the outside world) since the Asian crisis. Another point ofcomplementarity between the Group's agenda an d the UNECLAC presentation was the growingWT/WGTDF/M/3
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importance of FDI.  In this regard, discussions to establish a possible multilateral framework on
investment, to secure transparent, stable and predictable conditions to attract FDI were important.
This was an element that would help countries in  solving their debt overhang.  One subject for
discussion in the Group was therefore the conditions which helped certain countries attract more FDI
than others.  He supported UNECLAC's view th at there was no need for general special and
differential treatment provisions in respect of trade and debt.  Instead, the need for a case-by-case
approach, calling notably for restraint in the use of trade defense instruments, could be explored. In
this connection, he reminded Members that the Negotiating Group on Rules would tackle in its
agenda Article 15 of the Anti-Dumping Agreement, which ought to give a meaning to these
provisions in respect of what could be done in favour of developing countries. Interesting papers that
had already been exchanged between Members of the negotiating group should be brought to the
attention of the Working Group. He concluded that, among the five points highlighted by UNECLAC,
at least two of them were calling directly on relevant international organizations to display greater
coherence.
16. The representative of Paraguay said that the issues being discussed were of interest to many
other bodies of the WTO, including those dealing w ith investment, special and differential treatment,
anti-dumping and countervailing measures, and market access. Within the five points underdiscussion, two seemed of particular importance to his delegation, namely market access and trade
financing.  On market access, he believed that special and differential treatment provisions for
indebted countries could be useful insofar as they did not injure other developing countries' exports.
Access to trade finance was another element of competitiveness of developing countries and therefore
this topic should be further examined in the Working Group.
17. The representative of Egypt emphasized the importance of FDI as a form of financing for
development. Another way was to provide adequate amounts of official financing to crisis-stricken
economies, which required an overhaul of the interna tional financial architecture. In this respect, one
question of importance for developing countries was how to access international financial markets.
Since this required good credit worthiness on the part of these countries, the question arose as towhich should come first: debt relief, so that credit worthiness of a country reached the level required
to attract FDI and credit from international financial institutions, or direct access to such international
institutions to overcome problems associated with debt overhang. He also emphasized the importance
of market access for developing countries in areas of their export interest and supported comments
made by other delegations regarding the need to raise the degree of coherence between international
organizations on these matters.
18. The representative of Canada first noted the importance of the HIPC programme in providing
debt relief to highly indebted countries. Second, he referred to the four countries in Latin America
listed by the representative of UNECLAC (Mexico, El Salvador, Costa Rica and the Dominican
Republic) which experienced both strong export and GDP growth, and asked what factors
differentiated these countries' performance from others. Like the European Communities, Canada
emphasized the importance of FDI as a possible elem ent in dealing with debt overhangs, and joined
others in calling for greater coherence between international organizations in dealing with the
relationship between trade, debt and finance.
19. The representative of the United States in a general comment on the trade, debt and finance
linkage, said more open markets at the border combined with pro-competitive domestic reforms
helped ensure that foreign capital inflows contri buted to the greatest extent possible to economic
development. Debt servicing was more easily accomplished, the likelihood of financial disturbances
was reduced, and the necessary balance-of-payments adjustments were more easily achieved. More
specifically, trade liberalization and more open markets presented an opportunity of sustained, rapid
economic growth and development. In order to preserve the likelihood of positive economic
outcomes, trade liberalization should be complemented by pro-competitive, macroeconomic,structural and institutional reforms. When such reforms were combined with openness at the border,WT/WGTDF/M/3
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domestic investment was encouraged, and the li kelihood increased that new investment (either
domestic or foreign sources) would be more efficiently allocated and would result in more diversified
production. When international borrowing or substantial net capital inflows took place in
circumstances of open markets and sound domestic macroeconomic policies, they were more likely to
contribute to sustained economic development and a sustainable debt service position. Regarding thepresentation by UNECLAC, he recalled that negotiations on rules were currently underway and that
that would be the appropriate forum to deal with suggestions regarding contingency measures. With
regard to suggestions on balance-of-payments measures, he also recalled that balance-of-payments
issues were already covered under Article XVIII:B of the GATT 1994 and the related Understanding.
He further emphasized that mechanisms for dealing with international debt policies per se  were
beyond the scope of the WTO, and thus the IMF and World Bank were the most appropriate fora for
discussing such policies.
20. The representative of Pakistan drew attention to paragraph 5 of the Secretariat literature
survey which stated that gains to be derived from the removal of trade barriers would by far outweigh
annual flows of official development assistance and debt relief. He questioned what really constituted
annual flows of ODA, when taking into account expe nditures which were of an export promotion
nature rather than truly development assistance. ODA was sometimes used by developed countries tofinance export credits and food aid, the latter being merely a way to reduce surpluses of stocks of
subsidized agricultural basic commodities, which not only overstated the real budgetary impact of
ODA but also caused harm to domestic production and exports of such commodities in recipient
developing countries.  Therefore, the composition of ODA had drifted away from the original intent
of providing long-term capital for development on favourable terms.
21. In response to questions and comments raised by Members, the representative of UNECLAC
identified three groups of topics;  one group not fa lling within the remit of the WTO (financing for
development; exchange rate regimes, and capital controls);  the second intersecting with WTO
competencies (market access; FDI as an alternative source of financing);  and a third group which fell
under the remit of the WTO but that was not directly linked to debt (food aid, sequencing of reform).Under the first group, he stressed the need of having proper mechanisms to overcome debt overhang
with a scope and magnitude that did not yet exist, as well as sufficient flows of financing from IFIs.
In reaction to the statement by Ecuador, he believed that countries should be able to maintain
flexibility in the management of their exchange ra te, and that the regional experience in this regard
did not offer definitive conclusions on what was the best strategy for trade. Regarding the second
group of issues, he highlighted the point made by Brazil, that the conditions for export credits could
lead to distortions in domestic interest rates. He also emphasized the need to attract FDI as a vital
source of capital for countries facing market-access difficulties and debt overhang. FDI allowed
countries to avoid having recourse to capital controls, since it generated inflows in the financial
account of the balance-of-payments. However, in general, indebted countries should be left with the
freedom to regulate their capital account in a manner that did not hamper trade.  Finally, he reiterated
that a general special and differential mechanism was not the proper way to deal with the problem ofindebted countries; instead, a more flexible mechanism for indebted countries should be examined.
On the last group of topics, he agreed that food aid (excluding emergency aid) could be of short-term
benefit but of long-term cost to developing countrie s, and stated that export-driven economies, in the
long run, should adopt open import policies while allowing a reasonable level of protection in the
short-term.
Presentation by the representative of UNECA
22. The representative of the UNECA presented a background paper on "The Link Between
Trade and Debt: the African Experience" (WT/WGTDF/W/11).  In summarizing his presentation, he
made the following points:  the relationship betwee n trade, debt and finance had to be seen in a
holistic manner embedded in the issue on how to mobilize development finance and resources for
developing countries.  The issue of debt could not be  seen in isolation, but in the light of trade policiesWT/WGTDF/M/3
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pursued by both developed and developing countries. In this respect, the issues of market access,
decline in commodity prices, and debt relief needed to be taken into account in a coordinated manner.
He appreciated efforts to provide debt relief to African countries through the HIPC and Enhanced
HIPC Initiatives, but this had not yet provided those countries with a way out of  the debt trap.  There
was also the related issue of neutrality of debt arbitration mechanisms (such as the London Club) andthe question of eventual participation of the WTO, with its experience of panels and interdependence.
Finally, he reminded Members that the international community had not been as effective in dealing
with commodity price declines as it had been in dealing with the liberalization of the physical flow of
goods. He therefore encouraged further work in the context of the WTO and said that UNECA stood
ready to offer studies and assistance to the Working Group on several of these topics.
23. The representative of the European Communities welcomed the presentation and paper of the
UNECA as objective, balanced and reasonable. He focused his remarks on the converging views
between the UNECA and the EU, namely on market access, on the need to treat these interlinkages in
a holistic manner, and on the role of FDI. On market  access, he admitted that while the UNECA might
have a valid point, he appreciated that in the same paragraph UNECA also addressed the question of
"supply-capacity" of developing countries. The Gro up needed to think more about necessary reforms
leading to better supply-response, in particular in the least-developed countries. In this regard, hisdelegation asked UNECA whether it had ideas on how to improve technical assistance efforts in this
area. Regarding the "holistic approach" to the relati onship between trade, debt and finance, which the
EU fully supported, the Group should focus not only on pure financial analysis from IFIs but should
also integrate all other aspects of the debt issue (trade, poverty reduction, etc.) and foster a better
coherence of international agencies towards this goal. Finally, he noted that UNECA, likeUNECLAC, had emphasized the key and positive role  of FDI in solving indebtedness in Africa.
24. The representative of Argentina encouraged Members to use to the broadest extent the
mandate given to the Working Group by Ministers. Argentina's interest in the Working Group was
justified by two reasons: first, Argentina was itself a highly indebted country; second, it was
concerned that other countries could find themselves in the same situation. Argentina acknowledgedthe two aspect of the Groups' mandate: the examination part (assess, study, and discuss), and possible
recommendations for measures to be taken within the WTO ambit. However, Argentina would lose
interest in the discussions if the Group limited itself only to a simple examination and avoided
drawing recommendations since the objective was to ensure that the debt problem did not repeat itself
in the future. In this sense, the Group should work as a "meeting of governments", not as a "seminar".
25. The question was therefore on which topics the Group should focus its work: finance by itself
was not a problem; debt was. The Group should focus on trade and debt. In this respect, the Groupshould refrain from examining too thoroughly areas examined in other fora, such as debt relief
initiatives, sovereign bankruptcy issues and other specific issues that were not in the WTO remit.
Among the five topics under discussion (perhaps even six if the issue on FDI was included), the
examination, and hence possible recommendations, that were most relevant to the mandate of
paragraph 36 of the Doha Declaration, was market access. As indicated earlier, some topics – such asgreater flexibility in using capital controls and trade financing – were the prime responsibility of other
organizations, although cooperation from the WT O might be required. The proposals on greater
flexibility regarding the imposition of contingency measures, while being within the scope of the
WTO, was to be dealt with in the Negotiating Group on Rules.  For developing countries, market
access issues encompassed a wide range of other trade related-issues, i.e. agriculture, textiles, TBT,trade and transfer of technology.  An integrated approach to WTO negotiations therefore might assist
indebted countries in finding a way out of indebtedness. He said that countries had only two means of
obtaining foreign exchange:  by trade flows or by fi nancial flows, the former being the better.  At a
certain level of indebtedness, the limitations for obtaining foreign financing, either from private or
public sources, were prohibitive.  Limitations emanated from very high risk premiums or fromborrowing limits set out under IFI policies. As a result, some could think of extreme circumstances
whereby a certain degree of flexibility to markets access could be conceived (for a limited period ofWT/WGTDF/M/3
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time and a limited number of products) for indebted countries, but he considered that these proposals
fell outside the mandate of the Working Group.
26. The Chairman indicated that the Working Group was still in its informative stage, aiming to
bring all Members to the same level of understanding and knowledge on the interlinkages between
trade, debt and finance so that the Group could finally deal with the issue of possiblerecommendations to include in its report to Ministers in Cancún.  As Chairman, he called on the
assistance of Members to draw up this list of recommendations, to discuss them and to obtain the
required consensus to submit them to Ministers at the next Ministerial Conference.
27. The representative of the Morocco questioned the future of the HIPC Initiative. Only five
countries were able to arrive at the "completion point". In the long-term, he wondered whether the
HIPC Initiative contributed to the African continent's debt problem. UNCTAD's latest report on
poverty in Africa suggested exploring new avenue s since existing measures were not addressing
related issues such as the deterioration of the terms of trade:  on this issue, production,
commercialization and price setting on international markets were part of an overall problem which
needed to be approached globally otherwise debt would continue to grow at an exponential level.
28. The representative of Malaysia wondered whether any simple solution to the problem of
indebtedness of developing and least-developing countries existed. He said that indebtedness was
taking away productive capital and finance in such a way that it affected trade (both imports and
exports), as well as investment opportunities. He illustrated the vicious circle whereby if a country
was highly indebted, there was generally no resources to bring about necessary changes into the
economy which were a prerequisite for trade and for attracting FDI. In this regard, he addressed the
point raised by the EC regarding the need of having a multilateral framework on investment (MFI)and said that an MFI would not be the panacea to pr omote inflows of FDI:  no investor would go to a
country where there was no proper infrastructure. Therefore, an investment agreement would be
meaningless unless such an infrastructure was in place. The question of investment promotion
therefore needed to be seen in a different light;  rules would not solve all debt problems.
29. He then referred to Malaysia's recent experience with financial crisis and pointed out that
during that crisis market access had been of utmost importance as domestic demand had dropped and
the need to export had therefore been higher than usual. Cautioning that countries such as Malaysia
had the infrastructure and export capabilities to absorb increased foreign demand, it was unclear as to
whether market access alone would in turn solve the debt problems of poorer countries which lacked
such infrastructures and export capacities. However, in Malaysia's experience, had market access not
been there when it was needed, the way out of the crisis would have been more difficult.  In any case,
market access had to be granted on an MFN basis. He pointed out that, prior to the crisis, Malaysiahad been frequently hit by anti-dumping investigations, but, possibly by good will from partner
countries, this trend had been interrupted during the two most difficult years which had greatly
assisted Malaysia.  He also referred to Malaysia's strong performance in attracting FDI before the
crisis, but even with the best of regulations, the financial turmoil had had adverse effects on these
trends.  He joined other speakers regarding the n eed for increased coordination between international
agencies, but emphasized that such coordination should be more creative since Malaysia did not need
the kind of advice that had been given by IFI at the time of the crisis. A flexible approach, fully
integrating trade, should be taken to account.
30. The representative of Nigeria believed that the HIPC Initiative had not provided a solution to
Africa's debt problem and asked whether the current HIPC Initiative needed to be overhauled or
whether any other initiative should be introduced to foster greater success.
31. The representative of Canada appreciated the reference to NEPAD in UNECA's presentation
and said that Canada was a strong supporter of such initiative and was therefore pleased to see a
positive reference to it in the Group's discussion.WT/WGTDF/M/3
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32. In responding to these comments and questions, the representative of UNECA said that he
had taken note of the remarks concerning the priority to be given to market access while at the same
time the need to treat this topic in a holistic manner,  bringing it into the broader context of debt and
development.  On the question of whether the international community needed an MFI or not, he said
that more work needed to be done and that the issue was apparently being discussed in the appropriateWTO forum.  In his view, Argentina's comment on how to proceed in future stages of the Working
Group was addressed more to the Members than to UNECA.  He agreed with the broad  thrust of the
question by Morocco, i.e. whether the HIPC initiative  needed to be overhauled, but wondered how far
the WTO or UNCTAD should be involved in such a reform.  The more general question was how
much could the Working Group do within its mandate given the complexity of issues at stake and the
limited competence of the WTO.  He argued that both his presentation and the one by UNECLAC had
tried to give a sense of what could be feasible on the WTO side.  He was not saying that the WorkingGroup should not be able to give its view, to the organization in charge, on whether a reform of the
HIPC Initiative was needed.  Given the slow times of delivery, and the particular status of beneficiary
countries (mostly LDCs), this was a minimum expectation. Regarding the question by Malaysia, he
said that African countries were divided into two groups:  middle-income countries and poor
countries.  Middle-income countries experienced similar problems to those of Malaysia and hewondered whether some of the measures taken by Malaysia to deal with the Asian crisis could be
applicable to middle-income African countries. He believed that the question of debt and international
debt management had to be positioned within the broader framework of market access, declining
commodity prices and other problems faced by developing countries.  The best example was that the
HIPC Initiative had been running for many years and that only a few countries had been freed fromdebt overhang.
Presentation by the representative of the World Bank
33. The representative of the World Bank briefly summarized his presentation
(WT/WGTDF/W/12 and WT/WGTDF/W/12/Add.1). He indicated that substantial progress had been
made under the HIPC Initiative, with 26 out of 38 potentially eligible countries having reached the
Decision Point – most of them already receiving actual relief under the "interim relief" mechanism.
Six countries had reached both the Decision and Completion points, with a significant impact on their
debt stock and debt service (between half and two-thirds of the total). While there was scope for
improvement of the Initiative (in particular with respect to projections of exports), one obvious link
between the HIPC Initiative and the WTO was that current negotiations could greatly improve market
access for poor countries in areas of interest to them. Referring to the Secretariat Note, he agreed thatthe gains from trade would far outweigh the tota l sum of ODA and debt relief under HIPC Initiative.
He also emphasized the need for maintaining good domestic policies to be able to reap the benefits of
increased export opportunities, in particular sound macroeconomic policies, good infrastructures and
governance.
34. The Chairman noted with interest the way in which the HIPC Initiative and the PRSP process
were connected as part of a global approach to poverty reduction.  He was puzzled, however, by the
emphasis put on debt relief and good domestic policy.  In his view, domestic policy reform needed to
be accompanied by development assistance and external aid.  In addition, developing countries were
hit by financial crisis that was often beyond their control.
35. The representative of Paraguay insisted on the need of his country, like others, to obtain the
technical assistance required to successfully im plement the necessary domestic reforms. Regarding
market access, since the World Bank had emphasized the link between debt sustainability and global
market access, he asked how the WTO could guide action to contribute to greater debt sustainability.
36. Referring to the questions raised on the mandate of the Working Group, the representative of
India said that in order to come up with a meaningful outcome the Group should focus its discussions
on the need to improve market access for exports of interest to developing and least-developedWT/WGTDF/M/3
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countries, as well as on the need to expand development finance.  Increased market access in
agriculture was part of a solution to debt relief for commodity dependent countries. The HIPC
Initiative had not taken into account the loss of terms of trade incurred by commodity-based
exporters. Attention also should be given to reducing the use of contingency measures by developed
countries against developing countries, to reducing domestic support to agricultural products indeveloped countries, and to lowering the incidence of peak tariffs in sensitive products. Members
should focus on all these issues when considering debt relief in the WTO.  Addressing supply-side
constraints was also an important, but not sufficient, condition. He then turned to the Secretariat Note,
asking questions on paragraph 4 (whereby gains to be derived from the elimination of trade barriers
outweigh flows of ODA and debt relief), paragraph 7 (regarding the gains accruing to countries from
the removal of their own barriers), paragraph 8 (regarding the total amount of gain from a trade
round), paragraph 11 (regarding declining terms of trade), and paragraph 15 (regarding the fiscalchannel and its revenue implications). India agreed with Malaysia regarding foreign direct investment
and the eventual establishment of a multilateral framework. Finally, he said that India had attempted
to address WTO provisions on balance-of-payments from a development point of view, in particular
Article XVIII:B of the GATT.
37. The representative of Cuba, also referring to market access, said that this was decisive for the
development of exports in highly indebted countries. Recent initiatives to provide preferential
treatment to least-developed countries did not have the appropriate outcome because they dealt only
with tariffs and did not take into account non-tariff barriers which constituted the main barriers faced
by developing countries (SPS measures, anti-dumping duties and subsidies). His delegation believed
that the Working Group needed to insist, as the Work Bank had done, on the recent increase inagricultural subsidies by developed countries.  Cuba associated itself with Malaysia and India
regarding a multilateral framework on FDI, a greater examination of which was needed before a
decision could be made.
38. The representative of Canada noted that market access had been the core of the three
presentations, all of which had highlighted that the real benefit of improved market access would be
realized if liberalization occurred on the part of all Members, developing and developed countries
alike. It was also clear that reduction in tariffs might not be enough, particularly if there was internal
constraint in the exporting country, and he cited the experience of Cambodia.
39. The representative of Egypt also mentioned ma rket access as being at the core of the three
speakers' presentations and at the source of the solution to high indebtedness. Market access
encompassed both tariff and the wide array of non-tariff barriers (anti-dumping, technical barriers to
trade and SPS measures). Nevertheless, the sum of such barriers did not allow developing countries toreap the true benefits of tariff reductions. Debt sustainability initiatives, such as the HIPC Initiative
should be considered first. In addition to this, however, he had been impressed by the figures quoted
by the World Bank according to which developing countries would derive up to half of the gains of a
new round. He wondered whether these figures exceeded debt-ratios. He highlighted that his country's
priority was poverty reduction, which should be achieved by a comprehensive set of policiesincluding debt relief, market access, and well-targeted technical assistance.
40. The representative of Argentina asked, in light of  the interest shown by Members, for the joint
World Bank/IMF paper entitled "Market Access for Developing Countries' Exports – Selected Issues"
to be issued as an official document.1
41. In response to other questions, the representative of the World Bank agreed that appropriate
domestic policies were not limited to appropriate macroeconomic policies. The Bank was trying to do
everything it could in terms of achieving poverty alleviation objectives, including by providing more
resources for human capital, education and infrastructu re. The next step would be the debt alleviation
                                                     
1 Subsequently issued as document WT/WGTDF/W/14.WT/WGTDF/M/3
Page 10
strategy. Debt alleviation was, in the Bank's view, only one step in a broader effort to create an
enabling environment that would provide opportuniti es for higher growth and development. It was
important in this context to create an appropriat e investment environment that attracted FDI. The
rationale of linking the PRSP with the debt relief initiative was clearly part of this broader effort,
namely coherence, or holistic approach.  To achieve meaningful results poverty reduction needed acombination of policies, including debt relief, investment in infrastructures and education, creation of
a business-friendly environment, and stable macroeconomic conditions. Regarding market access, it
was no coincidence that the three speakers had focused on this point because it lay at the core of the
challenges currently faced by the global system. Market access was a multi-faceted problem which
included the reduction of tariff and non-tariff barriers in both developed and developing countries. As
identified by the Integrated Framework, there were a series of links between market access and the
poor that the trade community would not even think of  as trade policy issues.  Regarding the scope of
the HIPC Initiative, one should recognize that lines had to be drawn up at the beginning of the
programme;  it was intended that all countries reach Decision Point by the end of 2002.
Unfortunately, a few cases were more difficult than had been expected and the deadline had been
extended by another 2 years. Finally, there were a lot of challenges on the trade-related issues on
which the Bank focused, one of the main ones being how to establish a better link between povertyreduction and trade-related issues, something that should appear in PRSPs, but that had not proved to
be fully satisfactory so far.
42. The representative of the United States recalled that a WTO agreements had no debt
provisions. The reasons for this was that the WTO was not the appropriate forum to discuss
international debt policies for debt per se .  The IMF and the World Bank were the appropriate fora.  In
fact, the linkage between the WTO and debt was only an indirect one. Trade liberalization under the
WTO, when combined with pro-competitive domestic reforms, alleviated the problems for developing
countries. Such pro-competitive policies increased the likelihood that foreign capital inflows would be
invested efficiently in recipient countries, resulting in the production of goods and services that would
be competitive in both domestic and foreign markets. A mandate to negotiate on rules existed underparagraph 28 of the Doha Declaration, not in this Working Group. If Members wanted to make
proposals on rules-based topics, he indicated that the Negotiating Group on Rules was the proper
forum to do it, and his delegation would carefull y listen to these proposals in such a forum. He
announced that the United States would hopefully also submit a paper – in time for the next meeting
when the relevant item would be on the agenda – to assist the Working Group in its reflections on the
discussions thus far and on the orientation of future work.
43. In summing up the discussions on the relationship between trade and debt, the Chairman, on
his own responsibility, identified the following themes that had emerged:
• overseas market-access restrictions impeded the ability of indebted countries to earn
the foreign exchange that they needed to service their external debt and avoid resort
to further unsustainable borrowing. Relevant studies suggested that the gains that
could be derived from eliminating barriers on these countries exports outweighed the
annual flows they received of ODA and debt relief – flows that the Conference ofMonterrey had pledged to increase;
• 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;
• at the same time, indebted countries could improve the debt servicing capacity of
their economies by properly liberalizing their own trade regimes. This could help
boost their domestic growth, productivity and exports.  Careful consideration needed
to be given to the timing and sequencing of trade reform in this context, as well as toWT/WGTDF/M/3
Page 11
the cost of adjustment involved in such liberalization and the assistance needed to
meet these costs;
• trade policy reform in indebted countries needed to be supported by pro-growth
policies that would involve, inter alia , raising domestic private savings and
encouraging foreign direct investment;
• further examination of the issue of the deteri oration of the terms of trade needed to be
made, as it affects the capacity of countries, despite notable domestic reforms
underway, to service their debt and move away from commodity exports".
44. Members understood that this was a summary of the discussion – not a checklist – and that it
could help focus the Working Group's work in light of the drafting of its report to the Fifth Ministerial
Conference.
45. Turning to Item II.C of the Work Programme, the Chairman reminded Members that the
WTO Secretariat paper on "Relevant WTO Provisions" (WT/WGTDF/W/3) had not found any WTO
provision that was considered to be directly relevant to the issue of trade and debt.
46. He also informed Members that the International Monetary Fund had submitted two papers
directly drawn from the most recent World Economic Outlook. These had been made available todelegations.   He proposed that, because of the tight schedule of the present meeting, the IMF should
be given the opportunity to present these papers at the next meeting of the Group.
47. The Working Group then turned to Item II.D which dealt with a written submission tabled by
the European Community (WT/WGTDF/W/8). The submission contained a number of ideas on the
process of the Working Group and made proposals on how to move to a more substantive phase of itswork, with suggestions on concrete areas for im proved Coherence between the WTO and other fora.
48. The representative of Japan said that his delegation appreciated the proposal by the European
Community, from a methodological point of view, and for the fact that it clarified issues for
consideration and study in an efficient way. He hoped that the proposal could be adopted and that it
would be utilized in conjunction with the Group's Work Programme. While Japan agreed that theWorking Group should examine all the components of the relationship between trade, debt and
finance, at the same time it should avoid overlap with other bodies of the WTO, namely the Working
Group on the Relationship between Trade and Investment, the Committee on Agriculture, and others.
Japan shared the EC's view that issues related to trade, debt and finance covered several policy areas
that fell under the mandate of different international institutions, and that such institutions, as well asregional development banks, should continue to be invited to exchange opinions with the Group as
had been the case to date. It was important that trade policy reform in developing countries be
integrated in their overall policy reform frameworks and development strategies, in order to overcome
poverty and realize sustainable development. Therefore, it would be useful for the Group to deepen its
discussions in this context. Lastly, he referred to the WTO Agreements and the Articles of Agreement
of the IMF as emphasizing the importance of developing a coherent set of rules and disciplines for
mutual cooperation, so that they could pursue coordinated policies. As a result, he hoped that workundertaken in the Working Group could be beneficial to the Members and the relevant institutions by
calling attention to the importance of policy coherence.
49. Commenting on the EC contribution, the representative of India said that it appeared to his
delegation that the examination of the trade, debt and finance nexus went beyond the mandate of the
WTO. He recalled the terms of the mandate given by Ministers under paragraph 36 of the DohaDeclaration, and, in this context, asked for clarific ation as to whether the EC proposals were not going
beyond that precise mandate. In his view, the Working Group should only examine and make
recommendations on issues falling strictly under that mandate. The EC paper had also referred to theWT/WGTDF/M/3
Page 12
coherence mandate. He commented that work on coherence should not expand beyond what had
already been approved under the Marrakesh Declaration on Coherence. Addressing coherence should
not in any way constraint the policy space of developing countries in pursuing what was perceived by
them to be in their national interest, nor should it result in cross-conditionality on which the
Marrakesh Declaration was clear. On the issue of trade protectionism, developing countries had beenfacing many difficulties in developing their agriculture, in achieving self-sufficiency and developing
their exports, an issue that should be more thoroughly considered by the Working Group. He said that
on the relationship between trade, debt and finance, developing countries were not at the source of
financial crisis so it was wrong to place the weight of adjustment on their shoulders, while not
examining in as much detail the role of private cr editors and international financial institutions. The
focus of the Working Group should be on greater market access for developing countries as the main
tool for solving the problem of the debt overhang, particularly for commodity-dependent countries.
50. The representative of Canada saw useful suggestions in the EC paper, such as the value in
working on sequencing internal reform as well as on the management of fiscal revenue concerns in
relation to trade liberalization.  He supported the suggestion that the Working Group focus on
improved and deepened coherence where the activities of international organizations converge. As
had been noted by the EC, the Group could build on the experience gained under the Coherencemandate.
51. The representative of the United States said th at his delegation found interesting several ideas
in the EC paper and was examining others.  His dele gation would come back to this issue in further
sessions of the Working Group.
52. The Chairman informed Members that he would hold informal consultations with delegations
before the next meeting to establish an outline for fu rther work in the first half of 2003 with a view to
preparing the Group's report to the Fifth Ministerial Conference.  He also expected to consult on the
number of meetings – possibly two – that delegations wished to hold next year prior to the Ministerial
Session.  He proposed that, at its next meeting on 17 December, the Group take up the third Item of
the agreed agenda, i.e. "Towards Greater Coherence", on the basis of a Note by the Secretariat,requested by the Working Group, describing what had been done under the Marrakesh Coherence
Mandate and under the co-operation agreements that existed between the WTO, the IMF and the
World Bank. He also encouraged delegations to provide their own written submissions and ideas on
possible areas for improved coherence – general or specific – in light of the subjects that had been
examined in the Group. He hoped, in particular, that developing countries would be able to provide
such submissions.
53. The meeting was adjourned.
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