WORLD TRADE  
ORGANIZATION  RESTRICTED 
WT/WGTDF/M/24 
24 September 2012 
 
 (12-5107) 
Working Group on Trade, Debt and Finance  
  
 
REPORT OF THE MEETING OF 27 AND 28 MARCH 2012 
 
 
1. The twenty fourth meeting of the Working Group on Trade, Debt and Finance (WGTDF) was 
held on 27 and 28 March 2012 under the Chairman ship of Mr. Glass (Hong-Kong, China).  The 
Working Group adopted the agenda.  
2. The Director-General delive red opening remarks, which are available on the WTO main 
website.1 
3. In his introductory remarks, the Chairman recalled the consensus reached for the main 
parameters of this seminar: four half-day sessions  to discuss the perspective of the various actors on 
the relationship between exchange rates and trade - the private sector, the government sector, the 
international institutions and academia; each session to  be introduced by a moderator and a panel of 
four speakers, followed by statements, questi ons and answers. The meeting was open only to 
Members, Observers and invited participants. A re port on the proceedings would be produced by the 
Secretariat sometime after the meeting. The media procedures for the meeting would follow General 
Council practice. The Chairman encouraged delegations to structure their statements so as to spread 
them over all four sessions. 
4. It was so agreed. 
SESSION I: PRIVATE SECTOR SESSION 
5. The Ambassador of Barbados to the WTO moderated the panel. At the outset, she presented 
the four speakers and invited them to make th eir presentation, to be followed by remarks and 
statements from the floor. 
6. The presentations made by these four speaker s, from Brazil, South Africa, China and 
Switzerland, respectively, have been made available on the WTO website.2  
7. The Representative of Pakistan pointed to th e growing disparities between the volumes of 
foreign exchange trading and the volumes of interna tional trade, as being responsible for the increased 
volatility of exchange rates. Besides, trade imbala nces tended to increase in periods of oil shocks, 
which reduced the incentives of investors for off-s horing their production to  developing countries.  
                                                      
1 http://www.wto.org/english/ne ws_e/sppl_e/sppl222_e.htm  
 
2http://www.wto.org/englis h/news_e/news12_e/s1_gomes_da_silva_brazil_e.ppt ; 
http://www.wto.org/english/ news_e/news12_e/s1_jennings_south_africa_e.ppt ; 
http://www.wto.org/englis h/news_e/news12_e/s1_ruogu_li_china_exim_e.ppt ; 
http://www.wto.org/english/ne ws_e/news12_e/s1_mosimann_bucher_banagement_e.ppt  
 
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 8. The Representative of India asked two questions. One question related to Indian small and 
medium-sized enterprises complaining about losing money on the US dollar-rupee exchange rate in 
the context of hedging operations undertaken by th eir banks using derivatives. He asked whether there 
was a need to disseminate information about the risk s of hedging, and perhaps increased regulation of 
these markets. The other question was about the pr ospects for Swiss companies should the current 
target level for the Swiss Franc-euro rate be breached. The Representative of Brazil pointed to the 
importance of the relationship betw een exchange rates and trade for companies on the ground. He was 
impressed by the impact on exchange rates fluctua tions on companies in South Africa and Brazil in 
particular, and asked about such impact on jobs, bot h in the domestic and foreign operations of these 
companies. He also asked about the effectiveness of hedging strategies for companies operating in 
several countries. 
9. The Representative of the United States said th at the current international monetary and 
trading systems were based on the recognition of excha nge rate management that fostered persistently 
misaligned exchange rates would unde rcut an open trading system. St ronger norms for exchange rate 
management and policies were needed for exchange  rates to reflect economic fundamentals, which 
would in turn foster the balanced expansion of international trade and reduce pressures for 
protectionism. While the international community o ught to be vigilant against excessive volatility, 
persistent misalignments were the biggest threat to  the international trading system. The combination 
of undervaluation of the exchange rates, the accumu lation of foreign exchange reserves, systematic 
intervention on the foreign exchange markets and pe rsistent current account surpluses were signs of 
distortions in the management of exchange rates, a situation that was reflected in China's policies for 
example. The IMF had confirmed that the Chinese currency had been regularly undervalued, which 
had impeded external adjustment globally. Ind eed, the responsibility for adjustment was on both 
deficit and surplus countries, so it was also the US's  responsibility to tackle its fiscal deficit. Every 
country ought to do its part to ensure that real exchange rates were in line with economic 
fundamentals. On the point that US accommodative m onetary policy led to the over-valuation of other 
currencies, the Representative said US policies be nefit the global economy as a whole by avoiding 
deflationary bank deleveraging.  
10. The panel of speakers answered these questions . The Speaker from Brazil agreed that hedging 
carried significant risks, such as in 2008 when many Brazilian businesses lost money on derivative 
products that they probably did not fully understand.  The larger companies were better equipped to 
deal with these financial products. He agreed with  the representative of the United States that the 
persistence of exchange rate misalignments wa s more important than volatility. Most of his 
competitors were located in Asia and in the Un ited States. The Speaker from South Africa thought 
that volatility was the greatest problem, given the exte nt of fluctuations (up to 2% in two days, and 
33% in three months). This was a major problem  for both small and large businesses, although his 
rather larger companies coped better by afford ing professional treasurers. The Swiss experience was 
not necessarily comparable to that of developing coun tries, as the later lacked the skilled labour force 
of the former.   
11. The Speaker from China said that there was currently no benchmark against which the 
misalignment of currencies could be properly assessed. Before, the international monetary system was 
based upon the dollar, which was the anchor of exch ange rate policies. The system allowed for an 
orderly adjustment of real exchange rates. One of  today's problems was the contradiction between the 
dollar being a free floating currency, and at the sa me time remaining the world's main reserve and 
transaction currency. The lack of stability in the cu rrent international monetary system was also a 
major pitfall. During the Asian financial crisis, Ch ina was asked not to devalue against the US dollar 
and keep its currency stable nominally, precisely to maintain some stability in the financial system - 
even if this was not necessarily in its interest at the time - which China eventu ally did. Today, China 
was asked to adopt a market-determined exchange  rate. There was a fundamental contradiction 
between these two prescriptions, and considerable  confusion in which currency the international 
monetary system functioned.   WT/WGTDF/M/24 
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  12. The Speaker from Switzerland said that Swiss firms shared the same concerns towards 
hedging as Indian SMEs. As a result, the confederati on of Swiss industries worked with local banks to 
offer training courses on hedging, so that companie s could make relatively simple moves to mitigate 
currency shifts. With respect to the current exchange rate of the Swiss franc vis-à-vis the euro, he said 
that his company had to remain competitive and in novative enough to be able to absorb a possible 
further appreciation of his country's currency.  With  respect to intra-company trade, he said that the 
development of plant facilities in Brazil, combined with technology transfers, allowed his company to 
re-import high quality inputs for production in Switzerland, as well as the servicing of markets from Brazil to the rest of the world. His company would not be a leader in agricultural machinery as it was 
without its Brazilian plant; hence, the best the govern ment could do for Swiss firms in general was to 
keep markets open, to allow for the best possible mix of imports and exports. 
13. In a second set of questions and remarks, the Representative of Mexico said that the 
relationship between exchange rates and trade wa s a multi-faceted one. Overvalued currencies may 
harm companies while others resisted better. In  the current monetary environment, there was 
considerable uncertainty as to how much currenci es were undervalued. While the private sector could 
be concerned about the impact of competitors' unde rvaluation, the causes mattered as well. Currency 
under-valuation could come from traditional balance of  payments deficits, direct interventions on 
currencies, monetary policies (quantitative easing), or inflation targeting. Other factors included 
inflexible labour markets, lack  of competitiveness, investment and innovation.  In many of these 
cases, the policy response would not necessarily ca ll for protectionism. The Representative of the 
Dominican Republic said that the opening up of cap ital markets affected emerging economies, with 
pernicious effects on their currencies, complicat ed by the uncertainty about exchange rate 
measurement. In any case, exchange rate shifts co mplicated industrial production both in the short and 
long-term, as it affected the internal costs of co mpanies, even the most competitive ones. The IMF 
had to come forward with solutions for a more  orderly international monetary system. The 
Representative of Colombia said that the exchange rates issues had to be managed with prudence. 
Every country was responsible for the way it define d policies in response to exchange rate changes. 
Colombia had been hit in the past by over-valuati on too, with different outcomes, though: exports had 
tripled in the past decade, while GDP growth had surged. Colombia preferred to opt for pro-
competitiveness policies favouring innovation and infrastructure development, rather than granting protection to the affected industries.  The Represe ntative of Canada asked the panellists what the 
Membership of the WTO collectively intended to do to alleviate the problems exposed in the 
speakers' presentations.  
14. In response to the question from Canada, th e Speaker from Switzerland encouraged the 
institution to continue liberalizing trade and to keep  a long-term view of the exchange rates and trade 
relationship. The minimum requirement would be not  to add protectionism to the current volatile 
exchange rates environment. The Speaker from China agreed that trade barriers should not be raised, 
and that the deeper roots of the problem, which lay in the monetary system, had to be addressed in the 
appropriate fora. He pleaded for a cooperative a pproach to these problems internationally, and 
encouraged all countries to work domestically towards improving their own competitiveness. The 
Speaker from South Africa called on the interna tional community to adopt more cooperative 
macroeconomic policies to reduce exchange rate volatility. While agreeing that open trade was the 
best policy, he said that his country was being "punished" for having been too open to trade and 
capital flows. He was inte rested in Colombia's experience. Th e WTO should look at the situation of 
developing countries hit by exchange rate volatility and not having the necessary exchange reserves to 
cushion it. The Speaker from Brazil said that an im portant first step had been made by holding this 
seminar, acknowledging the problem, discussing the policy options and experiences to mitigate it. 
This was necessary to avoid "trade wars" and protec tionism, which was in no one's interest. Perhaps a 
gradual liberalization of capital flows internationa lly would help relieve some of the pressure on the 
trading system. WT/WGTDF/M/24 
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 15. The moderator concluded that the WTO was faced with a trade problem that did not originate 
in the trade area. There were national problems that  originated from international factors, and whose 
solutions depended very on the origin of the pr oblem, many of which came from outside the WTO 
arena. It was often mentioned that the WTO shoul d continue addressing these issues but at the same 
time that the course to freer trade should not be interrupted. 
SESSION II: PUBLIC SECTOR SESSION 
16. The Ambassador of Brazil to the WTO m oderated this session, which focused on the 
challenges faced by governments in designing polici es in the face of exchange rate volatility and 
misalignments. In his opening statement, he said, inter alia, that the close relationship between 
exchange rates and trade was not unfamiliar to th e WTO - a point explained in Brazil's previous 
written submissions. Uncoordinated policy responses to  the 2008 crisis led to a myriad of country-
specific policy responses. This, with other factor s, provoked a shift in the relative positions of 
currencies around the world, which resulted in distr ess in some countries.  This had already been 
raised in other fora, such as the G-20. Given that  there was a clear relationship between exchange 
rates shifts and trade, the WTO should also contribu te to that debate. This was indeed a politically-
charged topic, but Brazil's desire was to examine the various angles of the problem in a rational, 
cooperative, and systemic way, taking into account the short and long-term perspectives. Brazil was 
neither in search of wrong-doers nor of a cure for th e causes of exchange rates shifts, but rather to 
look at the complementary roles of the WTO and IMF, learn lessons from past and present policy 
experiences, and explore how to deal w ith this issue in a multilateral way. 
17. The moderator introduced the four speakers and in vited them to make their presentation, to be 
followed by remarks and statements from the floor . The presentations made by the speakers from the 
European Commission, India, and Turkey, respec tively, are available on the main WTO website.3 
18. The Speaker from Canada said that even if countr ies chose fixed exchange rates, there were a 
number of rules to be followed in the interest of in ternal and external adjustment. Failing to "play by 
the rules", by pursuing export-led growth supporte d by foreign exchange management and capital 
controls resulted in the real effective exchange not adjusting fully. For example, the situation in 
China, India, and South Korea and Thailand, had not evolved much in the past ten years. Playing by 
the rules (as defined by the Articles and Decisions of  the IMF) when having a fixed foreign exchange 
rate meant that one is not supposed  to engage in systematic ster ilized intervention. Adopting fixed 
exchange rates meant that foreign monetary policy would be part of the monetary policy of your 
country, although not playing by the rules meant that  this adjustment mechan ism was frustrated. This, 
in turn, created asymmetries in incentives betwee n deficit and surplus countries concerning the 
disciplines that they faced. Part of the consequen ce was growing external imbalances (albeit this was 
only one reason for it), tensions on  currency and pressures of adjust ment imposed in an exaggerated 
manner on the more flexible currencies. Of course,  the overvaluation of some countries was not only 
related to the undervaluation of others - there were domestic and external reasons for it, not the least 
high commodity prices. However, there were glob al costs to delaying the needed adjustments 
(increased reliance on domestic demand for surplus countries, reduced private and public spending for 
deficit countries, and exchange rates adjustments).  He gave an order of magnitude of such global 
costs, according to model simulations.  
                                                      
3http://www.wto.org/english/ news_e/news12_e/s2_bekx_european_commission_e.ppt ; 
http://www.wto.org/english/ne ws_e/news12_e/s2_goyal_res erve_bank_of_india_e.ppt ; 
http://www.wto.org/englis h/news_e/news12_e/s2_k izilarslan_turkey_e.pdf ;  
 
 
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  19. In the following interventions  and questions from the floor, the Representative of China said 
that external imbalances, large and sustained, we re only a reflection of severe domestic imbalances. 
Countries running a deficit were consuming too much  and saving too little. Since the 2008 crisis, the 
euro area was affected by a serious debt cris is and losses of competitiveness. Some countries run a 
trade or current account deficit, while better perform ing ones had engaged in structural reforms. The 
result was that most of the developed world's real estate, financial and public sectors needed 
deleveraging. Reducing the needed adjustments to  a Chinese-US issue was an over-simplification. 
The dynamics of the relationship between China a nd other emerging economies,  on the one hand, and 
China and developing countries, on the other, was different and requi red different policy 
prescriptions. The responsibilities for global adjustment  were at least shared between emerging and 
developed economies, and finger-pointing was unnecessary.   
20. Given the importance of the euro for his count ry, the Representative of Turkey asked the 
speaker of the European Union what kind of struct ural reforms the EU was considering for tacking the 
current euro-zone crisis.  The Representative of  Japan highlighted the relatively high level of 
coordination among developed countries in the mana gement of the recent financial crisis. For 
example, the G-20 Summit in London had provided for useful stimulus, and, in doing so, had avoided 
a global depression of economic activity. With respect  to the misalignment of exchange rates, he 
emphasized that addressing global imbalances involved not  only exchange rates adjustments, but also 
structural reforms, as evidenced by th e Japanese experience during the 1990's. 
21. The Representative of Ecuador said that little had been said about the impact of exchange rate 
movements on small economies' trade. Ecuador's e xperience with dollarization had its worst effects 
during the 2008-9 financial crisis, leading the country  to raise an "exchange safeguard" measure in the 
Andean Community in the year 2009. Dollarization had reduced the number of policy tools available to deal with changes of other countries' curren cy value. In general, dollarized economies faced 
limitations and vulnerabilities in implementing their economic and trade policies. For this reason, the 
representative wished that the WGTDF further an alysed and clarified the relationship between 
nominal and real exchange rates and the growth of tr ade. He also said that the experience of dollarized 
economies had to be examined further in the cont ext of the work programme proposed by Brazil, 
including implications for WTO trade agreements  such as balance of payments-related safeguards.
4  
The Representative of Australia spoke about the asymmetries in the rebalancing process, whereby 
deficit countries were compelled to act faster and deeper than surplus countries which did not face the 
same pressures. He asked for speak ers to further elaborate on the difficult structural reforms that were 
needed to achieve the G-20 objectives - and to avoid these asymmetries.  
22. The Representative of the United States said th at the topic highlighted the interactions 
between international institutions. The experien ce of the great economic depression of the 1930s 
demonstrated that restricting international trade only further precipitated a decline in global economic 
activity. Beggar-thy-neighbour policies did not only involve raising tariffs but also involved 
devaluation of currencies. IMF principles under any ex change rate regime appl ied:  Members had to 
allow the real exchange rate to adjust to reflect economic fundament als. Preventing this adjustment 
inhibited balance of payments adjustments and acted  as a distortionary barrier to the development of 
international trade. While part of the adjustment  was taking place, more progress had to be achieved. 
For this reason, it was important to better unders tand the relationship between exchange rates and 
trade. Exchange rates also raised important issues  such as the role of macroeconomic policies and 
capital flows that were beyond the scope of the WT O. However, this seminar was important because 
it proved the capacity of the institution to discuss difficult issues multilaterally. 
                                                      
4 Ecuador's full statement at the seminar can  be found in Document WT/WGTDF/W/62. WT/WGTDF/M/24 
Page 6  
 
 23. The Representative of Barbados said that it w as important to look at the interaction of 
exchange rates with capital flows, which was comp lex.  Some developing countries used many tools 
to achieve exchange rate stability such as reserve requirements, directed lending and capital controls, 
all of which mitigated somewhat the impact on trade of exchange rates. In this regard, she supported 
the point made by Ecuador that developing co untries response to capital inflows (and outflows) 
tended to be different from that of  developed countries. In develope d countries, capital inflows did not 
lead to the same level of volatility, and the ma gnitude of negative producti vity shocks linked to 
exchange rate movements in developed countri es was lower than in developing countries. 
24. The panel of speakers answered the questi ons addressed to them. The Speaker from the 
European Union said that while Eastern Europe had received massive capital inflows which had 
resulted in the appreciation of the currency and in-dep th structural reform compensated the effect of 
currency appreciation on competitiveness. In reply to the representative of Ecuador, he said that 
Eastern European countries could also be considered to be small economies. He said that the terms of 
trade story for appreciating countries was not all negative, as it helped increase the purchasing power of consumers. With respect to structural reform s, the EU was working at implementing them under 
the 2020 agenda. The Speaker from India provided technical details on some of the pass-through 
effects of currency changes on India's trade, in par ticular that of oil, and on how the Marshal-Lerner 
effect held in the case of his country. The Speaker  from Turkey reiterated that imports were more 
sensitive to changes of the real effective exchange rate than e xports. There was no exchange-rate 
based solution in the case of her country, rather  to increase the competitiveness and capability of 
domestic industries. She called for greater co-opera tion of the international community in order to 
reduce the volatility of exchange rates globally. The Speaker from Canada considered that model 
simulations were useful but shoul d not be oversold. However, they  were important in providing a 
measure of structural adjustment needed in both  deficit and surplus countries. Exchange rate 
adjustment alone would not be sufficient,  but was necessary in a multilateral world.  
SESSION III: INTERNATIONA L ORGANIZATIONS SESSION 
25. Deputy-Director General Jara moderated the session. He introduced the four speakers, from 
the International Monetary Fund, the World Bank,  the OECD and the UNCTAD, respectively. The 
presentations made by these four speakers have been made available on the main WTO website.5 
26. In the following interventions and questions from the floor, the Representative from France 
thanked the WTO and Brazil for the organization of the seminar. Due to their role on the setting of 
relative prices of products, exchange rates were an  important determinant of trade flows. The level 
and fluctuation of exchange rates could bring about costs that were higher than tariffs. Exchange rates 
could be a source of tension between Members an d trigger protectionist responses. While the IMF 
was the legitimate organization to make determina tions on the value of exchange rates, the trade 
impact of exchange rates had to be taken up by the WTO. The issue of exchange rates had been 
subject to negotiations during the GATT years, and several GATT articles referred to it, including Article XV and Addendum 2 to GATT Article VI. He  encouraged the WTO to continue exploring the 
complexities and implications of the relationship be tween exchange rates and trade, with two angles: 
that of the institutional relations between the WT O and the IMF in the context of the coherence 
mandate; and the deeper implications of exchange rates for trade in a world of supply chains.    
                                                      
5http://www.wto.org/englis h/news_e/news12_e/s3_milesi_ferreti_imf_e.ppt ; 
http://www.wto.org/englis h/news_e/news12_e/s3_canuto_world_bank_e.ppt ; 
http://www.wto.org/english/news_e /news12_e/s3_tamaki_oecd_e.ppt ; 
http://www.wto.org/englis h/news_e/news12_e/s3_flassbeck_unctad_e.ppt ; 
 
  
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  27. The Representative of China commented on the IMF presentation with respect to the savings 
rate in China and its current account position. He de nied that the high savings rate in China was 
policy-induced or determined and did not agree w ith the over-simplification made in the Fund's 
presentation. He emphasized the very important role  of demographics in explaining the high savings 
rate in his country, although this phenomenon woul d be of less importance as demographics were 
changing. He argued that China's economy was already a consumption-based economy, and that it 
would be even more so in the future. The Repre sentative of the European Union acknowledged some 
tension existed around the relationship between excha nge rates and trade and that it was important in 
this context to avoid unilateral retaliatory measures.  While the IMF and the G-20 had to play their role 
in promoting macroeconomic adjustment, the WTO's work was also relevant. The seminar discussion 
had highlighted the fact that exchange rate adjustme nt had to go hand-in hand with structural reforms. 
The WTO was showing its ability to address this diffi cult matter constructively. As to the future, the 
EU was favourable to a continued discussion on th e economics behind the issue, and on institutional 
co-operation between the WTO and the IMF, a nd among international agencies in general.  
28. The Representative of the United Kingdom ma de two observations. First, he cautioned 
speakers who had attributed trade deficits and surp luses to intentionally low or high exchange rate 
levels. The relationship between exchange rates a nd trade flows was not unambiguous. This came out 
of a survey of British businesses in the context of the global economic crisis and the depreciation of 
sterling.  Only one third of businesses believed that  the depreciation would have a positive effect on 
their business, while one third actually perceived an  overall negative effect. International businesses 
took a holistic and long term approach when decidi ng where to locate their production. For example, 
in the case of bottling, the UK had strengths in manufact uring design, which helped to reduce costs.  It 
was relatively quick to set up a new manufacturing f acility in the UK, and the local labour market was 
flexible and skilled. He argued that these factors were  more important than the spot exchange rate at 
any given time. Secondly, he argued that excess vol atility and disorderly movements in exchange 
rates had adverse implications for economic and financial stabil ity, a reason why his delegation 
supported the IMF’s work to develop its analytical tools so as to broaden its assessment of so-called 
external stability risks, including exchange rates,  foreign exchange reserves and global liquidity. He 
supported the Director General’s statement that trade policy should not become the scapegoat for 
global economic imbalances. He questioned the useful ness of the concept of an equilibrium exchange 
rate. 
29. The Representative of Chinese Taip ei shared the results of a re cent survey in which domestic 
industries, mostly SMEs, were more affected by the fluctuations or uncertainty of exchange rates than 
by the level itself. Hedging was not the answer sinc e fluctuations could be frequent. The IMF could 
usefully provide guidelines for companies on how to do hedge appropriately under different circumstances. Other steps by international organiza tions to help the private sector face this challenge, 
especially the SMEs, would be welcome.  
30. The Representative of the United States recalle d the mandates of the IMF and WTO and the 
historical conditions under which each had been designed. He agreed with most speakers that 
exchange rates mattered in one way or another. Every Member of the IMF was bound to collaborate 
with the IMF to fulfil the obligations of Fund Artic le IV, in particular to avoid the manipulation of 
exchange rates to gain an unfair competitive advantag e, or to prevent effective balance of payments 
adjustment. Despite the 1977 decision on exchange rate  surveillance, reinforced  by the 2007 decision, 
IMF surveillance of exchange rates did not preven t large-scale intervention by some countries that 
had the effect of boosting foreign currency r eserves, sustaining persistent misalignment and 
underpinning strong growth in e xports. Two-thirds of emerging countries held reserves above the 
precautionary levels, according to the IMF. He en couraged the IMF to continue to be candid in 
publishing such information. He pointed to the special responsibilities of both surplus and deficit 
countries in "putting their house in order" to rebalance the world economy - increasing national 
savings in the United States and boosting domestic demand in Asia, particularly in China. He WT/WGTDF/M/24 
Page 8  
 
 acknowledged that economic mode ls could not precisely measure the extent of currency 
misalignment, but they provided useful informa tion on the direction of the policy changes needed. 
31. The Representative of Brazil also concluded fro m the presentations that exchange rates matter 
for trade flows and that it was difficult to assess equilibrium exchange rates. However, he was 
concerned about the difficulties of assessing levels  of misalignments. Several provisions of WTO 
Agreements called for IMF guidance.   It would be disappointing if the uncertainties pointed out meant 
that the WTO could not obtain such guidance. Perhap s the complexity of the issue meant that one had 
to readjust expectations about how much guidan ce could be obtained from international institutions. 
Besides, it was important, despite all the factors men tioned that were influencing exchange rates, to 
recognise that the relationship between exchange rate s and trade was an issue in its own right, which 
did not emerge sufficiently from presentations by international organizations. The problems raised by 
private sector companies in the first session had to be better taken into account. The Representative of 
Japan said that in addressing global imbalances structural policies including trade policy had an 
important role to play. He recommended that Memb ers read the OECD's recent contribution to the G-
20 in order to have a sense of the policy agenda necessary to redress these imbalances. He asked the 
IMF about the state of the discussion on capital controls currently applied by several emerging 
economies.   
32. The Representative of Mexico emphasized the comple xity of the topic. He said that the links 
between exchange rates and trade had been est ablished during the presenta tions, although it depended 
considerably on the circumstances of each country, in cluding the price-elasticity of exports and the 
existence of production chains. Another factor was the existence of possible “Dutch Disease” cases. 
The extent to which trade policy could effectivel y redress exchange rate disequilibria had to be 
discussed further. Finally, he commented on the pr esentation by UNCTAD about the possible return 
to a system of fixed exchange rates, and observe d that this system had not been as smooth as it was 
sometimes described. The Representative of the Do minican Republic said that developing countries 
had been against the opening up of capital accounts in the 1990's precisely to avoid exchange rate 
fluctuations. Capital flows could be harmfu l to countries with good economic management, 
particularly when it led to unwarranted currency a ppreciation. Exchange rate shifts had a greater 
impact on small, open economies. He made a refere nce to the dollarization of Ecuador's economy and 
its impact on domestic demand and credit supply. 
33. The panel of speakers answered the questions addressed to them. The Speaker from the IMF 
acknowledged that structural factors (demographics a nd levels of development) did also affect the 
savings rate in China, albeit in different ways. Th e savings rate and current account were hence not 
entirely policy-driven.  However, the magnitude of  recent changes in China's current account showed 
that policy and other short-term determinants had an  important impact too. Therefore, China's savings 
and investment balance was depending on a complex mix of structural and short-term factors. He 
acknowledged that there was some internal debate at  the Fund on capital controls, and suggested that 
Members look at recent Fund publications to get a flavour of it. The Speaker from the World Bank 
confirmed that his institutions cooperated with WT O staff on trade policy and trade capacity building 
issues. He agreed that while there could be a nega tive relationship between exchange rates and trade, 
one had to better understand the path of real excha nge rates in emerging markets, in particular the 
influence of domestic inflation and commodity prices. Also, Brazil was "benefiting" from a wealth effect, whereby the country attracted significant capital inflows because the returns on capital looked 
more promising than in the rest of the world. The Speaker from the OECD also expressed satisfaction 
with the level of co-operation with the WTO, me ntioning the joint work on measuring trade in value 
added. He also offered clarifications on the aims  and outcomes of the OECD Code of Liberalization 
of Capital Movements. The Speaker from UNCTAD sai d that real exchange rates, rather than the 
nominal ones, were the important variable for trad e. While exchange rate markets were probably not 
efficient, they had an idea of what the equilibri um exchange rate was for any country, since they 
generally speculated when market rates were signifi cantly deviating from such "equilibrium" rates. It  WT/WGTDF/M/24 
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  was hence important for international agencies to  give an indication to markets of what the 
"fundamentals"- based exchange rate of each count ry was, to reduce the scope for speculation and 
overshooting.  
SESSION IV: ACADEMIC SESSION 
34. This session was moderated by Professor Cédric Tille, from Geneva's Graduate Institute for 
International Studies. He introduced the four speakers from the following universities: Trinity 
College, Sciences-Po Paris, INCAE, and Columb ia's Business School. The presentations submitted 
are available on the main WTO website.6  
35. The speaker from INCAE thought, inter alia, that  the issue of exchange rate misalignments 
was more interesting institutionally than that of volatility. This did not mean that volatility did not 
impact traders on prices and margins, and influe nce decisions to outsource production overseas. 
However, for him the main reason why the issue of th e impact of misalignment of trade was raised at 
the WTO was because of the existence of some rules that referred to exchange rates. He argued that 
GATT and IMF rules were written in a certain context,  which reflected very much the nature of the 
international monetary system at the time. Th ese rules would probably be written differently 
nowadays because, contrary to the past, exchange ra tes had become an endogenous variable. This did 
not mean that exchange rates could not derive from countries' policies, but the nature of the 
relationship was much harder to determine under the current monetary system than under the previous 
one. The question as to whether exchange rate misalignment affected the volume of trade was 
ambiguous. 
36. The Representative of China pointed to some c onfusion in the definition of exchange rates 
used, real and nominal, price or cost-based. This co nfusion affected the results of empirical studies. 
Empirical studies, because of model specification, and other methodological or data problems, could not all be used for policy purposes. The Represen tative of Brazil said that academics had precisely 
highlighted the point made by his delegation, i.e.  that the relationship between exchange rates and 
trade, on the one hand, and the relationship between  exchange rates and the trade balance, on the 
other, were two separate issues. He illustrated this difference by commenting on Brazil's situation. 
While Brazil's trade balance kept a relatively stable surplus overall, its three components 
(commodities, semi-manufactures, manufactures) ha d reacted differently in the face of currency 
appreciation. While the trade surplus in commod ities had doubled, the surplus in manufactured had 
moved into a very large deficit. As some presenta tions had highlighted, the firm and sector specific 
reactions to exchange rate chang es differed considerably, and the deba te should focus more closely on 
these realities.  
37. The Representative of the United States asked a question to the speaker who had suggested 
that sustaining undervaluation was not easy in the me dium-run, referring to countries intervening on 
exchange rate markets and accumulating reserves. The Representative of Barbados highlighted how 
the international monetary system had changed sin ce the end of the gold exchange standard, in terms 
of growth of international capital flows. Interna tional regulation of these flows had not been keeping 
up with these changes. This created great pressure  on the management of economic policies, in 
particular of developing countries.  
                                                      
6http://www.wto.org/english/ news_e/news12_e/s4lane_trinity_college_e.pdf ; 
http://www.wto.org/englis h/news_e/news12_e/s4_martin_sciences_po_e.pdf ; 
http://www.wto .org/english/news_e/n ews12_e/s4_wei_colum bia_university_e.ppt ; 
 
 
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 38. The Representative of Venezuela said that the aggravation of these "monetary wars" had an 
obvious link with commercial motivations. Trying to put the blame on other developing countries was 
not the way to go, because these countries had also to take care of their ow n poor populations. One 
had to apply the principle of shared but differen tiated responsibility in this area - developing countries 
were not as responsible as developed ones for the current state of monetary relations which was 
dominated by a few currencies. The issuers of th ese currencies drew significant economic benefits 
from this domination. The IMF and the World Ba nk did not provide enough insights on how the 
problem could be solved, and what could the WT O do to help. The Representative of Japan came 
back on the building of foreign reser ves by Asian countries, a point mentioned by one of the speakers. 
He said that after the end of the Asian financial crisis, countries in the region had little choice but to 
build up reserves to avoid a resurgence of the crisis . However, the situation had changed recently with 
efforts to build up "firewalls" regionally (the  Chang-Mai Initiative) and internationally (IMF 
replenishments). Hence, the building up of reser ves was perhaps less necessary nowadays. Besides, 
after the adoption by the IMF of new rules on exch ange rate surveillance, other countries could no 
longer justify the use of trade measures to make up for balance of payments difficulties. 
39. The Representative of the European Union not ed that how careful the academic community 
had been in proposing solutions and recommending WTO involvement, given the complexity of 
issues. It was nevertheless important for the WT O not to disregard a question that was generating 
tensions within the world trading system. It was important to further examine it as the potential for 
triggering unilateral trade action was high. Hence, th ere was a need for a multila teral approach to this 
question. The Representative of Canada observed that, although the seminar had shown how difficult 
it was to measure the existence of exchange rate  misalignment, it was easier to have evidence on 
whether a country was inhibiting exchange rate adju stment - thus raising the question as to why would 
a country would act in such a way.  
40. The panel of speakers answered the questions addressed to them. The Speaker from Sciences- 
Po, Paris said that the statistical analysis conducte d over several countries seemed to lead to similar 
conclusions, hence providing robustness to his findings . He had used both nominal and real exchange 
rates in his work, although progress needed to be  made on the model dynamics. Firm heterogeneity 
was very important in analysing the impact of ex change rates on exporter behaviour - small firms 
typically suffered more than larger ones, for ex ample. He reiterated that his preliminary results 
pointed to the fact that tariffs had a much bigger effect on exporters' behaviour than exchange rate 
movements. The Speaker from INCAE highlighted th e fact that no academic on the panel had said 
that exchange rates did not matter at all, although th e way they mattered for trade varied considerably 
at firm and sector levels. There were many other variables at play, though. He saw relative price and 
productivity effects in the case of Brazil, in favour of the commodity sector at the expense of other 
sectors, regardless of the level of the real exch ange rate. The Speaker from Columbia University 
offered further insights on the connections betwee n the sex ratio and household savings rates in 
China. He elaborated on "Dutch Disease", saying that this was not an unfamiliar policy case in 
international economics. He thought that the met hodology used by IMF's exchange rate assessments 
could be improved by better taking into account structural factors.      
41. WTO Members who took the floor for concluding  remarks (Brazil, United States, China, 
European Union, and Japan) considered the discussi ons held during the seminar had been interesting 
and useful, exposing a wide range of views on the issues under discussion and recognizing the 
complexity of those issues.  They were worth con tinuing, although the direction of such discussion 
had to be determined in subseque nt meetings of the WGTDF.   
42. With this, the Chairman of the WGTDF closed the meeting.   
 
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