WT/WGTDF/W/80  
8 October 2015  
(15-5252)  Page: 1/3  
Working Group on Trade, Debt and Finance  Original English  
 
  INTERVENTION MADE DURING  
THE MEETING OF THE WGTDF ON 29 SEPTEMBER 2015 
Submission by Brazil 
1.  From the outset, Brazil wishes to express appreciation for the Secretariat’s note on the 
invocation of article II.6 by GATT contracting parties (document WT/WGTDF/W/78). Although factual, the document is insightful and thought- provoking. The references to related documents 
are well researched and pertinent to the discussion.  
2.  For instance, the “Report of the Working Party on Specific Duties” (document L/4858), shows 
quite clearly that, several decades ago, Contracting Parties were already fully aware of the 
challenges posed by structural currency movements on their rights and obligations under the GATT and were holding discussions on a level of complexity which owes nothing to the current debate. 
3.  Before delving into comments on specific aspects of the Secretariat’s document, it should be 
emphasized, once again, that it has never been  Brazil’s intention to pass judgement on other 
Member’s economic policy or to extend the jurisd iction of the WTO to areas lying outside of its 
established purview, nor has it been our purpose to deal with immediate economic policy challenges, like short-term exchange rate fluctuations. 
4.  In April 2011, Brazil took the initiative of raisin g the issue of the relationship between exchange 
rates and international trade (document WT/WGTDF/W/53), submitting a total of 4 contributions on the matter. 
5.  Against the background of all the Brazilian contributions, the Secretariat’s document settles 
definitively a fundamental point of contention on  the matter up to now: the impact of exchange 
rate misalignments on the level of protection is an issue well within the scope and purview of the GATT. 
6.  The Working Party on Specific Duties was quite clear on this regard when it stated, for instance, 
that their examination is based “on the assumption  that, within the framework of Article II:6(a), 
the link between depreciations and specific duty adjustments should be maintained”. Therefore, 
past concerns regarding the so-called “introduction” of the issue of exchange rate misalignment into the WTO, as if it was a strange concept to the Organization, should be laid to rest. 
7.  In fact, exchange rate misalignment has been a concern since the inception of the multilateral 
trading system and, more important, the Secret ariat’s document makes it abundantly clear that 
action has been taken and authorized on a number of occasions in the past in order to address adjustments of specific duties because of currency misalignment. 
8.  Before proceeding, it might be usef ul to clarify that one should k eep in mind that the equivalent 
effect of exchange rate depreciation on specific duties in the 70’s is nowadays an exchange rate appreciation on ad valorem tariffs. 
9.  As shown in the Secretariat’s Note and as indicated by Brazil in its third submission (document 
WT/WGTDF/W/68), out of the 11 instances in which Article II.6 has been invoked in the past, 9 
resulted in adjustments to specific duties to “neu tralize” the erosion of protection due to exchange 
rate devaluations.  WT/WGTDF/W/80 
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  10.  Some important conclusions might be drawn from the first 8 episodes which took place under 
a regime of fixed exchange ra tes supervised by the IMF: 
a. Operation of Article II.6 is not automatic. An y request under that provision needs to be 
initially submitted to the Membership. Moreover, any proposal for raising duties as a result of devaluation was conditioned on that devaluation having been conducted in 
accordance with the IMF’s relevant provisions;  
b. The increase of specific duties should not impair the value of the Contracting Party’s 
concessions, which is tantamount to say that the duty adjustment should not exceed the level necessary to compensate for the new exchange rate.  
11.  On the afore-mentioned 8 cases, both conditions were met, and there seems to be no record 
of any Contracting Parties complaining about impairment of concessions. 
12.  It is equally important to highlight that, from an institutional viewpoint, the GATT and the IMF 
stood within the limits of their respective jurisdictions: the GATT only acted once it was established 
that the new exchange rate was obtained accordin g to IMF rules, while the IMF did not opine on 
trade or tariff matters, simply attesting to the specific country’s compliance with its own rules. 
13.  It should be highlighted as well that Article II.6 was then understood to be used only when a 
country claimed to have lost its level of tariff protection as a result of a depreciation of its own 
currency, what would correspond in today’s ad valorem tariff environment, to a currency 
appreciation. 
14.  That was exactly the answer given by Contracting Parties in 1979 to the question whether 
“contracting parties whose currency appreciated should be required to reduce their specific duties” 
(paragraph 14 of document L/4858).  
15.  According to the conclusions at that time, “the Working Party agreed not to pursue this matter 
noting that Article II:6(a) did not deal with appreciations and also noting that contracting parties could resort to Articles XXII and XXIII of the General Agreement if they considered that an 
appreciation impaired in a particular case the value of specific duty concessions” (paragraph 14 of 
document L/4858). 
16.  The plot thickens in 1977 with a request by Israel to raise specific duties already under a 
floating exchange rate regime, which added the challenge of distinguishing between transitory 
volatility and more structural currency movements. 
17.  Although this request by Israel did not result in an immediate tariff increase, it led to the 
creation, in 1978, of the Working Party on Specif ic Duties and, latter, to the adoption of the 
“Guidelines for Decisions under Article II:6(a) of the General Agreement” in 1980 (document 
L/4938). 
18.  The records of the discussion in that Working Party and the Guidelines themselves also 
present us with relevant input to present discussi ons. Firstly, there was a consensus that Article 
II.6 of GATT did not need to be re-drafted, but the new circumstance of floating exchange rates 
required an update of the procedures regarding the implementation of that article. Secondly, 
although focused on the problem of the impact of currency misalignment on specific duties (and not ad valorem), the aforementioned Guidelines addressed some very important technical questions that have been raised in a number of occasions in our own Group. 
i. How to set a reference exchange rate against which misalignment could be assessed. 
19.  In the records of the discussions of the Guide lines (paragraph 11 of document L/4858), one 
finds the following conclusion reached by the Contracting Parties: “The Working Party noted that in the past practice of the GATT the relevant period was the period that had elapsed since the specific 
duties were formally bound in a GATT schedule or since the last authorization of the Contracting 
Parties to adjust the duties”. That is to say, the reference exchange rate against which misalignment should be assessed should be the one in place when the specific duties were bound. WT/WGTDF/W/80 
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  i. The second valuable input from those discussions relates to the methodology to 
calculate currency misalignment. 
20.  Based on two reports prepared by the IMF, at the Working Group request, Contracting Parties 
discussed the issue and eventually developed th eir own methodology on how to assess currency 
misalignment, as it can be seen in item (b) of the Guidelines (document L/4938). 
21.  Fundamentally, the calculation should be made by comparing the import-weighted average 
exchange rate during the six months preceding the date of the legal instrument through which the specific duties to be adjusted were last bound or the date of the las authorization by the Contracting Parties to adjust the specific duties, whichever of the two came later, with the import-
weighted average exchange rate applied during the six months preceding the contracting party’s 
request. A misalignment of 20% or more would be considered grounds for a tariff adjustment. 
22.  Some key points deserve to be stressed. 
23.  First, Contracting Parties felt that, for GATT purposes, there would be the need of a special 
methodology for calculating exchange rate misalignment. 
24.  Second, that methodology was developed with the input from the IMF. 
25.  Third, it would fall to the IMF – with the IMF acquiescence – the task to simply apply the 
methodology to concrete cases and to define  the magnitude of any currency misalignment. 
26.  As an attempt to summarize this long intervention, it is worth point out a number of issues. 
27.  In the first place, it seems quite clear at this juncture that the linkage between currency 
depreciation and the erosion of the protection of bo und tariffs is specifically enshrined in the GATT, 
underpinning a number of concrete actions both with in fixed and floating exchange rate regimes. 
28.  Second, the effects of currency movements that  effectively increase the level of tariff 
protection seem to be more properly dealt ou tside the realms of Article II.6 of the GATT. 
Reference, in the past, was made to Articles XXII and XXIII of the GATT.  
29.  It is never enough to emphasize that GATT Arti cles II.6, XXI and XXIII are to be triggered by 
changes in the effective level of tariff protection caused  by exchange rate misalignments. It must 
be clear that GATT provisions are not addressing exchange rates per se but the impacts of 
exchange rates misalignments of the rights  and obligations of Members within WTO. 
30.  Third, it is not clear whether the procedural  update brought by the 1980 Guidelines would 
perfectly fit in the case of ad valorem duties. 
31.  In this regard, it suffices to say that persistent currency devaluation could increase the 
effective level of protection of ad valorem duties and persistent currency appreciation could erode the protection granted by ad valorem duties. In any case, although some technical adjustments to 
those Guidelines might be needed, it is undeniable th at the same logic applicable to specific duties 
shall prevail in the case of ad valorem duties. 
32.  Finally, the question remains of what could be done to counter-act persistent currency 
misalignment of relevant trading partners. This is probably the area where most of the work 
remains to be done, since existing trade remedies, as already pointed out in Brazil’s 2012 
submission, would in principle not be adequate. 
 
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