WORLD TRADE  
ORGANIZATION   
WT/WGTDF/W/68 
5 November 2012 
 (12-6075) 
Working Group on Trade, Debt and Finance Original: English 
 
 
 
THE RELATIONSHIP BETWEEN EXCHANGE RATES 
AND INTERNATIONAL TRADE 
 
Exchange-Rate Misalignment and Trade Reme dies:  A Conceptual Note by Brazil 
 
 
I. BACKGROUND 
 This conceptual note is a further contribution by Brazil to the discussions under way at the 
Working Group on Trade, Debt and Finance (WGT DF) on the interplay between exchange rate 
movements and trade. 
  Last year, following two proposals submitted by Brazil to the WGTDF (documents 
WT/WGTDF/W/53 and 56), a work programme was estab lished to deal with the issue that included a 
number of activities.  Some of them have already been completed, including a review of relevant 
literature that was compiled by the Secretariat (document WT/WGTDF/W/57) and an international 
seminar that took place on 27-28 March, 2012. 
  The March seminar has been considered ove rall as a positive initiative that provided the 
occasion for a rich discussion by several speakers representing different segments relevant to the 
debate.  Some points have clearly emerged during the discussions:  
 The relationship between exchange rates and trade flows is quite evident.  One may 
differ on the nature of this relations hip, but its existence is undeniable; 
 there are two significant situations in which ex change rates affect trade:  (a) exchange 
rate fluctuations (or volatility) and (b) misalig nments of exchange rates.  The focus of 
the contemporary debate on the matter, as underlined incidentally by the said 
literature review undertaken by the Secretaria t, has been shifting from the former to 
the latter; 
 that change of focus has, in turn, two majo r conceptual implications:  (a) emphasis is 
placed less on the variability and more on the real level of exchange rates and (b) to 
the extent that any particular misalignmen t always expresses itself bilaterally, that is 
to say, in the value of one currency relativ e to another, the analysis of the trade 
impact of currency misalignments calls fo r the examination of country-specific trade 
flows and, within countries, of particular se ctors and even individual firms.  The more 
one moves away from macroeconomic aggregates, which are relevant for the analysis 
of exchange rates fluctuations, and the closer  one gets to bilateral trade flows or even 
to sector-specific trade, the nature of th e linkages between exchange rates and trade 
becomes clearer.  This was a key point stressed in the seminar, in particular by private 
sector participants; 
 both misalignments and fluctua tions of exchange rates ar e hard to properly measure 
and assess.  The presentation by the IMF itself underscored how difficult it is to WT/WGTDF/W/68 
Page 2 
 
 
  establish equilibrium models for exchange rat es in different countries.  This seems to 
confirm the view that it would not be useful to try to pin down in the WTO either the 
causes for misalignments or points of equilib rium for specific currencies.  This 
Organization should not get involved in either  analysis or management of exchange 
rates.  This is the domain of other international institutions.  The WTO could and 
should, however, deal with the effects of  those fluctuations and misalignments. 
 Indeed, discussions during the seminar fell shor t of assessing precisely what specific role the 
WTO could or should play today.  This conceptu al note is intended to help members address that 
necessary component of the work programme by (i) recalling debates that took place in the history of 
the GATT/WTO;  (ii) examining relevant existing WTO provisions and their effectiveness in dealing 
with concrete cases of currency misalignments, and (iii) suggesting possible approaches for our 
discussions in the WGTDF. 
 
 It has always been the view of Brazil th at, whatever the causes of exchange rate 
misalignments, the WTO should look into ways to  address their effects in a systemic manner.  
Throughout this process, one should always bear in  mind that situations may and most likely will 
change over time.  A currency that is presently ove rvalued might become undervalued tomorrow.  So 
the challenge the WGTDF is faced with is to analyse the subject from a systemic perspective.1 
 
II. EXCHANGE RATES IN THE HISTORY OF THE GATT/WTO 
 The debate on the relationship between exchange rates and international trade is clearly not a 
new one.  It was present at talks that eventu ally led to the design of the architecture of 
the Bretton Woods inte rnational institutions. 
 
 Before the inception of the GATT, during the ne gotiations of the Havana Charter, concerns 
over the potential negative effects of exchange ra te movements on the trading system had already 
been expressed and led to a vivid debate.  Gu idelines for the negotiation of tariffs under the 
Havana Charter acknowledged the chal lenge posed by the direct impact of currency devaluation on 
tariff levels.  Section E of the Annexure 10 to the Report of the First Session of the Preparatory 
Committee of the United Nations Conference on Trade and Employment (E/PC/T/33 - Annex 1), 
regarding "avoidance of new tariff or other rest rictive measures" before engaging in tariff 
negotiations, called on countries not to make changes in  the form of tariffs or in tariffs themselves due 
to devaluation of their currencies in such a manne r that they would "result in an increase of the 
protective incidence of the tariff".  
 Also during negotiations of the Havana Charte r, parties recognized th at devalued currencies 
might constitute a form of unfair trade.  Australi a, supported by two other delegations, put forward a 
proposal intended to regulate the use of "currency du mping duties" so that they could only be imposed 
following a procedure determining that the dumping "is such as to injure or threaten to injure an 
established domestic industry".
2  That proposal on currency dumping was dismissed during the initial 
GATT negotiations and no such a provision was writ ten into the GATT.  Parties remained, however, 
concerned with the potential adverse effects of exch ange rates movements on trade, particularly in the 
case of multiple currencies adopted by some countries.   In this respect, two interpretative notes on 
paragraphs 2 and 3 of Article VI were added to the GATT in 1955, establishing that multiple 
currencies might constitute subsidization or dumpi ng and could be countered by trade remedies. 
 
                                                      
1 By way of illustration, a graph is attached to this paper with the evolution of currency misalignment 
in Brazil in the period 1980/2010. 
2 Report of the Drafting Committee of the Prepar atory Committee of the Unite d Nations Conference on 
Trade and Employment, UN ECOSOC, E/PC/T/34 of 5 March 1947, p. 13 (Annex 9).  WT/WGTDF/W/68 
 Page 3 
 
 
   As for the General Agreement itself, its provi sions on exchange rates rely on and call for 
complementarity and coherence with the IMF's role in monitoring monetary policy, including 
exchange rates.  Essentially, its disciplines are ta rgeted at ensuring that exchange rates and trade 
policy disciplines are mutually supportive and based  on predictability and certainty, both critical and 
indispensable elements for successive trade liberaliz ing rounds.  Such clauses as Articles II:6(a) and 
Article XV of the GATT try to address the need to  mitigate the potential disruptive effects of 
exchange rate on trade and to preserve the stability  of the world economy, even at a time when a 
system of fixed exchange rates prevailed internatio nally, under the supervision of the IMF.  Several 
GATT bodies looked into aspects of the relationship betw een exchange rates and trade, particularly in 
the late-1970s and early-1980s, when a special fo cus was placed on updating Article II:6.  That 
interaction was also examined in sever al areas of the Uruguay Round negotiations. 
 
 Article II:6(a) of the GATT recognizes that exch ange rate misalignments may affect the level 
of bound tariffs resulting from market access negotiati ons among different parties.  It permits the 
negotiation of adjustments to specific (but not ad valorem ) duties and charges and related margins of 
preference in order to restore effectiveness to ta riffs unduly eroded by currency devaluation.  Those 
negotiations occurred nine times between 1950 and 1975 and led to decisions that allowed for the 
raising of bound specific tariffs by Benelux,  Finland, Israel, Uruguay, Greece and Turkey.3 
 
 Interestingly enough, the then Czechoslova kia laid down a proposal in 1954 to amend 
Article II:6(a) so that tariff adjustments could also be allowed mutatis mutandis  in case of currency 
appreciation of more than 20 per cent.4 
  The replacement of the fixed exchange rate sy stem by one based on floating exchange rates in 
the 1970s heightened the importance of properly di scussing the effects of exchange rate movements 
on trade flows and on the stability of the multilateral trading regime.  The role of the Fund under the 
new system would no longer comprise a strict oversight of countries' exchange rates vis-à-vis  the par 
value.  Rather, the IMF was mandated to "survey" the exchange rates policies of its members and set 
out principles for guidance with respect to those pol icies.  At that time, GATT Contracting Parties 
initiated discussions on the possible impacts of the new monetary system on international trade rules.  
They dealt particularly with how existing GATT provisi ons, such as Article II:6, needed to be adapted 
to the new financial and monetary context. 
 
 A GATT Working Group tasked with adjustin g Art.II:6 to the new reality of floating 
exchange rates adopted in 1980 the "Guidelines  for Decisions under Article II:6(a) of the 
General Agreement" (L/4938, 27S/28-29 - Annex 6) .  The document reaffirmed the importance of 
maintaining the adjustment mechanism to cancel out  the effects of exchange rate devaluation on 
specific tariffs and laid down a methodology for the calculation of currency depreciation, to be 
performed by the IMF.  Such Guidelines have b een incorporated into the GATT 1994 as established 
by its Article 1(b)(iv).  
 The question of whether or not Contracting Parties with appreciated currencies should be 
required to reduce their specific (again as opposed to ad valorem ) duties was also raised at 
a 1979 meeting of the Working Party on Specific Duties (L/4858).  Even though it was then decided 
that no work on the matter should be pursued, the Working Party noted that parties could resort 
                                                      
3 See GATT Analytical Index, Article II.  Benelux:  decision of 15 December 1950 (II/12).  Finland:  
decisions of 2 March 1955 (3S/28), 15 November 1957 (6S/22), and 20 November 1965 (15S/66).  
Greece:  decision of 24 October 1953 (2 S/24).  Israel:  decision of 3 Februa ry 1975 (C/M/103, 12 4, 125, 138).  
Turkey:  decision of 10 April 1959 (8S/24).  Uruguay:  decisions of 18 May, 1961 (10S/34) and 25 March 1965 
(13S/20). 
4 Article II - Proposals by Czechos lovak Delegation, Contracting Par ties Ninth Session, Working Party 
on Tariffs, Schedules and Customs Administration, 16 December  1954, W.9/109 - Annex 4. WT/WGTDF/W/68 
Page 4 
 
 
  to Articles XXII (consultations) and XXIII (impairment or annulment of benefits) if they felt that 
currency appreciation impaired the value of specific duty concessions in particular cases. 
  At a 1984 session on "Exchange Rate Fluctuati ons and their Effect on Trade" (L/5761 - 
Annex 3) the CONTRACTING PARTIES to the GATT recognized that, under the new monetary 
regime, "in certain circumstances exchange market  instability contributes to market uncertainty for 
traders and investors and may lead to pressures to in creased protection."  They also took note of the 
frailty of small traders in the face of limited he dging opportunities and small trading countries and 
developing countries whose trade destinations could not  be easily diversified.  On that same occasion, 
the IMF was equally urged to take into consider ation "the relationship between exchange market 
instability and international trade".  In response, th e IMF issued a study in that year that did not 
produce conclusive evidence on the effects of excha nge rate instability on international trade flows.
5 
 
 Later on, many Uruguay Round Agreements in cluded provisions related to the use of 
exchange rates often prescribing market exchange  rates and renewing the call for coordination with 
the IMF. 
 
III. RELEVANT PROVISIONS IN THE MULTILATERAL TRADING SYSTEM 
A. GATT  AND WTO  PROVISIONS APPLICABLE TO EXCHANGE RATES AND TRADE  
 A number of provisions in the GATT and in  WTO Agreements contain safeguards against 
trade-related distortions caused by exchange rate  instability, practices and restrictions.  Upon its 
establishment, the WGTDF commissioned a paper by the Secretariat that covers this particular 
matter.6  The paper provides a descriptive rather than  an analytical review of those relevant 
provisions.  Most of them do not address directly  the impact of currency misalignment on trade. 
 
 The three GATT provisions, corresponding notes and documents, that might arguably be 
invoked by Members troubled by trade-related adver se effects of currency misalignments appear to be 
Article II:6(a), Article XV and Article XXIII.  1. GATT Article II:6 
 Article II:6 of the GATT provides for very specifi c tariff adjustments.  It is targeted at the 
impact of currency devaluation on negotiated specifi c duties and charges, and margins of preference 
thereof, on the assumption that a devalued currency lo wers the protective effect of specific duties and, 
therefore, artificially improves market access cond itions.  Article II:6 foresees negotiations in case 
countries wish to raise their specific duties to rest ore them to the effective bound level in the face of 
currency devaluation.  The Contracting Parties have the opportunity to make sure that the adjustments 
will not impair the value of the concessions provi ded in the "complainant's" schedule, while being 
mindful of all factors influencing the need and urge ncy for tariff adjustments.  That provision appears 
to have been designed to prevent abuses  in the right to raise specific duties vis-à-vis  the obligation to 
maintain the value of concessions.  The intent to pr eserve the balance of rights and obligations of the 
contracting parties in the application of the article , while acting on currency distortions, is reaffirmed 
in the guidelines for its implementation, adopted in 1980. 
 
 The Article fixes a threshold (20 per cent) over which devaluations vis-à-vis  the par value 
might trigger tariff adjustments.  Its guidelines also suggest a methodology for the calculation of 
                                                      
5 The IMF study - IMF (1984), Exchange Rate Volatility and World Trade, IMF Occasional Paper 30 - 
is mentioned in the review of the economic literature on the relationship between exchange rates and 
international trade carried out by the Secretariat (WT/WGTDF/W/57). 
6 WT/WGTDF/W/3.  WT/WGTDF/W/68 
 Page 5 
 
 
  currency depreciation so as to allow the applicati on of Article II:6 when warranted by changes in 
international monetary conditions.  Such calculation is  to be carried out by the IMF.  It should take 
into consideration also the import-weighted average exchange rate during the previous six months in 
respect of the currencies of trading partners s upplying at least 80 per cent of the imports of the 
concerned country. 
 2. GATT Article XV:4 
 Article XV:4 provides that the "Contracting parti es shall not, by exchange action, frustrate the 
intent of the provisions of this Agreement, nor, by  trade action, the intent of the provisions of the 
Articles of Agreement of the International Monetary  Fund."  Its paragraph 9 also stipulates that 
"Nothing in this Agreement shall preclude:  (a) the u se by a contracting party of exchange controls or 
exchange restrictions in accordance with the Artic les of Agreement of the International Monetary 
Fund or with that contracting party's special exchange agreement with the 
CONTRACTING PARTIES, or (b) the use by a contracti ng party of restrictions or controls in imports 
or exports, the sole effect of which, additional to the effects permitted under Articles XI, XII, XIII 
and XIV, is to make effective such excha nge controls or exchange restrictions." 
  According to the first part of paragraph 4, exchange measures might be challenged if they 
violate GATT disciplines.  However, its Supplementary  Note grants a special treatment to Article XV 
exchange policies vis-à-vis  other measures covered by the GATT.  For an exchange measure to be 
found to "frustrate the intent" of a GATT artic le, and therefore contravene Article XV, the 
demonstration of violation of the letter of the provision would not suffice.  Such measure would 
additionally have to lead to an "a ppreciable departure" in relation to the intent of the GATT provision.  
Even if it is attested that the exchange measure frustrates significantly the object of the provision, 
such a violation of Article XV:4 could still be  tempered on the grounds of Article XV:9. 
 
 Article XV was not designed to equip Contracti ng Parties with the means to deal with new 
challenges created by the weakness of the interna tional monetary system following the collapse of the 
gold standard, nor to settle any related trade disputes .  It is not a mere coincidence that the dispute 
settlement mechanisms of the GATT/WTO have never been used to address complaints under 
Article XV.  3. GATT Article XXIII:1(b) 
 Article XXIII:1(b) of GATT 1994 enables WT O Members to question a measure which 
results in nullification or impairment of benefits ar ising out of the Agreement, irrespective of violation 
of multilateral obligations.  The article provides th at Contracting Parties "shall give sympathetic 
consideration to the representations or proposals made to it" regarding a measure subject to a 
complaint.  Furthermore, Article 26.1 of the Di spute Settlement Understanding stipulates a few basic 
conditions for the application of non-violation compla ints and situations, namely:  (i) the complaining 
party must provide a detailed justification of its dema nd;  (ii) the complained party is not obliged to 
repel the measure even if it nullifies or impairs be nefits;  however, the panel or the Appellate Body 
has to recommend that such a Member make a "mutually satisfactory adjustment";  
(iii) compensations - a provisional remedy in non-violation complaints - may be part of such a 
mutually satisfactory adjustment "as final settlement  of the dispute".  Existing jurisprudence shows 
that the burden of proof on the complaining party tends to be rather he fty under Article XXIII.  
Apart from a detailed justification, the complainant is  likely to have to demonstrate that the measure 
adversely affects the competitive position of its pr oducts and that it was impossible to predict the 
adverse competitive position stemming from the meas ure when the concessions affected by the 
measure were negotiated. 
 WT/WGTDF/W/68 
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  4. Further considerations 
 Having been crafted in respect of exchange and monetary policies belonging to a different 
period, the WTO provisions above do not seem to be adequate to provide solutions "to compensate for 
or otherwise redress those currency fluctuations  that may impair commitments undertaken by 
Members in successive rounds of negotiations" (see document WG/ WT/WGTDF/W/56). 
 
 Article II:6, specifically, fails to grasp the thr ee other possibilities of impact of exchange rates 
on tariffs:  (i) overvalued currencies raising the rela tive value of specific duties, restricting market 
access;  (ii) devalued currencies raising the relative value of ad valorem  duties, limiting market 
access;  (iii) overvalued currencies diminishing the relative value of ad valorem  duties, enlarging the 
market access beyond what had been originally negotiated.  
 One could hardly expect negotiations under Artic le II:6, due to uncertainty in their duration, 
to be able to deliver timely solutions for Members in need for immediate relief on account of more or 
less enduring but disruptive impacts of currency misalignments.  For one thing, the membership as a 
whole would have to agree that no impairment of  concessions had occurred before tariff adjustments 
could be authorized.  Such negative effects may pr ove irreversible in the face of protracted action 
where they result, for instance, in bankruptcy  of entire sectors and massive unemployment. 
 
 In the same vein, the much more erratic and dynamic behaviour of currencies under a free 
floating system poses a significant challenge to an y attempts to establish appropriate time-frames for 
the duration of bound tariff adjustments under Article II: 6.  In light of the irregular and unpredictable 
nature of currency fluctuations, any adjustments to applied tariffs - both upwards and downwards - 
need to be carefully designed so as to avoid overshooting of level or duration. 
 
 In sum, provisions such as Article II:6 fall shor t of adjusting to the diversity of today's tariff 
regimes - which comprise differing combinations of ad valorem , specific and mixed duties - and the 
present characteristics of the international monetary  system - subject to a myriad of policies ranging 
from the predominant free floating regim es to pegs to foreign currencies. 
 
 Though a clarification of Article II:6 was finally adopted in 1980, there have been no further studies on other trade instruments that might address the particularities of today's floating exchange 
rate system.  Contracting Parties did not manage to promote a true aggiornamento  of the GATT to 
deal with the effects of exchange rate misalignments.  
 Despite a few episodic initiatives in the GATT and during the Uruguay Round to update rules 
relating to exchange rates, none of the availabl e disciplines seems to provide effective tools for 
countries affected by exchange rate movements to c ounter or alleviate the harmful effects of currency 
misalignments and fluctuations.  One should recall that, particularly in periods of growth, such 
distortions are frequently compounded by speculative and undisciplined financial flows, usually from 
low interest to high interest rate countries,  which tend to reinforce and magnify currency 
misalignment trends.  This is especially true fo r countries with floating exchange rate systems and 
whose currencies are not international reserves. 
 
 In the absence of multilaterally agreed rules and corrective measures which take due account 
of the present financial and mone tary situation, those countries most distressed by such adverse 
consequences are often tempted to, and at times comp elled to, resort to intervention both in exchange 
rate and trade policies.  Potential systemic risks entail from use intensification and overstretching of 
disciplines for trade remedies su ch as safeguards, anti-dumping, and countervailing measures. 
  WT/WGTDF/W/68 
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  B. TRADITIONAL TRADE REMEDIES UNDER THE WTO.   ARE THEY APPROPRIATE ? 
 It is also important to examine whether or not existing disciplines of trade remedies in the 
WTO may be used to correct the adverse impa ct caused by exchange rate misalignments. 
 
 There are three possibilities for a WTO Member to counter the adverse effects of trade 
practices of other Members:  (i) the Agreemen t on Subsidies and Countervailing Measures (ASCM);  
(ii) the Agreement on Implementation of Ar ticle VI of the GATT 1994, also known as 
the Anti-Dumping Agreement (ADA);  (iii)  and the Agreement on Safeguards (AS). 
 
 Each of these agreements was designed to a ddress a specific situation calling for the provision 
of instruments of defence to be used by one Member  either against unfair trade practices by others or 
to combat import surges. 
 
 The ASCM is intended to address government po licies.  It establishes that prohibited and 
actionable subsidies which cause injury can be cha llenged either multilaterally, through the Dispute 
Settlement Mechanism (DSM), or through the applic ation of a countervailing measure by the Member 
affected.  In the first instance, a prohibited subsidy must be withdrawn without delay and an actionable subsidy must be withdrawn or its adverse effects removed.  There is no definite time-frame 
for removing countervailing measures. 
  The architecture of the ASCM is built around a very particular definition of subsidy.  
A subsidy shall be deemed to exist if:  (i) ther e is a financial contribution by a government or any 
public body within the territory of a Member;  (ii) a benefit is thereby conferred;  (iii) the subsidy is 
specific.  These three criteria must be met for a subsidy, prohibited or actionable, to fall under the 
provisions of the ASCM. 
 
 The text of ASCM provides a non-exhaustive list of forms of financial contributions such as 
direct transfer of funds, foregone government reve nue, the provision or purchase of goods or services 
other than general infrastructure, payments to f unding mechanisms, etc.  This list does not, as it is 
well known, include exchange rates undervaluation or  misalignment.  Assuming, hypothetically, that 
any of those terms or an equivalent one figured on the list, they should still meet the criteria of 
conferring a benefit and being specifi c to be considered a subsidy. 
 
 It is unclear whether a currency misalignm ent would fulfil the three requirements listed 
above, especially the one regarding specificity. 
 
 Furthermore, Article 3.1. (a) of the ASCM establishes that subsidies contingent upon export 
performance, including measures illustrated in Annex I of the Agreement, are prohibited.  None of the 
measures of the Annex I expressly mentions exchange  rate undervaluation or misalignment.  Again, it 
would seem that the contingency test could be qu ite a challenge to Members trying to characterize 
exchange rate devaluations  as prohibited subsidies. 
 
 What seems to be clear nonetheless is that the SCM Agreement does not offer clear guidance 
on how and whether WTO Members could use it to address the impact of exchange rate 
misalignments.  
 A second way for Members to counter the effect s of unfair trade practices within the WTO is 
to be found in the ADA.  Dumping can be counter ed only in circumstances under which a material 
injury has been caused or threat ened to be caused to the domestic industry of the importing country, 
and there is a causal link between the dumping and ma terial injury.  There is no definite time-frame 
for withdrawing anti-dumping duties.  WT/WGTDF/W/68 
Page 8 
 
 
   It should be noted that dumping is related to  private corporation practices, not to government 
policies such as foreign-exchange policy or otherwise any kind of monetary policy.  The ADA 
countermeasures are targeted at individual prod ucers or companies selling products below their 
normal value to gain advantage in a foreign market .  Again, undervalued or overvalued currencies 
apply horizontally to any given economy, howeve r different their impact may be on different 
segments or industries.  While they might bene fit from certain currency movements, individual 
producers by themselves have no power to establish, "manipulate" or correct any macro-economic 
policy, including exchange rates.  
 The third defence instrument to be assessed here is the AS.  This Agreement allows 
a WTO Member to apply safeguard measures whenever a product is being imported into its territory 
in such increased quantities as to ca use or threaten to cause serious injury to the domestic industry 
producing the like or directly competitive product.  The measures can only be applied to products, 
irrespective of their source.  Therefore, a safeguard  measure has to be imposed on all countries, except 
for developing countries under certain circumstances ( de minimis  clause). 
 
 In contrast to the ASCM and the ADA, the AS establishes stricter conditions for the application of remedies, especially because it requir es that "serious injury" has to be established for 
producers of a specific and well-defined good.  Unlike countervailing and anti-dumping measures, 
that have no predefined time-frame to expiry, a saf eguard measure may last up to eight years (ten 
years for developing countries) and has to be ph ased out gradually.  Simultaneously, the domestic 
industry of the Member imposing the measure has to undertake adjustment commitments. 
  In conclusion, the main player determining an y country's exchange-rate policy is invariably 
its government and, more specifically, its moneta ry authorities.  The effects of the policy are 
presumed to affect the whole economy of the c ountry concerned, although not necessarily in a 
uniform manner.  Using the ADA or the AS to offset  currency undervaluation appears not to fit into 
the very rationale of both agreements.  The AD A aims at products and thus companies, not 
governments or macroeconomic policies dictated by governments.  The AS, in turn, was designed to 
target products and be applied erga omnes .  While this might be appropriate under certain 
circumstances the AS was eviden tly not designed to address the ty pe of wide-ranging impact and 
possible bilateral nature of the eff ects deriving from currency misalignments. 
 
IV. IS THERE A NEED TO CRAFT TRADE REMEDIES THAT SPECIFICALLY 
ADDRESS CURRENCY MISALIGNMENTS? 
 Existing provisions related to exchange-rate  movements in the WTO agreements as well as 
the three Agreements providing for trade remedies at  the WTO were created to deal with situations 
unrelated to the dynamics of exchange-rate move ments in today's volatile international monetary 
system.  The WTO seems to be systemically ill-e quipped to cope with the challenges posed by the 
macro and microeconomic effects of exchange rates on trade.  
 Members may wish, against this background, to  consider the need for exchange-rate trade 
remedies and to start some analytical work to that  effect.  A non-exhaustive list of key elements that 
will necessarily have to be considered in this analytical work is provided below: 
 (a) Measuring currency misalignment 
 It will be necessary to define methodologies to  assess currency misalignments and to establish 
triggers/benchmarks for specific action.  Cooperati on with the IMF could be explored.  The purpose 
would not be to establish optimal or equilibrium excha nge rates for particular currencies, but rather to 
detect significant departures from historical or reasonable levels.  Issues such as the basis for  WT/WGTDF/W/68 
 Page 9 
 
 
  comparison - against other individual currencies;  basket of currencies;  both - and time-frames would 
be part of this evaluation. 
 (b) Product-specific/sector-specific or economy-wide scope 
 Should corrective measures be applicable only to a specific product or sector in the country 
affected or to its entire economy?  What are the impl ications of either choice?  The three agreements 
on trade remedies do not contain any provision on  sector specific or economy wide corrective 
measures.  A sector-specific approach would need a definition of and/or a classification of sectors.  
(c) Time-frame 
 An appropriate time-frame for the application of corrective measures.  The argument could be 
made that sustained long-term misalignments would no longer be a misalignment;  rather, they would 
become a new structural point of equilibrium.  The discussion on time-frames would equally touch on 
review and extension/termination of corrective measures.  
(d) Origin of covered products 
 Should corrective measures be applied on an MF N basis or specifically for currencies against 
which the misalignment is found?  As exchange ra te misalignments may not necessarily occur against 
a large number of key trading partners and may ha ve a focus on bilateral trade (or on a wider volume 
of world trade representing in any case the sum of a cer tain number of bilateral trade flows), it may be 
the case to consider a non-MFN approach. 
 
(e) Injurious effects 
 Corrective measures could be crafted to be tri ggered automatically or, alternatively, following 
the finding of injury or threat of injury to the domestic industry.  The automatic format would 
probably demand more stringent requirements. 
 
(f) Investigation procedures 
 The need for investigation procedures woul d depend largely on the automaticity of the 
mechanism adopted.  The more automatic, the less ne ed for such procedures.  In case these procedures 
are necessary, work could be inspired by the parameters found in the ADA, ASCM and AS. 
 WT/WGTDF/W/68 
Page 10 
 
 
  ANNEX - GRAPH7 
 
CURRENCY MISALIGNMENT IN BRAZIL 
  
 
 
__________  
                                                      
7 Source:  Professor Emerson Marçal (" Fundação Getúlio Varg as"), July 2012.