WT/WGTDF/W/73  
11 June 2014  
(14-3354)  Page: 1/2  
Working Group on Trade, Debt and Finance  Original English  
 
  THE RELATIONSHIP BETWEEN EXCHANGE RATES 
AND INTERNATIONAL TRADE 
Submission by Brazil 
1  BACKGROUND 
1.  Since 2011, Brazil has been raising the issue of  the relationship between exchange rates and 
international trade. Three submissions have been put forward in this regard: (i) WT/WGTDF/W/53, dated 13 April 2011; (ii) WT/WGTDF/W/56, dated 20 September 2011; and (iii) WT/WGTDF/W/68, 
dated 5 November 2012. 
2.  Having the two first proposals as a background, a two-pillar work program was established in 
2011. 
3.  Under its analytical pillar, a review of relevant literature by the Secretariat (documents 
WT/WGTDF/W/57 and 65) and an international multi-stakeholder seminar (27-28 March 2012) 
have already been carried out. In its submission of November 2012, Brazil (i) recalled the issue of 
exchange rates in the history of the GATT/WTO; (ii) examined relevant existing WTO provisions and their effectiveness in dealing with concrete cases of currency misalignments; and (iii) pointed 
out possible approaches for future discussions of the matter in the WGTDF. 
4.  Brazil suggested that the WTO should look into ways of addressing the effects of misalignments 
on trade and trade rules and stressed that the WTO should do so in a systemic manner, considering the changing nature of exchange rate behaviour over time. Discussions indicated that 
any possible recommendation on how to redress th e effects of currency movements on trade flows 
would require a clearer understanding of the many variables involved in the interplay between exchange rates and trade. 
5.  The second pillar of the work program calls for an assessment of the state of implementation of 
the coherence mandate concerning specifically the interplay between exchange rates and trade. It 
emerged from the discussions of the Brazilian subm issions and from the multi-stakeholder seminar 
that the IMF should be engaged in the exercise so as to feed ongoing discussions with its expertise 
on the financial/monetary dimension of that relationship. A direct link between the WTO and the IMF was established during the May 2013 meeting of the WGTDF following the presentation by a 
representative of the Fund, which focused on recent work and technical and conceptual 
improvements as regards the strengthening of the exchange rate surveillance framework under art. IV of the Articles of Agreement and the Pilot External Sector Report.  
6.  The debate over underlying political question s put forward by the Ch air of the WG and the 
initial dialogue with the Fund instilled a sense that time was ripe to advance discussions regarding 
the second pillar. In that spirit, Members requested Brazil to revise the institutional pillar of its first submission and to table a new communication with a work plan focusing on the implementation of 
the coherence mandate. The new paper should integrate, among others, elements that emerged in 
the presentation of the IMF, particularly concer ning new approaches in the monitoring framework 
and the Pilot Report on the External Sector. 
2  STRENGTHENING THE COHERENCE MAND ATE BETWEEN THE WTO AND THE IMF 
7.  This further contribution is a response to the request by Members for a revised version of the 
institutional pillar of the work program. It is aimed at encouraging discussions associated with the WT/WGTDF/W/73 
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  implementation of the coherence mandate and the respective roles of the WTO and the IMF as 
regards the interlinkages between exchange rates and trade. 
8.  Therefore, Brazil suggests the following activities be pursued in the WGTDF: 
a. Continuation of the ongoin g dialogue with the IMF  with a view to, inter alia :  i) 
improving understanding of the Fund’s policies, approaches and reflections regarding 
exchange rates and trade; ii) clarifying the respective roles of the two institutions 
regarding that relationship; and iii) discussi ng and exploring ways to make trade and 
financial/monetary policies more “consistent and mutually supportive” against the backdrop of present-day trading and moneta ry international systems.  Instances of 
issues that could be taken up during discussions with the Fund under this item include: 
a) policies, studies and/or reflections on the effects of exchange rate misalignments on trade decisions and rules; b) availability and adequacy of methodologies to assess significant and enduring currency misalignments as well as an appraisal of what 
methodology or what methodologies would be more suitable for estimating 
misalignments from the perspective of their impact on trade flows and negotiated multilateral commitments; c) consideration of the scope and current applicability of GATT art. XV; d) assessment of how recent im provements in IMF’s functions relating to 
exchange rate and balance of payments monitoring will help mitigate trade-distorting 
effects of persistent and significant currency misalignments and of possible complementary roles that could be undertaken by the WTO to that end; 
b. Commissioning of a discussion paper  - to be prepared jointly by the WTO, the 
IMF, and the World Bank – on how the "coherence mandate" is being 
implemented  with respect to the relationship between exchange rates and international 
trade. The discussion paper could propose measures, if any, that might contribute to strengthening the "coherence mandate" am ong the WTO, the IMF and the World Bank. 
Once such a discussion paper is finalized an d distributed, a workshop in one of the 
sessions of the WGTDF could be organized to debate issues raised therein as well as its conclusions and propositions. 
c. Commissioning of a factual note to be drafted by WTO’s Secretariat on the 
instances and cases in the history of the GATT/WTO system where multilateral 
trade rules were invoked to address the impact of exchange rate movements on 
Members’ rights and obligations under the WTO agreement.  A special focus should 
be placed on the technical contribution by the IMF in those instances as well as on the 
coordination between the WTO and the Fund fo r the application of exchange rate-related 
trade rules. Such an undertaking was partly performed in document WT/WGTDF/W/68, particularly in respect of the application of GATT Art. II:6 for the re-negotiation of bound tariffs following exchange rate devaluation. Brazil’s third document recalls that such 
provision was invoked 11 times in the history of the GATT and includes one case that 
took place after the dollar was unpegged from the gold and the fixed exchange rate oversight was abandoned. The assumption is that looking into how the WTO and the IMF 
interacted in those cases might shed light on how that collaboration could be re-enacted 
in the current reality of flexible international monetary surveillance, mostly free-floating 
exchange rate regimes, massive transnational capital flows and exchange rate instability 
and misalignments. 
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