WORLD TRADE  
ORGANIZATION  WT/WGTDF/W/53 
13 April 2011 
 
 (11-1846) 
Working Group on Trade, Debt and Finance Original: English 
 
  
THE RELATIONSHIP BETWEEN EXCHANGE  RATES AND INTERNATIONAL TRADE 
 
Submission by Brazil
 
 
 I. BACKGROUND 
 The international debate on the relationship be tween exchange rates and international trade is 
not a new one.  It was a key component, for exampl e, in the design of the Bretton Woods architecture 
of international institutions.      
  The issue has gained momentum again lately.  Responses to the financial and economic crisis 
of 2008/09 have included the adoption, by a vast  number of countries, of largely similar fiscal 
expansionist measures coupled with th e lowering of interest rates.  Ye t, differently calibrated mixes of 
monetary and fiscal policy instruments have caus ed relative exchange rates among major trading 
partners to fluctuate frequently, with potentially different long-term impacts on their respective trade 
balances.   Concern over the effects of exchange rates m ovements has been voiced by leaders and senior 
officials of several countries over the past few years.  The Seoul G-20 Summit Declaration, for 
example, has committed member countries to " undertake macro-economic policies, including fiscal 
consolidation where necessary, to  ensure on-going recovery and sustainable growth, in particular 
moving toward more market-determined exchange rate  systems, enhancing exchange rate flexibility to 
reflect underlying economic fundamentals, and refr aining from competitive  devaluation  of  
currencies ". 
 
 However, the more specific macroeconomic dynamics between exchange  rate and foreign 
trade is an issue that is yet to be better underst ood and addressed in international forums, against the 
background of the international crisis triggered in 2008.  The time has come to do so in an 
institutional and structured way.  There can be ar guably no better locus for that exercise than the 
WTO Working Group on Trade, Debt and Fina nce (WGTDF) that was created by the Doha 
Ministerial Declaration.  The mandate of the WGTDF covers the examination of " the relationship 
between trade, debt and finance, and of any possibl e recommendations on steps that might be taken 
within the mandate and competence of the WTO … to strengthen the coherence of international trade 
and financial policies, with a view to safeguarding the multilateral trading system from the effects of 
financial and monetary instability ".  
 
 As noted in the 2010 report (WT/WGTDF/9) of the Working Group, the focus of its activities 
since 2008 has been chiefly placed on initiatives to s upport trade finance.  Considering that trade 
finance market conditions have improved since then , to such an extent that they are largely 
normalized today, as recognized in the aforementio ned report, it is recommended that the WGTDF’s 
program of activities now include the relationship be tween exchange rate and international trade.  
  What is proposed is essentially a debate with a view to better understanding the issues 
involved and their implications for members of the WTO.  There is no doubt that the WGTDF is not a WT/WGTDF/W/53 
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 negotiating instance, but rather a place for an alysis, for debate, and eventually for proposing 
measures to address any particular issue within its mandate.   
II. WORK PROGRAM 
 The work program of the WGTDF on this matter may be divided into two main pillars: a) an 
economic approach based on academic research and conc rete experience; b) an institutional approach.  
 A. T
HE FIRST PILLAR .  THE RELATIONSHIP BETWEEN EXCHANGE RATES AND INTERNATIONAL 
TRADE . AN ECONOMIC APPROACH BASED ON THEO RY AND REAL CASE STUDIES   
 No one would deny that exchange rates do infl uence, in some cases significantly, the foreign 
trade performance of any given country.  That is wh y political leaders in countries of very different 
economic realities are often urged to  take actions aimed at either  appreciating or devaluing the 
currency, depending on circumstances.  Paradoxica lly, the case for establishing (or alternatively for 
denying) an unequivocal link between exchange rates and trade seems not to be a trivial one from the 
perspective of economic theory, as revealed by a quick glance at a review of relevant economic 
literature that was undertaken at the request of the WGTDF itself in 2002 (WT/WGTD/W/4), in the 
wake of the financial crises in the 90s.    A debate that throws light on these different and occasionally conflicting perspectives on the 
relationship between exchange rates and trade mi ght address the following questions: i)  What does 
economic theory say about the effect on trade of  currency misalignments as opposed to short-term 
fluctuations in exchange rates?  Or, alternativ ely, do concrete experiences or case studies of WTO 
members provide any clear evidence on the trad e implications of exchange-rate policy?  
  The following activities are proposed for the WGTDF, as examples, under this pillar:  
 
• Requesting the Secretariat to prepare an updated review of available literature and 
research, particularly in the light of the cr isis that started in 2008.  The Secretariat 
should consult Members on any literature that they may wish to indicate;  
 
• Undertaking, in one of the sessions of the WGTDF, a dedicated workshop with the 
participation of selected economists, as agreed by Members; 
 
• Sharing of concrete experiences and case studies by WTO member countries, on a 
voluntary basis, in the form of presentati ons at the WGTDF sessions, ideally made by 
capital- based senior officials who are directly responsible for policy making; 
 
• Commissioning of any study or discussion paper that the WGTDF might consider to 
be useful as an input into the debate  
 B. T
HE SECOND PILLAR . AN INSTITUTIONAL APPROACH . LOOKING  INTO GLOBAL COHERENCE OF 
INTERNATIONAL TRADE AND FINANCIAL POLICIES  AND  RELATED  GLOBAL GOVERNANCE 
MATTERS  
 The mandate of the WTO in connection with promoting greater coherence in global economic 
policymaking dates back to the Uruguay Round.  The relevant Declaration in the Marrakesh Final Act 
states that " greater exchange rate stability, based on more orderly underlying economic and financial 
conditions, should contribute to wards the expansion of trade… " It further states that " the 
interlinkages between the different aspects of economic policy require that the international 
institutions with responsibilities in each of these areas follow consistent and mutually supportive  WT/WGTDF/W/53 
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policies " and requires that " the WTO should therefore pursue and develop cooperation with the 
international organizations responsible for monetary and financial matters ". 
  The Director-General of the WTO has repor ted constantly to th e General Council on his 
activities under the "coherence mandate".  It is time for Members to take stock of how the coherence 
mandate of the WTO has been implemented as regard s particularly the interplay between exchange 
rate and trade.  Can coherence be further strengthened in that area?  How, by what measures?  These 
are questions that might be addressed in the debate under this pillar. 
  The following activities are proposed for the WGTDF:  
 
• Commissioning two discussion papers - one to be prepared by independent experts, 
after consultation to Members, another jointly by the WTO, the IMF, and the World Bank – on how the "coherence mandate" is be ing implemented with respect to the 
relationship between exchange  rate and international trade.  The discussion papers 
will be encouraged to propose measures, if any, that might contribute to strengthening 
the "coherence mandate" among the WTO, the IMF and the World Bank;  
 
• Organizing a workshop in one of the sessions of the WGTDF to debate the discussion 
papers referred to above.  
 
III. TIMEFRAME 
 All the activities listed under the two pillars are suggested to form part of a work program for 
2011-12 and to be completed during that period. 
 
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