WTO IMPORTANCE IN RELATION TO INTERNATIONAL FUNCTION OF IMF:

ARTICLE

INTRODUCTION

The WTO was born out of the General Agreement on Tariffs and Trade (GATT), which was
established in 1947. GATT was part of the Bretton Woods-inspired family, including the
International Monetary Fund (IMF) and World Bank. A series of trade negotiations, GATT
rounds began at the end of World War II and were aimed at reducing tariffs for the facilitation
of global trade. The World Trade Organization is a global organization made up of 164
members countries, it is the only global international organization dealing with the rules of
trade between nations. The goal is to help producers of goods and services, exporters, and
importers conduct their business. The International Monetary Fund (IMF) is an organization of
189 countries, working to foster global monetary cooperation, secure financial stability,
facilitate international trade, promote high employment and sustainable economic growth, and
reduce poverty around the world.

The IMF and the WTO are international organizations with about 150 members in common.
While the IMF’s central focus is on the international monetary and financial system, and the
WTO’s is on the international trading system, the IMF and the WTO work together on many
levels, with the aim of ensuring greater coherence in global economic policymaking. A
cooperation agreement between the two organizations, covering various aspects of their
relationship, was signed shortly after the creation of the WTO. The relationship between the
International Monetary Fund (Fund) and the World Trade Organization (WTO) is a
continuation of the long-standing relationship between the Fund and the Contracting Parties to
the General Agreement on Tariffs and Trade (GATT), as modified by new developments
associated with the establishment of the WTO. The two organizations generally act in a
complementary and cooperative fashion.
How the IMF and the WTO work together?

The IMF and the WTO work together on many levels, with the aim of ensuring greater
coherence in global economic policymaking. A cooperation agreement between the two
organizations, covering various aspects of their relationship, was signed shortly after the
creation of the WTO.

Regular consultation: The IMF has observer status in certain WTO bodies, and may
participate in meetings of certain WTO committees and working groups. The WTO Secretariat
attends meetings of the IMF Executive Board or the Board Committee on Liaison with the
World Bank and other International Organizations on matters of common interest. Macro-
critical trade issues may feature in Fund surveillance activities and can be addressed in the
context of IMF-supported programs, when needed, to meet the program’s objectives. Equally,
IMF surveillance reports are important inputs to the WTO’s periodic reports on member
countries’ trade policies.

The WTO Agreements require that it consult the IMF when it deals with issues concerning
monetary reserves, balance of payments, and foreign exchange arrangements. For example,
these agreements allow countries to apply trade restrictions in the event of balance of payments
difficulties. The WTO’s Balance of Payments Committee bases its assessments of restrictions
in considerable part on the IMF’s determination of a member’s balance of payments situation.

Informal consultation between IMF staff and the WTO Secretariat takes place regularly
regarding trade policy and global economic developments, as well as on advice for individual
countries. Examples of consultations include visits by senior IMF staff to the WTO, and vice
versa, to make presentations and attend discussions on issues of common interest. The IMF,
the WTO, and the World Bank hold a regular conference to further facilitate the exchange of
views among academics, civil society, and staff of the three organizations on current trade
issues. The inaugural IMF/World Bank/WTO Joint Trade Workshop was held in December
2011, and the sixth conference was hosted by the IMF in November 2017.

Technical assistance and training: The IMF, the WTO, and other international organizations
and donors often work together to help countries improve their ability to trade. The Enhanced
Integrated Framework (EIF) for trade-related technical assistance to Least Developed
Countries (LDCs) supports LDCs to be more active players in the global trading system by
helping them tackle supply-side constraints to trade.
Fund assistance for trade liberalization: The Trade Integrated Mechanism (TIM) established in
April 2004, is available to all Fund member countries whose balance of payments positions
might suffer, albeit temporarily, as a result of multilateral trade liberalization. It is not a lending
facility, but rather a policy aimed at making Fund resources more predictably available under
existing IMF facilities.

High-level coordination: The Managing Director of the IMF and the Director General of the
WTO consult regularly on a range of trade-related issues. The First Deputy Managing Director
attended the December 2005 WTO Ministerial Conference in Hong Kong, China, and the
November 2007 WTO General Council Meeting in Geneva. Management participated in the
Fourth Global Review of Aid for Trade, hosted by the WTO in July 2013. The IMF Managing
Director and the WTO Director-General, together with the President of the World Bank Group,
led a seminar on “How to Make Trade an Engine of Growth for All” at the IMF/World Bank
Group Annual Meetings in October 2016, and launched a joint staff paper on “Making Trade
an Engine of Growth for All” in April 2017. Finally, management of both institutions
frequently participate in the annual IMF/World Bank/WTO Joint Trade Workshops.

Looking forward, cooperation and consultation between the IMF and WTO will continue to be
key, given the increased areas of mutual support and responsibilities between the two
institutions. Potential areas of heightened interaction include financial services and trade
facilitation. The IMF strongly supports the role of the WTO in ensuring openness,
transparency, and stability in the global trading system, including its role in enforcing trade
rules.
The IMF’s Trade Integration Mechanism

Trade-related adjustments

Trade liberalization in multilateral frameworks, like the Doha Development Agenda of the
World Trade Organisation (WTO), could generate short-term balance of payment challenges
(for example, a temporary reduction of export revenues due to adjustment pressures coming
from more competitive conditions in a country’s export markets, or an increase in import bills).
However, Fund research indicates that these balance of payments shortfalls are unlikely to be
large for most countries and would eventually be overwhelmingly exceeded by the positive
impact of more open trade.

IMF support for trade liberalization

The TIM aims to mitigate concerns, particularly in developing countries, about financing
balance of payments shortfalls that are a result of multilateral liberalization. The TIM is a policy
(not a special facility with new resources) designed to increase the predictability of resources
that are available under existing lending facilities which already provide financial support for
balance of payments difficulties arising from trade-related adjustments. The TIM contains a
“deviation feature,” which provides countries with a greater degree of certainty that IMF
financing will be available to assist with larger-than-anticipated adjustments.

How the TIM works

A member country can request consideration under the TIM if it expects a net balance of
payments shortfall as a result of measures implemented by other countries that lead to more
open market access for goods and services. Such measures would typically be introduced either
under a WTO agreement or in some other way that treats all countries on a non- discriminatory
basis.

In these circumstances, under the TIM:

 The size of access under both new and existing arrangements would account for the
anticipated impact of the trade adjustment on the member’s balance of payments; and

 Augmentation of access would be considered under simplified procedures if the actual

balance of payments effect turns out to be larger than anticipated.
How the IMF Promotes Global Economic Stability

The IMF advises member countries on economic and financial policies that promote stability,
reduce vulnerability to crises, and encourage sustained growth and high living standards. It also
monitors global economic trends and developments that affect the health of the international
monetary and financial system and promotes dialogue among member countries on the regional
and global consequences of their policies. In addition to these surveillance activities, the IMF
provides technical assistance to help strengthen members’ institutional capacity and makes
resources available to them to facilitate adjustment in the event of a balance of payments crisis.

Why is global economic stability important?

Promoting economic stability is partly a matter of avoiding economic and financial crises, large
swings in economic activity, high inflation, and excessive volatility in foreign exchange and
financial markets. Instability can increase uncertainty, discourage investment, impede
economic growth, and hurt living standards. A dynamic market economy necessarily involves
some degree of volatility, as well as gradual structural change. The challenge for policymakers
is to minimize instability in their own country and abroad without reducing the economy’s
ability to improve living standards through rising productivity, employment, and sustainable
growth.

Economic and financial stability is both a national and a multilateral concern. As recent
financial crises have shown, economies have become more interconnected. Vulnerabilities can
spread more easily across sectors and national borders.

How does the IMF help?

The IMF helps countries implement sound and appropriate policies through its key functions
of surveillance, technical assistance, and lending.

Surveillance: Every country that joins the IMF accepts the obligation to subject its economic
and financial policies to the scrutiny of the international community. The IMF’s mandate is to
oversee the international monetary system and monitor economic and financial developments
in and the policies of its 189member countries. This process, known as surveillance, takes place
at the global level and in individual countries and regions. The IMF assesses whether domestic
policies promote countries’ own stability by examining risks they might pose to domestic and
balance of payments stability and advises on needed policy adjustments. It also proposes
alternatives when countries’ policies promote domestic stability but could adversely affect
global stability.

Consulting with member states

The IMF monitors members’ economies through regular—usually annual—consultations with

each member country. During these consultations, IMF staff discusses economic and financial
developments and policies with national policymakers, and often with representatives of the
private sector, labour and trade unions, academia, and civil society. Staff assesses risks and
vulnerabilities, and considers the impact of fiscal, monetary, financial, and exchange rate
policies on the member’s domestic and balance of payments stability and assesses implications
for global stability. The IMF offers advice on policies to promote each country’s
macroeconomic, financial, and balance of payments stability, drawing on experience from
across its membership.

The IMF also closely monitors global and regional trends.

The IMF’s periodic reports, the World Economic Outlook, its regional overview Fiscal
Monitor, and the Global Financial Stability Report, analyze global and regional
macroeconomic and financial developments. The IMF’s broad membership makes it uniquely
well suited to facilitate multilateral discussions on issues of common concern to groups of
member countries, and to advance a shared understanding of policies needed to promote
stability. In this context, the Fund has been working with the Group of 20 advanced and
emerging economies to assess the consistency of those countries’ policy frameworks with
balanced and sustained growth for the global economy.

The Fund has reviewed its surveillance mandate in light of the global crisis. It has introduced
a number of reforms to improve financial sector surveillance within member countries and
across borders, to enhance understanding of interlinkages between macroeconomic and
financial developments, and stimulate debate on these matters. The IMF has also strengthened
its analysis of macro-critical structural reforms to the macroeconomy to help countries promote
durable and inclusive growth.

Data: In response to the financial crisis, the IMF is working with members, the Financial
Stability Board, and other organizations to fill data gaps important for global stability.
Technical Assistance: The IMF helps countries strengthen their capacity to design and
implement sound economic policies. It provides advice and training in areas of core expertise—
including fiscal, monetary, and exchange rate policies; the regulation and supervision of
financial systems; statistics; and legal frameworks.

Lending: Even the best economic policies cannot completely eradicate instability or avert
crises. If a member country faces a balance of payment crisis, the IMF can provide financial
assistance to support policy programs that will correct underlying macroeconomic problems,
limit disruption to both the domestic and the global economy, and help restore confidence,
stability, and growth. The IMF also offers precautionary credit lines for countries with sound
economic fundamentals for crisis prevention
IMF, WTO launch “Reinvigorating Trade” and Inclusive Growth Report

International Monetary Fund, World Trade Organisation and World Bank collectively
launched report, in this report all three international organization have sought liberalisation of
global service sector, asserting that barriers to these services trade currently is roughly as high
as those to trade in goods about a half century ago.

Highlights of Report

 Services compromise some two- thirds of global GDP and employment. The limited
opening of service sectors to foreign competition impedes trade and productivity
growth throughout sector and broader economy.
 Countries should open up to international competition in services provided in other
ways, including through foreign direct investment (FDI) and operation of foreign
affiliates and temporary movement of workers across borders for the purpose of
supplying services.
 The full services trade liberalisation can raise manufacturing productivity by average
of 22% across sample of 57 countries with larger benefits for countries with stronger
institutional environments. Moreover, service sector has enormous contributor to
growth and to trade including manufacturing trade.
 The trade in services sector has potential of contributing particularly strongly to
productivity growth and economic growth overall. Prolonged slowdown in pace of
trade reform is leading to widespread trade distortions and putting at risk strength and
durability of global economic recovery, despite recent rebound in trade.
 Digital economy revolution is opening new opportunities for cross- border trade and
investment and this is changing nature of trade, elevating roles of policies relating to
electronic commerce, investment and services trade.
LEGAL ASPECTS OF THE IMF/WTO RELATIONSHIP: THE FUND’S
ARTICLES OF AGREEMENT AND THE WTO AGREEMENTS

The relationship between the International Monetary Fund (Fund) and the World Trade Organization
(WTO) is a continuation of the long-standing relationship between the Fund and the Contracting Parties
to the General Agreement on Tariffs and Trade (GATT)1, as modified by new developments associated
with the establishment of the WTO. The two organizations generally act in a complementary and
cooperative fashion. The legal aspects of the relationship, however, including recent WTO dispute
settlement cases concerning the Fund, reflect misunderstandings about the legal nature of Fund
activities and how they relate to the WTO provisions on this relationship. In addition, certain issues
about the Fund/WTO relationship are not clearly resolved in the text of the WTO Agreements 2. This
article discusses key legal provisions of the WTO Agreements that concern the Fund and explains the
legal nature of the Fund’s activities relevant to these provisions. The legal aspects of the Fund/WTO
relationship can be illustrated by reviewing three categories of interaction. There is a different legal role
for the Fund in each of these categories. The provisions in the WTO Agreements that address interaction
with the Fund reflect the important objective of avoiding conflicting rights and obligations for members
of the Fund and the WTO.

This “jurisdictional aspect,” however, represents only one category of the relationship. Two other
categories were illustrated by recent WTO dispute resolution cases: the relationship of WTO obligations
to a member’s adjustment program while receiving Fund financing (a case concerning an import
surcharge imposed by Argentina3) and the Fund’s assessment of the member’s balance-of-payments
situation (a case concerning quantitative restrictions imposed by India). While these two cases did not
involve an overlap of rights and obligations, they posed the question whether WTO panels should
consult the Fund and, if so, what the legal effect of this consultation would be.

The complexity of these issues is compounded by institutional differences between the two
organizations. Therefore, before reviewing the three categories of interaction, this article considers

1
The contracting parties to the GATT are styled “CONTRACTING PARTIES” in GATT documents when
acting jointly. General Agreement on Tariffs and Trade, Oct. 30, 1947, Art. XXV, TIAS No. 1700, 55 UNTS
194. The term will simply be capitalized (“Contracting Parties”) in the text below when used in that sense,
except for quotations of GATT materials. The current version of the GATT is in Annex 1A to the WTO Charter,
THE LEGAL TEXTS, infra note 2, at 17, 33 ILM 1154 (1994) [hereinafter GATT].
2
As used herein, “WTO Agreements” refers to the Marrakesh Agreement Establishing the World Trade
Organization [hereinafter WTO Charter] and the substantive multilateral agreements attached thereto, Apr. 15,
1994, in WORLD TRADE ORGANIZATION, THE LEGAL TEXTS: THE RESULTS OF THE URUGUAY
ROUND OF MULTILATERAL TRADE NEGOTIATIONS 3 (1999) [hereinafter THE LEGAL TEXTS], 33
ILM 1143 (1994).
3
Panel Report, Argentina—Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items,
WT/DS56/R (Nov. 25, 1997) (adopted Apr. 22, 1998), as modified by Appellate Body Report, WT/DS56/AB/R
& Corr.1, DSR 1998: III, 1033 [hereinafter Argentine Footwear].
some of the asymmetries between the organizations that may affect interpretation of the provisions that
govern their relationship. These issues range from the different nature of the obligations covered, to the
dissimilarities in their organizational structure and differences in domestic governmental constituencies
(part I). The article next offers an overview of the provisions in the GATT 1994 and the Fund/WTO
Cooperation Agreement (part II) that govern the legal relationship of the institutions. The three
categories of interaction mentioned above are then discussed by reviewing the impact on WTO
obligations of, first, measures in a member’s adjustment program that are supported by Fund financing
(part III); second, trade restrictions imposed for balance-of-payments reasons (part IV); and third,
obligations under the Fund’s Articles of Agreement regarding exchange matters (part V).4 While many
of these issues arose under the GATT, the expanded scope of the WTO Agreements brings additional
areas of interaction, especially given the increased areas of overlap in service transactions covered by
the General Agreement on Trade in Services (GATS).5 New issues will need to be addressed, including,
for example, the trade effects of exchange rate manipulation,6 and the scope of the prudential exception
to the financial services commitments under the GATS.7 All these issues take on increased importance
in view of the enhanced role of panel and Appellate Body reports under the dispute settlement
mechanism of the WTO. While the contracting parties took a pragmatic approach to interpreting the
GATT, the dispute settlement mechanism brings more legalism into the application of the WTO
Agreements due to the prevalence of dispute settlement cases. However, the cases that have concerned
the Fund/WTO relationship show that the panel process, which is designed to resolve disputes between
WTO members, is not well suited to addressing questions of international architecture. Thus, although
the panel reports have been generally well reasoned, the ad hoc approach to dealing with common issues
that largely sufficed in the past is not desirable. Rather, issues should be resolved at the level of the
decision-making bodies of the two institutions. This approach requires coordination between the trade
and finance communities within governments so that the two organizations and their respective
memberships can work together constructively to clarify the legal aspects of their relationship,
preferably in advance of any future cases.

4
Articles of Agreement of the International Monetary Fund, July 22, 1944, 60 Stat. 1401, 2 UNTS 39, as
amended through June 28, 1990, available at.
5
General Agreement on Trade in Services, WTO Charter, Annex 1B, THE LEGAL TEXTS, supra note 2, at
284, 33 ILM at 1167 [hereinafter GATS]
6
John H. Jackson, Managing the Trade System: The World Trade Organization and the Post–Uruguay Round
GATT Agenda, in MANAGING THE WORLD ECONOMY: FIFTY YEARS AFTER BRETTON WOODS
131 (Peter B. Kenen. ed1994
7
Christopher Parlin, Current Developments Regarding the WTO Financial Services Agreement (May 16, 2002)
(paper delivered at IMF Legal Department and IMF Institute Seminar on Current Developments in Monetary
and Financial Law)