- International Monetary Fund. Independent Evaluation Office
- Published Date:
- October 2009
Established in July 2001, the Independent Evaluation Office (IEO) provides objective and independent evaluation on issues related to the IMF. The IEO operates independently of IMF management and at arm’s length from the IMF’s Executive Board. Its goals are to enhance the learning culture within the IMF, strengthen the IMF’s external credibility, promote greater understanding of the work of the IMF throughout the membership, and support the Executive Board’s institutional governance and oversight responsibilities. For further information on the IEO and its work program, please see its website (www.ieo-imf.org) or contact the IEO at +1–202 623–7312 or at firstname.lastname@example.org.
© 2009 International Monetary Fund
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IMF involvement in international trade policy issues / [prepared by an IEO team of Susan Schadler, Ling Hui Tan and Seok-Hyun Yoon]—Washington, D.C. : International Monetary Fund, 2009.
p. ; cm. - (Evaluation report (International Monetary Fund. Independent Evaluation Office))
Includes bibliographical references.
1. Commercial policy. 2. Commercial policy - International cooperation. 3. International trade. 4. International Monetary Fund - Evaluation. I. Schadler, Susan. II. Tan, Ling Hui. III. Yoon, Seok-Hyun. IV. International Monetary Fund. Independent Evaluation Office. V. Title. VI Series: Evaluation report (International Monetary Fund. Independent Evaluation Office)
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Statement by the Managing Director, Staff Response, and the Acting Chair’s Summing Up
The following conventions are used in this publication:
In tables, a blank cell indicates “not applicable,” ellipsis points (…) indicate “not available,” and 0 or 0.0 indicates “zero” or “negligible.” Minor discrepancies between sums of constituent figures and totals are due to rounding.
An en dash (–) between years or months (for example, 2008–09 or January-June) indicates the years or months covered, including the beginning and ending years or months; a slash or virgule (/) between years or months (for example, 2008/09) indicates a fiscal or financial year, as does the abbreviation FY (for example, FY2009).
“Billion” means a thousand million; “trillion” means a thousand billion.
“Basis points” refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).
As used in this publication, the term “country” does not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.
Some of the documents cited and referenced in this report were not available to the public at the time of publication of this report. Under the current policy on public access to the IMF’s archives, some of these documents will become available five years after their issuance. They may be referenced as EBS/YY/NN and SM/YY/NN, where EBS and SM indicate the series and YY indicates the year of issue. Certain other documents are to become available 10 to 20 years after their issuance, depending on the series.
This evaluation has been concluded at a time when the global community has once again been reminded of the risks to economic growth and stability arising from potential protectionist responses to the current global economic crisis. The report addresses many controversies generated by the IMF’s involvement in trade policy issues since the establishment of the World Trade Organization (WTO). After overextending its reach on trade policy advice, particularly in conditionality on its lending operations in the late 1990s, the IMF recently has retrenched to the point that it has failed to address some key trade policy issues with systemic and macroeconomic effects.
The evaluation advises a rebalancing of the IMF’s treatment of trade policy issues.
On the one hand, the evaluation finds the scaling back of IMF conditionality on traditional trade polices (tariff and nontariff barriers to merchandise trade) since the streamlining initiative of 2000 to be appropriate as average tariffs in most countries had fallen to relatively low levels, IMF pressure for unilateral liberalization—especially through conditionality—created tensions with multilateral negotiations in the WTO, and conditionality often did not achieve lasting changes in trade policy.
But the evaluation also points to several areas where the Fund needs to play a larger and more considered role. For example, the Fund has been less active than it could or should have been in expressing cogent views on whether and how countries should liberalize trade in financial services (an issue underscored by the global financial crisis), on the systemic implications of the proliferation of preferential trade agreements, and on the global effects of trade policies (especially high agricultural tariffs and subsidies) of systemically important countries. And interinstitutional cooperation on trade policy issues, while found to have been broadly satisfactory with relatively minimal duplication/overlaps, has tended to be more personality-driven than systematic, resulting in gaps in institutional coverage of some issues.
The overarching message of the report is that the IMF should recommit itself to trade policy issues that have potentially significant implications for macroeconomic and systemic stability. To this end, the Fund needs to use better the limited resources it can devote to trade policy by more actively engaging in interinstitutional cooperation; concentrating and nurturing a small but critical mass of trade expertise within the institution; and improving the quality and dissemination of its views on trade policy issues. In order to ensure that the Fund’s work on trade evolves with the changing global trade policy environment, the Executive Board and IMF management should periodically review macroeconomic implications of changes in the global trade system and the appropriate role for the IMF in it.
Thomas A. Bernes
Independent Evaluation Office
IMF Involvement in International Trade Policy Issues
This report was prepared by an IEO team of Susan Schadler (head), Ling Hui Tan, and Seok-Hyun Yoon, with research assistance from Emily Ku and Chris Monasterski. Contributions also came from Ayesha Ali, Chonira Aturupane, Bryan Chan, John Dodsworth, Robert Gregory, Kala Krishna, Jaime de Melo, Chi Nguyen, Robert Stern, Yoichi Sugita, Mu Jeung Yang, and Iqbal Zaidi. Administrative assistance was provided by Jeanette Abellera, Arun Bhatnagar, Annette Canizares, and Erika Marquina, and editorial assistance by Esha Ray and Rachel Weaving. The report was approved by Thomas A. Bernes.
African, Caribbean, and PacificAFR
African Department (IMF)AFTA
ASEAN Free Trade AreaAGOA
African Growth and Opportunity ActAPEC
Asia-Pacific Economic CooperationASEAN
Association of South East Asian NationsATC
Agreement on Textiles and ClothingCAFTA-DR
Central America-Dominican Republic Free Trade AgreementCAG
Committee on Agriculture (WTO)CARICOM
Caribbean Regional Technical Assistance CenterCBI
Committee on Balance of Payments Restrictions (WTO)CEMAC
Central African Economic and Monetary CommunityCFF
Compensatory Financing Facility (IMF)CGATT
Committee on Liaison with the Contracting Parties of the GATT (IMF)COMESA
Common Market for Eastern and Southern AfricaCTFS
Committee on Trade in Financial Services (WTO)CWTO
Committee on Liaison with the World Trade Organization (IMF)DSB
Dispute Settlement Body (WTO)DSC
Development Support Credit (World Bank)DTIS
Diagnostic Trade Integration StudyEAC
East African CommunityECCU
Eastern Caribbean Currency UnionECOWAS
Economic Community of West African StatesED
Executive Director (IMF)EFF
Extended Fund Facility (IMF)EFTA
European Free Trade AssociationEPA
Economic partnership agreementESAF
Enhanced Structural Adjustment Facility (IMF)ESF
Exogenous Shocks Facility (IMF)EU
Fiscal Affairs Department (IMF)FAO
Food and Agriculture OrganizationFDMD
First Deputy Managing Director (IMF)FDI
Foreign direct investmentFSAP
Financial Sector Assessment Program (IMF)GATS
General Agreement on Trade in Services (WTO)GATT
General Agreement on Tariffs and TradeGDP
Gross domestic productGFSR
Global Financial Stability Report (IMF)GNP
Gross national productGTAP
Global Trade Analysis ProjectHIPC
Heavily indebted poor countriesHLWGC
High Level Working Group on CoherenceICMR
International Capital Markets Report (IMF)IDA
International Development Association (World Bank)IF
International Finance CorporationIMF
International Monetary FundIMFC
International Monetary and Financial Committee (IMF)ISI
Import substitution industrializationLDC
Least developed countryMCM
Monetary and Capital Markets Department (IMF)MDRI
Multilateral Debt Reduction Initiative (IMF)MEFP
Memorandum of Economic and Financial Policies (IMF)MERCOSUR
Common Market of the SouthMFA
Monitoring of Fund Arrangements (IMF)NAFTA
North American Free Trade AgreementNFIDC
Net food-importing developing countryNGO
Organization for Economic Cooperation and DevelopmentOTRI
Overall Trade Restrictiveness Index (World Bank)PDR
Policy Development and Review Department (IMF)PRGF
Poverty Reduction and Growth Facility (IMF)PRSP
Poverty Reduction Strategy PaperPSE
Producer Support Estimate (OECD)PSI
Policy Support Instrument (IMF)PTA
Preferential trade agreementRED
Recent economic developments (IMF)REO
Regional Economic Outlook (IMF)RES
Research Department (IMF)SACU
Southern African Customs UnionSADC
Southern African Development CommunitySBA
Stand-By Arrangement (IMF)SIP
Selected issues paper (IMF)SMP
Staff-Monitored Program (IMF)SRF
Supplemental Reserve Facility (IMF)TA
Textiles and clothingTIM
Trade Integration Mechanism (IMF)TNC
Trade Negotiations Committee (WTO)TPR
Trade policy review (WTO)TRI
Trade Restrictiveness Index (IMF)UFR
Use of Fund resources (IMF)UN
United Nations Conference on Trade and DevelopmentUNDP
United Nations Development ProgramUSAID
United States Agency for International DevelopmentUSBTA
(Vietnam-) United States Bilateral Trade AgreementUSTR
U.S. Trade RepresentativeVAT
Voluntary export restraintWAEMU
West African Economic and Monetary UnionWEO
World Economic Outlook (IMF)WGTDF
Working Group on Trade, Debt, and Finance (WTO)WGTI
Working Group on Trade and Investment (WTO)WTO
World Trade Organization
Trade policy occupies an unusual and at times problematic place in the work of the IMF. Few would dispute that trade policies of IMF members have strong influences on macroeconomic stability. However, trade policies are often seen as peripheral to the IMF’s core competency. This leaves scope for a range of views on the proper role for the IMF in advising on trade policy. Also, the IMF’s orientation toward unilateral trade liberalization has stoked the debates on whether such liberalization is always in a country’s own interests and whether preferential trade agreements are harmful. Added to these debates are charges that the IMF has pressed harder for liberalization in borrowing countries than in countries with which it has a surveillance-only relationship.
This evaluation, which examines the IMF’s involvement in trade policy issues during 1996–2007, addresses five questions. What is the nature of the IMF’s mandate to cover trade policy? Did the IMF work effectively with other international organizations on trade policy issues? Did the Executive Board provide clear guidance to staff on the IMF’s role and approach to trade policy? How well did the IMF address trade policy issues through lending arrangements and surveillance? Was IMF advice effective?
The evaluation finds that the IMF’s role in trade policy has evolved in some desirable and some less desirable ways. In its general streamlining after 2000, the IMF scaled back its involvement in traditional trade policy issues (tariff and nontariff barriers to merchandise trade), especially in the context of conditionality. This is welcome as average tariffs in most countries had fallen to relatively low levels, conditionality often did not achieve lasting changes in trade policy, and the pressure for unilateral liberalization especially through conditionality created tensions with multilateral negotiations in the World Trade Organization.
But in other respects the IMF’s scaling back on trade policy advice came at the cost of constructive roles in trade issues central to financial and systemic stability. Three such gaps stand out. First, the IMF has not clearly enough defined or pursued a role vis-à-vis trade in financial services—an area where its perspective is essential. Second, fairly active interest of IMF researchers in macroeconomic and systemic effects of preferential trade agreements has not adequately filtered into bilateral and multilateral surveillance. Third, the IMF has not given due attention recently to global effects of trade policies (such as high agricultural tariffs and subsidies) in systemically important countries.
The evaluation recommends several ways to use the limited resources the IMF can devote to trade policy to fill these gaps. More active interinstitutional cooperation, backed by formal interactions, is essential. Also, however, the IMF needs a small repository for in-house expertise—a division solely devoted to trade policy—to be the locus of such cooperation and to help identify trade policy issues in which the IMF should be involved. Finally, regional and global implications of trade policy developments should be explored in depth periodically in World Economic Outlook and Regional Economic Outlook exercises. The Board should regularly review and give guidance on the IMF’s role in trade policy issues.