Front Matter

Front Matter

Author(s):
International Monetary Fund. Independent Evaluation Office
Published Date:
October 2009
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    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 info@ieo-imf.org.

    © 2009 International Monetary Fund

    Production: IMF Multimedia Services Division

    Cover: Lai Oy Louie

    Cataloging-in-Publication Data

    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.

    ISBN 978-1-58906-867-4

    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)

    HF1411.144 2009

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    Contents

    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.

    Foreword

    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

    Director

    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.

    Abbreviations

    ACP

    African, Caribbean, and Pacific

    AFR

    African Department (IMF)

    AFTA

    ASEAN Free Trade Area

    AGOA

    African Growth and Opportunity Act

    APEC

    Asia-Pacific Economic Cooperation

    ASEAN

    Association of South East Asian Nations

    ATC

    Agreement on Textiles and Clothing

    CAFTA-DR

    Central America-Dominican Republic Free Trade Agreement

    CAG

    Committee on Agriculture (WTO)

    CARICOM

    Caribbean Community

    CARTAC

    Caribbean Regional Technical Assistance Center

    CBI

    Cross-Border Initiative

    CBR

    Committee on Balance of Payments Restrictions (WTO)

    CEMAC

    Central African Economic and Monetary Community

    CFF

    Compensatory Financing Facility (IMF)

    CGATT

    Committee on Liaison with the Contracting Parties of the GATT (IMF)

    COMESA

    Common Market for Eastern and Southern Africa

    CTFS

    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 Study

    EAC

    East African Community

    ECCU

    Eastern Caribbean Currency Union

    ECOWAS

    Economic Community of West African States

    ED

    Executive Director (IMF)

    EFF

    Extended Fund Facility (IMF)

    EFTA

    European Free Trade Association

    EPA

    Economic partnership agreement

    ESAF

    Enhanced Structural Adjustment Facility (IMF)

    ESF

    Exogenous Shocks Facility (IMF)

    EU

    European Union

    FAD

    Fiscal Affairs Department (IMF)

    FAO

    Food and Agriculture Organization

    FDMD

    First Deputy Managing Director (IMF)

    FDI

    Foreign direct investment

    FSAP

    Financial Sector Assessment Program (IMF)

    GATS

    General Agreement on Trade in Services (WTO)

    GATT

    General Agreement on Tariffs and Trade

    GDP

    Gross domestic product

    GFSR

    Global Financial Stability Report (IMF)

    GNP

    Gross national product

    GTAP

    Global Trade Analysis Project

    HIPC

    Heavily indebted poor countries

    HLWGC

    High Level Working Group on Coherence

    ICMR

    International Capital Markets Report (IMF)

    IDA

    International Development Association (World Bank)

    IF

    Integrated Framework

    IFC

    International Finance Corporation

    IMF

    International Monetary Fund

    IMFC

    International Monetary and Financial Committee (IMF)

    ISI

    Import substitution industrialization

    LDC

    Least developed country

    MCM

    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 South

    MFA

    Multi-Fiber Arrangement

    MFN

    Most-favored-nation

    MONA

    Monitoring of Fund Arrangements (IMF)

    NAFTA

    North American Free Trade Agreement

    NFIDC

    Net food-importing developing country

    NGO

    Nongovernmental organization

    NTB

    Nontariff barrier

    OECD

    Organization for Economic Cooperation and Development

    OTRI

    Overall Trade Restrictiveness Index (World Bank)

    PDR

    Policy Development and Review Department (IMF)

    PRGF

    Poverty Reduction and Growth Facility (IMF)

    PRSP

    Poverty Reduction Strategy Paper

    PSE

    Producer Support Estimate (OECD)

    PSI

    Policy Support Instrument (IMF)

    PTA

    Preferential trade agreement

    RED

    Recent economic developments (IMF)

    REO

    Regional Economic Outlook (IMF)

    RES

    Research Department (IMF)

    SACU

    Southern African Customs Union

    SADC

    Southern African Development Community

    SBA

    Stand-By Arrangement (IMF)

    SIP

    Selected issues paper (IMF)

    SMP

    Staff-Monitored Program (IMF)

    SRF

    Supplemental Reserve Facility (IMF)

    TA

    Technical assistance

    T&C

    Textiles and clothing

    TIM

    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

    UNCTAD

    United Nations Conference on Trade and Development

    UNDP

    United Nations Development Program

    USAID

    United States Agency for International Development

    USBTA

    (Vietnam-) United States Bilateral Trade Agreement

    USTR

    U.S. Trade Representative

    VAT

    Value-added tax

    VER

    Voluntary export restraint

    WAEMU

    West African Economic and Monetary Union

    WEO

    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

    Executive Summary

    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.

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