The IMF deserves considerable credit for responding in an active and timely manner to the growing stresses on the multilateral trade system in recent years. Most of the recommendations of the 2009 evaluation have been implemented and the Fund has come to play a prominent role in championing a continued commitment to open, rules-based trade, in the face of pushback against globalization and increasing trade tensions. The institution is widely seen as a source of clear, consistent messages supported by high-quality analysis of the macroeconomic consequences of trade policy actions.
► This strong performance has been particularly apparent in the increased attention to trade policies in multilateral surveillance called for by the 2009 evaluation. This shift started in 2015 ahead of the recent surge in trade tensions. Multilateral surveillance work—both regular publications such as the WEO and specific pieces, such as those produced for the G20—has been of high quality, timely, and well-focused on assessing trade policy developments and the macroeconomic consequences and risks from trade tensions. There has also been a substantial, albeit uneven, expansion of surveillance at the regional level.
► Attention to trade policies has also increased in the context of bilateral surveillance, particularly the careful analysis of the consequences of the cross-border spillovers from trade frictions since 2016 in the largest economies with the greatest share of global trade.
► Among the international organizations, the IMF is viewed as having been particularly effective in championing the international cause for a reformed, rules-based MTS, with former Managing Director Lagarde taking a central part. Fund advocacy has been well supported by its global surveillance mandate, clear and balanced communication, use of macroeconomic expertise to underpin messages, and strong internal coordination.
► Trade policy conditionality in Fund-supported programs has continued to be virtually non-existent, which is in line with IMF practices and rules, and underpinned by trends in global trade including declining tariff rates in developing countries.
► Research and analysis have largely focused on supporting the IMF’s strong messages on the importance of commitment to open international trade, building on the Fund’s comparative advantage in global macroeconomic modeling work to analyze risks from trade tensions. However, research on some emerging trade policy issues has been postponed because of resource constraints. Trade-related analytical work has been complemented by other workstreams, such as jobs and growth, examining the consequences of trade developments for domestic economic conditions.
► The Fund has reinvigorated its working relationships with most trade-focused international institutions and played a well-defined and greatly appreciated role among the international organizations working on trade over the last four years, based on its universal surveillance mandate, macroeconomic perspective, and modelling capacity.
Notwithstanding these efforts, the global trade environment remains under heavy stress, clouding the global outlook. It is highly uncertain how the current tensions will be resolved and how the trade system will evolve. Technological innovation and the rise of services will continue to imply rapid evolution of trade patterns, a changing role of trade in macroeconomic behavior, and varying impacts on different sectors of the population, increasing the complexity of trade policy by tightening the links between domestic and trade policies and demanding closer coordination at the international level. Thus, given the important role of trade in underpinning economic growth and stability and the current constraints on the role of other institutions, the Fund needs to sustain its institutional commitment to trade policy, maintaining its high level of analysis, advice, and advocacy for the foreseeable future, notwithstanding limited resources. At the same time, the institution should consider how to increase the overall impact of this work, particularly since the next few years could prove critical to preserve an open, rules-based, multilateral system.
Particular concerns include:
► As new bilateral, regional, and plurilateral trade agreements proliferate and trade frictions mount, there is a need for renewed joint efforts across the international community to find a workable approach to trade policy cooperation consistent with a healthy global economy, to which the IMF can contribute based on its unique global macro-economic perspective and expertise.
► The translation of multilateral surveillance work into practical bilateral advice remains a work in progress, as authorities would appreciate more specific and well-tailored advice on how to respond to the risks identified at the global level. Within regional surveillance, there is scope to expand cross-regional sharing of information, trade policy experience, and analytical tools.
► More work could be done to deepen bilateral trade policy surveillance and advice, beyond the largest economies that have received the lion’s share of attention in recent years. There could be particular value in greater work in LICs, in assessing underlying structural and other factors constraining trade competitiveness and through policy advice and Fund advocacy on market access and trade facilitation. Further attention could also be paid to drawing out the trade policy implications of new technologies, such as digitization and e-commerce. There is also scope to further strengthen coherence in economic policy advice, recognizing and analyzing the relationship of trade policy with other policy challenges such as the potentially adverse distributional consequences of trade, migration issues, climate change, international taxation, and competition policy. Continuing care will be needed to ensure appropriate evenhandedness in trade policy advice across countries.
► The welcome reinvigoration of cooperation with other trade-related international organizations should be consolidated, which would benefit from deepening institutional relationships beyond the current good inter-personal relationships among staff members, to alleviate “key person risk.” The costs and benefits of deepening this cooperation and reviving less active organizational relationships, possibly through an increased Fund presence in Geneva, needs to be considered.
► Internally, demands of responding to high stress in the multilateral trading system have stretched the available trade policy expertise and resources thin, implying less attention to other relevant issues and the postponement of long-term trade research and analytical work on rapidly developing areas of trade. This situation may not be sustainable if trade tensions are long lasting.
Given these challenges, a holistic review of the IMF’s “trade strategy” for discussion by the Executive Board could contribute to ensuring the continued value-added and coherence of the Fund’s work on trade policies. Agreeing on such a strategy would contribute to clarify the Fund’s role, objectives, and priorities regarding trade, support integration of multilateral and bilateral trade work, and guide interaction with international partners. Such an assessment would also provide input on the appropriate allocation of scarce resources to trade issues among competing priorities. The upcoming five-yearly trade policy review, anticipated for 2020, provides a timely opportunity for this purpose.