This note provides a description of the existing framework. Interpretations of the treaties offered in the note are staff’s own and may differ from those of the World Trade Organization or governing bodies of, or parties to, preferential trade agreements.
IMF IEO An IEO Evaluation of IMF Involvement in International Trade Policy Issues, May 2009. A reference note concerning trade in financial services is being made available separately.
The treatment of trade policy should continue to be informed by current guidance in surveillance and conditionality.
Bound rates are generally determined in the course of membership negotiations or in the course of subsequent global trade rounds. Applied rates can (and often do) fall below bound rates.
As stated in Article I(v), the purpose of Fund financing is: “To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity” (emphasis added).
Depending on the type of specification of RoO, some fairly simple questions may shed light on their restrictiveness. For example, many RoO are based on whether domestic processing transforms an imported intermediate input from one tariff classification at the time of import to another tariff classification at the time of export. In this type of specification, a rule that confers origin as a result of a change in the detailed six-digit product classification is relatively easy to meet and thus less restrictive than a rule that confers origin only if processing results in a change in the broad two-digit product classification. Many other RoO are based on value-added thresholds. A rule that confers origin based on a minimum 20 percent domestic value added would be relatively easy to meet and thus less restrictive than a rule of origin requiring 50 percent domestic value added. These two types of RoO (change in tariff classification and value-added threshold) are quite transparent; however, in many cases RoO are specified with much greater complexity and according to more ad hoc considerations. (See http://www.wto.org/english/tratop_e/roi_e/roi_e.htm for recent WTO documents on RoO.)
In Europe, bilateral cumulation (with the EU at the center) stunted the early integration of the central European countries. With the transition to the Pan-European Cumulation System (PECS), however, the EU opened its European PTAs to diagonal cumulation—allowing (even before Hungary’s EU membership), for example, a Hungarian producer to use Norwegian inputs in production intended for preferential entry into the EU. In Richard Baldwin’s now famous description, the PECS “tamed the European spaghetti bowl,” thus “multilateralizing” the tangle of FTAs in Europe.” Cumulation provisions are critical in regions with many and/or overlapping PTAs, such as in East Asia and Africa. In the unilateral preferences that developed countries often extend to developing and least-developed countries (such as Generalized System of Preferences (GSP) schemes, the EU’s Everything but Arms program, and the United States’ African Growth and Opportunity Act (AGOA) program), cumulation provisions influence South-South trade.
Fund research has found trade liberalization among the few reform areas that generate particularly large effects on per capita income growth. See, for example, “Structural Reforms and Economic Performance in Advanced and Developing Countries” at http://www.imf.org/external/pubs/cat/longres.cfm?sk=22594.0
Developing countries continue to face difficulties in implementing this rule, due to wide-spread administrative shortcomings.
Countries generally maintain export restrictions to encourage domestic processing industries; stem illegal exports; address environmental concerns; enforce labor standards; meet fiscal objectives; or to enforce domestic processes to meet social objectives. Often these measures do not achieve the intended objectives but instead accentuate illegal activities, create incentives for lobbying, and induce resource misallocation.
Note that WTO rules discipline (albeit lightly) the use of export restrictions, but not export taxes (although the latter are to be imposed on a nondiscriminatory basis). However, some recently acceded WTO members have undertaken specific obligations regarding their use of export restrictions and export taxes.
Least developed countries, countries listed in Annex VII of the Agreement on Subsidies and Countervailing Measures until their GNP per capita reaches US$1,000, and certain small economies benefiting from temporary exemptions under Art. 27.4 ASCM.
Where important economic objectives are at stake, these are best addressed through other means. Stimulating investment, for example, is best done through capital provisions (e.g., depreciation rules).
A surcharge could be classified under “other duties and charges” for which separate bindings apply.
“Guidelines/Framework for Fund Staff Collaboration with the WTO––Revised Guidelines/Framework” (EB/CGATT/95/1, Supplement 1), as endorsed by the Fund’s Executive Board. The Executive Board decided that the draft guidelines framework for Fund staff collaboration with the WTO, set forth in EB/ CGATT/95/1, Supplement 1, may be used by the staff to discuss cooperation with the WTO staff, with the goal of reaching agreement on collaboration between the two institutions (Decision No. 10968-(95/43), April 21, 1995).
“Agreement between the International Monetary Fund and the World Trade Organization,” adopted by the IMF Executive Board under Decision No. 11381-(96/105), November 25, 1996.
The basic document is “The Results of the Uruguay Round of Multilateral Trade Negotiations—The Legal Texts,” Geneva, 1994. Note that the GATT, as amended by the Uruguay Round, is among the WTO agreements.
Indeed, the “Guidelines/Framework for Fund Staff Collaboration with the WTO––Revised Guidelines/Framework ” (EB/CGATT/95/1, Supplement 1) recognized that “Fund policy advice often encompasses features that require reforms consistent with or going beyond a member’s undertakings in the WTO. For example, tariffs may be reduced under a Fund-supported program to levels below “bound” levels in the relevant WTO agreements.”
The “Guidelines/Framework for Fund Staff Collaboration with the WTO” describe cross conditionality as “directly linking the use of Fund resources to the performance of obligations under the WTO-administered agreements.” It goes on to clarify that: “Fund-supported programs may include reductions in subsidies or trade barriers that are consistent with or go beyond [emphasis added] the commitments undertaken under the Uruguay Round when the Fund finds that such measures are necessary to achieve the objectives of the Fund-supported program, but not to enforce commitments to agreements under the auspices of the WTO.”
A tariff binding is an agreed maximum tariff on a specific product (designated by several thousand tariff lines) that a WTO member has included in its “schedule of tariff concessions.”
Also check for exceptions such as waivers from the WTO. Tariff bindings are available through www.wto.org/ SPR trade policy staff can assist with their interpretation. Applied tariff rates are subject to change and in most cases should be obtained from the authorities. The WTO publication Tariff Profiles provides summary information on applied tariff rates and WTO bound rates.
GATT Article II:2(c) allows a member to impose “fees and other charges commensurate with the cost of services rendered.”
For example, if the applied surcharge, surtax, and tariff are 5 percent, 10 percent, and 15 percent respectively and the corresponding bound rates are 7 percent, 11 percent, and 20 percent, respectively, the surcharge cannot be increased by 3 percentage points (to 8 percent), even if the surtax and/or the tariff is reduced by 3 percentage points.
Data on the level at which ODCs are bound will be found in a special column in a country’s tariff schedules. If there is no entry under this column, no ODCs can be imposed or maintained, as the ODC is effectively bound at zero. Countries that currently levy ODCs but did not specify these in their schedule of commitments should clarify this matter directly with the WTO.
GATT Article VIII.
If the transactions value cannot be determined, importers are given the right to select certain alternative methods (transactions value of identical or similar imported goods (Article 5) or Computed Value (Article 6). If the customs value of an imported good cannot be determined under these alternative methods, “reasonable means” consistent with the Agreement are to be used—Article 7. See the Uruguay Round “Agreement on the Implementation of Article VII of the GATT” which contains detailed guidelines for assessing the “transactions value” for customs purposes.
Equally, the use of domestic taxes should not discriminate between imported goods from one country in favor of another, including under regional trade arrangements
Voluntary export restraints are bilateral arrangements between an exporter and an importer whereby the former agrees to limit exports of a given product. The arrangement may be concluded at government or industry level.
Article XX provides for limited exceptions relating, among other things, to public morals, plant and animal health, and natural resources. Article XXI provides for security exceptions.
In general, Fund policy advice is in the direction of reduction of subsidies, and hence problems of consistency with the WTO are unlikely to arise. It is nevertheless useful to be aware of the general WTO principles on subsidies, as summarized in this note. Details are found in the ASCM. Some of the terms used in the agreement are highly technical and their interpretation should be left to the WTO.
Some WTO members retain the right to subsidize the exports of particular farm products, up to specified value and volume limits; these remaining agricultural export subsidies would be prohibited under the draft provisions of a Doha Round agreement.
The ASCM covers subsidies involving a financial contribution by a public body that confers a benefit to specific enterprises or industries. A financial contribution exists where there is a direct or potential direct transfer of funds (e.g., loan guarantees); where government revenue is foregone, such as through fiscal incentives (although exported products may be exempted from duties or taxes borne by like products when destined for domestic consumption); where a government provides goods or services other than general infrastructure, or purchases goods; or where there are income and price support schemes.
A subsidy is "specific" if it is targeted to (i) a particular enterprise or group of enterprises; (ii) a particular industry or group of industries; or (iii) enterprises or industries operating in designated regions within the jurisdiction of a granting authority. Prohibited subsidies are deemed to be specific (because they are targeted at exports or at import-displacing products).
Several prohibited subsidies are relevant to Fund staff, such as those concerning provisions for the rebate of direct and indirect taxes and provisions for export financing.
A category of "non-actionable" subsidies (for certain subsidies for R&D, disadvantaged regions and the purpose of meeting new environmental standards) was created in the Uruguay Round but expired in 1999.
Dumping, under multilateral rules, exists when a product is sold abroad for less than “normal value.” Typically, this means that the export price is less than the comparable price in the home market.
The Understanding on the Balance of Payments Provisions of the GATT 1994.
If no agreement can be reached on acceptable compensation, an affected exporting country may suspend equivalent concessions. However, under certain conditions, suspension shall not occur for the first three years that a safeguard measure is in effect (Agreement on Safeguards, Article 8:3).
Agreement on Safeguards, Article 7:4.
GATT Article XX and GATS Article XIV.
GATT Article XXI and GATS Article XIV (bis).
See Section IV (c) regarding the relationship between WTO BoP measures and Fund arrangements.
Note that through the IMF-WTO Cooperation Agreement, approved by the IMF Executive Board in 1996, the Fund has committed to playing the role envisioned for it in the WTO Agreements.
Note that somewhat more lenient provisions apply to developing countries under GATT Article XVIII:B. GATS Article XII contains similar language concerning restrictions on services imports.
If controversial issues are foreseen, an informal briefing to the Board or to the Committee on Liaison with the World Bank, the WTO, and other International Organizations may be useful.