Bridges Weekly Trade News Digest • Volume 6 • Number 27 • 17th July 2002
Trade, Debt, & Finance Working Group Hears Calls For Financial Reform
convened on 11 and 12 July, spending the majority of its time hearing
reports from a number of regional and international agencies on
the linkages between trade and finance. In addition to hearing these
reports, the body adopted its work programme for 2002, after being
unable to do so at its first meeting last April due to disagreements
over the focus of the debt section of the plan (see BRIDGES
Weekly, 23 April 2002).
UNCTAD
report pushes for greater reform of current financial architecture
from the UN Conference on Trade and Development - UNCTAD (WT/WGTDF/W5,
searchable at
effects of financial instability and commodity price volatility
on trade, finance and development". This document took a historical
perspective on the issue of trade, debt and finance, drawing parallels
between the questions UNCTAD felt the Working Group must ask with
those asked by the architects of the post-World War II international
economic system.
In
context of the similarities drawn between the questions asked in
1944 and those being asked now, the UNCTAD report began with a review
of the approach taken by the Bretton Woods' (World Bank, IMF, International
Trade Organization (ITO)) architects. It discussed the failure to
create a fully coherent global economic system — noting in particular
the failure to create an institution to stabilise primary commodity
prices and the failure to implement a number of key elements of
the proposed ITO's charter. The report concluded with a number of
comments and recommendations, including, inter alia, that the present
international trade and finance systems do not provide sufficient
long- term financial resources to enable developing countries to
achieve the rapid and sustained growth needed to reach the millennium
development goals, and that the additional pledges made at the Monterrey
Conference (see BRIDGES
Weekly, 26 March 2002) fell "far short" of the amounts
needed to close the resource gap.
The
UNCTAD report further called for a redesign of the architecture
of the international financial system, with the basic objective
of easing the integration of developing countries into the international
trading system (noting undue emphasis on national level reforms
to date). In addition, it perceived the need to integrate and elaborate
on specific measures within the WTO framework that could be implemented
when financing of external imbalances is insufficient or not available.
On this latter recommendation, the paper noted the inadequacy of
current balance-of-payment measures in the WTO as not being "designed
for the problems endemic in the current international system [...]".
Notably, the final point of the report looked towards the Working
Group's second focus area, that of trade and debt, as being of "equal
or greater importance" than its other area of trade and finance.
It went on to say that many of the external account imbalances experienced
by developing countries were arising mostly due to debt and debt
servicing issues. Other papers presented at the session included
(i) a WTO Secretariat literature review related to financial crises
in the 1990s (WT/WGTDF/W/4); (ii) a list of WTO provisions related
to exchange arrangements and restrictions, balance-of-payments and
external financial difficulties, financial assistance for development
and coherence (WT/WGTDF/W/3); (iii) an Asian Development Bank paper
(WT/WGTDF/W6) entitled "Initiatives to Ensure Continuity of
Trade Flows" focusing on trade financing concerns and initiatives
amongst the development bank's clients; and (iv) an OECD paper (WT/WGTDF/W/7)
entitled "Financial Crises: Implications for Trade and Trade
Policy" highlighting some of the key lessons from the financial
crisis of 1997. (All above documents are searchable at http://docsonline.wto.org)
Members'
interventions
concern regarding the "onerous" policy conditionality
of the international institutions. With regards to the discrepancies
between the international trading and financial systems detailed
in the UNCTAD report, China noted that the WTO was not a rational
trading system; India concurred with this view, saying that domestic
reform had not helped development and a development-oriented international
system was required. Pakistan noted that coherence should not reinforce
the problems created by WTO rules and Malaysia intervened to say
that the present financial system was not directing flows to development
purposes. Brazil said they would come back to inconsistencies between
the international trading system and the international financial
system. In contrast, the EC alleged that the global economy had
in fact withstood recent shocks well compared to earlier periods
in history, and that poor countries had benefited from significant
increases in investment inflows, while the US spoke about the need
for complementary pro-competitive domestic reforms to be implemented
along with trade liberalisation.
Adopting
an agenda
15 April session, Chair Hernando Jose Gomez of Colombia was able
to broker an agreement between developing and developed countries
over the headings for the debt issue area of the work programme
(see link above). The compromise reached included two core titles
for this area of the work programme: i) external debt; and ii) trade-related
issues and alleviation of the external indebtedness of developing
and least- developed countries. While not falling under the 'single
undertaking' negotiations of the Doha mandate, the Working Group
on Trade, Debt and Finance is accorded "a high priority"
(Doha Ministerial Declaration para. 52) and shall report on its
progress at the Fifth Ministerial Conference in 2003. It meets again
on 30 September and 17 December.
ICTSD
reporting.