Greater Coherence in Global Economic Policymaking: Progress and Prospect

Abstract

In concluding the Uruguay Round Trade Negotiations in 1994, the drafters of the Agreement Establishing the World Trade Organisation (the WTO Agreement) instructed the WTO to "cooperate, as appropriate, with the International Monetary Fund and with the International Bank for Reconstruction and Development and its affiliated agencies" with a view to achieving greater coherence in global economic policymaking, which constitutes one of the five core functions of the WTO. In pursuit of this objective, the ministers also adopted the Declaration on the Contribution of the World Trade Organisation to Achieving Greater Coherence in Global Economic Policymaking (Coherence Declaration). In accordance with this Coherence Declaration, the Director-General of the WTO is invited to "review with the Managing Director of the International Monetary Fund and the President of the World Bank, the implications of the WTO's responsibilities for its cooperation with the Bretton Woods institutions, as well as the forms such cooperation might take, with a view to achieving greater coherence in global economic policymaking". The final result was two formal agreements: one concluded between the WTO and the International Monetary Fund (the IMF); the other concluded between the International Bank for Reconstruction and Development and the International Development Association (the World Bank).

Signing the WTO-IMF Agreement and WTO-World Bank Agreement did not mark the realisation of the Coherence Declaration, but merely the beginning of a series of challenges. Immediately after the finalisation of these two agreements, the Asian financial crisis erupted, wholly occupying the Committee on Balance of Payments (the BOP Committee) as many countries referred to balance of payments measures (the BOP measures) to safeguard their external financial positions and balance of payments, a central element in WTO-IMF relations since the GATT era.

The need for closer coordination between the WTO and the Bretton Woods institutions, with a view to achieving greater coherence in global economic policymaking, was reiterated in the Doha Ministerial Declaration, with trade ministers again stressing that the economic problems facing the world could not be addressed through trade measures alone. The Doha Declaration also pays great attention to the relationship between trade, finance and debt, and thus established a working group under the auspices of the General Council to explore possible steps, within the mandate and competence of the WTO, to be taken "with a view to safeguarding the multilateral trading system from the effects of financial and monetary instability". With this end in mind, two policy goals were identified: "to enhance the capacity of the multilateral trading system to contribute to a durable solution to the problem of external indebtedness of developing and least-developed countries"; and "to strengthen the coherence of international trade and financial policies".

Since 2008, the world has been embroiled in another round of financial turmoil, underscoring demands for greater coherence in global economic policymaking. Leading members of the WTO continue to urge countries to resist calls for protectionism, with a view to avoiding the likely results: economic stagnation and financial instability. In addressing to the 2009 Geneva Ministerial Conference, the Chair, the Chilean finance minister, pointed to the challenges financial and economic crises posed to the existent international economic order, arguing that it was necessary to "look anew at the role and functioning of the economic and financial institutions that emerged from this order". The Chair went on to claim that the role of the WTO had been reaffirmed in the midst of doubts about the functioning of international institutions. According to him, WTO rules and commitments contribute to the stability of the international economic order and help to prevent the world economy from slipping into a protectionist spiral similar to that which occurred at the time of the Great Depression.

Not all WTO members were as optimistic. In the Ministerial Conference, Argentina and Ecuador, in view of potential WTO-inconsistency in the fiscal stimulus and financial support programmes adopted by members responding to the crisis, proposed a motion to be adopted by the General Council, entitled "The Financial and Economic Crisis and the Role of the WTO". In that proposal, the President of the General Council, with the assistance of the Director-General and the WTO Secretariat, is mandated to "undertake extensive and transparent consultations with members including, when appropriate, relevant international governmental bodies on the methodology for the analysis of the fiscal stimulus and financial support programmes".

Although the proposal has not obtained sufficient support to be adopted, nonetheless, it signifies members’ worries about the potentially adverse effects of the fiscal stimulus and financial support programmes, and the need for stronger coordination between the WTO and other international institutions. Further, these fiscal stimulus and financial support programmes have yielded unwelcome by-products: unregulated capital flows. Widespread capital flows prompted Brazil to submit a proposal to discuss the relationship between exchange rates and international trade in the Working Group on Trade, Dept and Finance. Also in response to the financial crisis, some WTO members resorted to conventional BOP measures for safeguarding their external financial positions and balance of payments, which attracted criticism on the grounds of trade protectionism. During the consultation process within the BOP Committee, the representative of Ecuador asserted that his country would not accept being used to set precedent, and declined "those lessons on good economic governance either from some of the members who had shown the worst record in this area, and which together with the ominous policies of the IMF had been the direct causes of the world-wide crisis that had forced Ecuador to return to this Committee".

In this context, this chapter thus aims to examine the (ir)relevance of the Coherence Declaration in contributing to global economic policymaking twenty years after the establishment of the WTO. This chapter will firstly reflect on what coherence means in global economic policymaking, and its purpose by tracing the history of the post-war international economic architecture and the evolution during the Uruguay Round Trade Negotiations. It then examines the Coherence Declaration and the institutional agreements between the WTO and the Bretton Woods institutions. This chapter poses the question: are the WTO and the Bretton Woods institutions legally bound to pursue greater coherence? If so, in addition to the institutional linkages, what legal and policy instruments are available to the international organisations seeking to achieve this objective?

This chapter thus investigates collaboration between the WTO and Bretton Woods institutions and assess their efforts. Finally, it will point to the challenges ahead in reinvigorating the Coherence Declaration with a view to contributing to greater coherence in global economic policymaking.

Keywords: Coherence Declaration, WTO, IMF, Bretton Woods institutions, FOGS