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  • INTERNATIONAL MONETARY FUND

    Reference Note on Trade Policy, Preferential Trade Agreements, and WTO Consistency1

    Prepared by the Strategy, Policy, and Review Department

    Approved by Tam Bayoumi

    September 30, 2010

    Contents Page

    I. Background and Information Sources ....................................................................................3

    II. The Context for Fund Advice on Trade Policy .....................................................................4

    III. Preferential Trade Agreements (PTAs) ...............................................................................5

    A. PTAs and Fund Surveillance.....................................................................................6

    B. Surveillance Modalities .............................................................................................9

    IV. Trade Policy Reforms ..........................................................................................................9

    A. Objectives, Scope, Sequencing, and Pace of Trade Reform ...................................10

    B. Complementary Policies .........................................................................................14

    C. Use of Import Surcharges ........................................................................................15

    V. WTO-Consistency ...............................................................................................................17

    A. Introduction .............................................................................................................18

    B. Tariff Bindings ........................................................................................................19

    C. Other Duties and Charges .......................................................................................20

    D. Fees and Formalities Connected with Importation and Exportation .......................20

    E. Customs Valuation and Import Reference Prices ....................................................20

    F. Discriminatory Domestic Taxes ..............................................................................21

    G. Agriculture ..............................................................................................................21

    H. Textiles and Clothing ..............................................................................................21

    I. Voluntary Export Restraints .....................................................................................22

    J. Import Licensing ......................................................................................................22

    K. Trade-Related Investment Measures .......................................................................22

    L. Preshipment Inspection ...........................................................................................22

    M. Subsidies .................................................................................................................23

    N. Dumping/Antidumping (AD) ..................................................................................24

    O. Export Measures .....................................................................................................25

    1 This note provides a description of the existing framework. Interpretations of the treaties offered in the note are

    staffs own and may differ from those of the World Trade Organization or governing bodies of, or parties to,

    preferential trade agreements.

  • 2

    P. Major Exceptions to WTO Rules ............................................................................25

    VI. WTO Committee on Balance of Payments Restrictions....................................................27

    A. Procedures ...............................................................................................................28

    B. The GATT and the WTO Articles...........................................................................29

    C. The Fund Statement ................................................................................................30

    D. Scheduling and Representation ...............................................................................30

    Boxes

    1.Some Concepts Regarding Preferential Trade Arrangements ................................................6

  • 3

    I. BACKGROUND AND INFORMATION SOURCES

    1. This Reference Note introduces guidance on preferential trade agreements (PTAs). In so doing, it responds to the request by the Executive Board in

    the context of the Independent Evaluation Office (IEO) Evaluation of IMF

    Involvement in Trade Policy Issues.2 Section II provides context for the Funds work

    on trade policy, drawing upon the 2009 IEO Evaluation, the 2005 Review of Fund

    Work on Trade, and the discussion of the Executive Board on these occasions.

    Section III reflects issues presented in Preferential Trade AgreementsIssues for the

    Fund, discussed at an informal Board seminar in December 2006.3

    2. The remainder of the paper consolidates and updates existing guidance in other trade-related areas, in accordance with the Funds mandate and applicable

    Fund policies. This fulfils an intention expressed in the Management Implementation

    Plan for Board-endorsed recommendations of the IEO Evaluation. Section IV

    discusses Fund guidance on trade policy reforms. To support policy coherence and

    help staff to avoid advising Fund member governments in a manner inconsistent with

    a governments obligations to the World Trade Organization (WTO), Section V

    summarizes WTO rules relevant to Fund operations. Section VI covers the IMFs role

    in the WTO Committee on Balance of Payments Restrictions (the BPC).

    3. Information sources available to Fund staff that are useful in trade policy work include the following:

    SPR is re-vamping the existing Trade Policy Information Database (TPID). The TPID will emphasize information available from other sources and

    present this information in a manner that facilitates cross-country

    comparisons. (This note will be updated with additional information as the

    TPID is developed further.)

    The WTOs annual Tariff Profiles provide summary information on the tariff regime for most countries. This information includes average applied tariff

    rates and WTO bound (ceiling) rates, 4 presented according to broad

    categories. (See www.wto.org)

    The WTOs periodic Trade Policy Reviews (TPRs) provide detailed information on the trade regimes of individual WTO member countries. The

    TPR is prepared on a two, four, or six year schedule depending on the

    countrys relative importance in global trade. (See www.wto.org)

    2 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.

    3 The treatment of trade policy should continue to be informed by current guidance in surveillance and

    conditionality.

    4Bound 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.

    http://www.wto.org/http://www.wto.org/

  • 4

    The WTOs Regional Trade Agreement Information System (RTA-IS) provides some information on those RTAs that have been officially notified to

    the WTO. (See www.wto.org) A database maintained at Dartmouth

    University, with World Bank support,

    (www.dartmouth.edu/~tradedb/trade_database.html) includes PTA texts and

    in-depth information in a format that facilitates comparisons. The website

    www.bilaterals.org includes PTA articles and the full text of many

    agreements.

    Two major sources focus on trade-related policy measures implemented since the beginning of the global financial crisis. The WTO Secretariat has prepared

    periodic reports, sometimes in collaboration with the OECD and UNCTAD.

    The most recent of these is available on www.wto.org as Report to the TPRB

    from the Director-General on Trade-Related Developments

    (WT/TPR/OV/W/3, 6/11/10). Separately, Global Trade Alert

    (www.globaltradealert.org), supported by the World Bank, reports a broader

    set of measures (including those under consideration or in the pipeline),

    provides comparator reports in an easily accessible manner, and provides

    occasional analysis.

    II. THE CONTEXT FOR FUND ADVICE ON TRADE POLICY

    4. In discussing the 2009 IEO Evaluation, Executive Directors noted that trade policies can strongly influence macroeconomic stability and emphasized

    that the Fund must play an active role in calling attention to systemic and

    macroeconomic implications of trade policy developments. They called for

    greater emphasis in multilateral surveillance on the global effects of trade policies in

    systemically important countries and, for all countries, for bilateral surveillance to

    tackle macro-critical trade policy issues, while ensuring evenhandedness in advice.

    They also stressed that staff work on trade policy should remain selective, and should

    be consistent with the work of other multilateral organizations, principally the WTO.

    5. Directors welcomed the earlier scaling back of trade policy conditionality, in line with stream

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