the “missing link” between the wto and the imf

8/12/2019 The Missing Link between the WTO and the IMF

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THE MISSING LINK BETWEEN THE WTO AND THE IMF

Vera Thorstensen, Daniel a!os, "arolina M#ller1

(January 2013)Draft not to be quoted

Abstract

This article is part of a broader study on the impacts of exchange rate on trade. It

searches for an explanation on why there is no effective rule in the WTO to neutralize

the negative impacts of currency misalignments on trade instruments. In other words, it

searches for the missing link between the WTO and the I! concerning the relationship

between exchange rates and trade. It also seeks to demonstrate that, in the creation of

the "retton Woods #ystem this link was clearly defined but was forgotten after the end

of the par value. $espite all the historical and theoretical developments these two

organizations have been through, their only legal link remains the same% &'TT 'rticle

().

The article analyzes the differences between the I! 'rticle I) approach based on theconcept of manipulation of exchange rates and the &'TT 'rticle () approach that

looks for the frustration of the trade ob*ectives. !inally, it argues for the rescue of &'TT

'rticle () to solve the serious problem of trade rules circumvention through currency

misalignments.

Intro$#%tion

I am gratified to announce that the +onference at "retton Woods has completed

successfully the task before it. It was, as we knew when we began, a difficult task,

involving complicated technical problems. We came here to work out methods which

would do away with the economic evils the competitive currency devaluation and

destructive impediments to trade which preceded the present war. We have succeeded

in that effort.

-enry orgenthau, r., /nited #tates #ecretary of the Treasury

0resident of the "retton Woods +onference.

When the articles of the General Agreeent on !rade and !ariffs (GA!!) "erenegotiated in 1#$%& during the 'nited ations (') onference on !rade and*+loyent& the contracting +arties "ere concerned about the daaging effects of

e,change rate ani+ulation on trade +olicy instruents- !he chaotic consequences totrade of the +ractice of co+etiti.e currency de.aluation in the years before the WorldWar // "ere still .ery +resent in the inds of the negotiators-!he issue "as seeingly settled& though& by the fi,ed e,change rate syste establishedin retton Woods- With e,change rates controlled under /nternational onetary und(/) aus+ices& the subect "as not ade +resent ore than a fe" ties in the GA!!-Article 45 of GA!!& in its 6aragra+h $& established that 7contracting +arties shall not&

by e,change actions& frustrate the intent of the +ro.isions of this Agreeent& nor bytrade action& the intent of the +ro.isions of the Articles of Agreeent of the /8-

1 5era !horstensen is a 6rofessor at the 9:o 6aulo 9chool of *conoics (**96) of the G5 and

oordinator of the enter on Global !rade (G!/); Daniel


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Article /5 of the / Articles of Agreeent& by its turn& established a fir control o.ere,change rates& deterining that e,change rates "ould not .ary ore than 1= fro the

+ar .alue established and that ebers "ould underta>e 7to collaborate "ith the undto +roote e,change stability& to aintain orderly e,change arrangeents "ith otherebers& and to a.oid co+etiti.e e,change alterations8-

Article 45 of the GA!! and Article /5 of the / "ould thus for the +riary bondbet"een the t"o regulatory systes& guaranteeing that e,change rates "ould not be ofconcern to international trade as long as the fi,ed e,change rate syste "as in +lace-!he ultilateral trading syste could then de.elo+ "ith relati.e indifference toe,change rate issues-After ore than ?0 years of historical and theoretical de.elo+ents& these t"o systessuffered aor odifications& both in their structure as in their agendas- !heseodifications ha.e had a great i+act in each regulatory syste& as each had to e.ol.eto deal "ith the ne" challenges +resent in the international arena- @o"e.er& after theend of the fi,ed e,change rate syste in the %0s and the /8s loosened control o.ere,change rates& the Article /5 of the / gradually lost its focus on e,change rates& as

"ell as its central +lace in the und8s obecti.es& brea>ing the lin> bet"een the t"oinstitutions-Des+ite the efforts of coordination bet"een the / and the W!& andated by Article///-B of the arra>esh Agreeent and the agreeent bet"een the institutions(W!CC1#B)& the 200E econoic crisis brought its effects to the forefront ofinternational econoic tensions- 9ee>ing a "ay out of recession& se.eral countriesaintained under.alued currencies (either directly or as an indirect consequence ofe,+ansionary onetary +olicies& such as nonFcon.entional instruents of onetary

+olicy) and chose to +roote e,+orts in order to stiulate econoic gro"th2- !hei+acts on international trade ha.e surged and any state agents and scholars no"criticie the / and the W! for their inca+acity to address the +roble-!"o of the ost influential scholars in international econoics and international la" ofthe +ast decades suaried "ell the dee+ concerns o.er the issue- John Jac>son arguesthat there is a bitter di.ision bet"een trade and finance e,+erts& stating the e,istence of a7hatred of the trade +eo+le co+ared to the financial +eo+le8H

/t causes real har& because the +robles of financial ser.ices& "hich arehorrendous +robles today& can really a>e life +retty iserable& and (it) isa>ing life +retty iserable for illions and illions of +eo+le all o.er the"orld-3

red ergsten argues in the sae line& stating further thatH

!he failure to lin> the trade and currency issues is by far the ost i+ortantsingle issue facing the global trading syste and& indeed& internationaleconoic coo+eration today- /t re+resents the biggest structural fla" in theretton Woods syste that "as created in the end of the 9econd World War-$

2 !he currency ani+ulation can be traced bac> to e.en before the financial crisis of 200E& arguably e.enbeing one of its underlying reasons& but the crisis has undeniably un.eiled its full consequences- 9ee*


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!his article see>s to identify the origin of this Iissing lin> through the history of /and W! de.elo+ent-

I & The 'ost(War International E%ono!i% S)ste!

After the econoic turoil of the 30s and the follo"ing World War //& countries decidedthat international econoic relations should be better regulated in order to +reser.e

+eace and foster de.elo+ent- !hree international organiations "ere concei.ed out ofthis unique +olitical oent& construing an institutional structure "hich "ould beres+onsible for global econoic go.ernance in the follo"ing decadesH the /nternationalan> for of +rotectionist trade +oliciesthat contributed to a colla+se of "orld trade- /n fact& higher trade barriersaccounted for about half of the 2B +ercent decline in the .olue of globaltrade bet"een 1#2# and 1#32 and stunted the gro"th of trade for thereainder of the decade-

Net countries .aried significantly in the e,tent to "hich they increasedtariffs and i+osed i+ort quotas- A >ey factor in deterining a country8strade +olicy res+onse "as notM+erha+s sur+risinglyMthe degree to "hich itsuffered fro falling out+ut and rising une+loyent& but rather itse,change rate +olicy under the gold standard-?

*ach one of these organiations& ho"e.er& has since suffered dee+ transforations bothin its echaniss as in its o.erarching goals- !he / Grou+-

B W**D& Andreas -& I!he /nternational onetary 9ysteH A oo> ac> .er 9e.en Decades&ournal of International 6conomic 7aw 13(3)& 2010& +- B%?

? /


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!he GA!! has de.elo+ed into the World !rade rganiation (W!) and its rules no"regulate not only tariffs but technical barriers to trade& sanitarian and +hytosanitarianregulation& ser.ices& intellectual +ro+erty as+ects of trade and trade related in.estenteasures- /ts dis+ute settleent syste is a "ellFestablished la"Fgi.ing entity and hashel+ed to sol.e abiguous and conflicting +rinci+les& enhancing free trade- !he W!

has becoe one of the ost i+ortant international fora"here countries negotiate andsu+er.ise as+ects of the global econoic go.ernance frae"or>-inally& the / too has suffered aor transforations- !he / is arguably theretton Woods organiation "hose historical and theoretical changes ha.e had the osti+ortant i+act on its goals and echaniss- 9oe scholars call these changes aI9ilent es of the great de+ressionE-!he absence of a stabiliing international authority suchas the / "ould 7de+ress "orld econoic gro"th and dri.e the "orld bac> into

+rotectionist +olicies& regardless of ho" quic>ly or "ell +roduction and trade could bereconstructed after the "ar8-#

*,change stability "as to be guaranteed through a +ar .alue syste based on thecon.ertibility of '9 dollars to gold- All countries "ould ha.e the obligation to aintainthis +ar .alue& by the inter.ention of their central ban>s if needed be& "ithin 1= of the.alue established by the und- !he und "ould then hel+ countries ha.ing difficulties inaintaining their +ar .alues through financial assistance- !he +riary obecti.e of thesyste "as to aintain the e,change rate equilibriu- !he Article /5 of the Articles ofAgreeent "as& in this sense& the central legal obligation of the syste-riginally& Article /5 read as follo"ingH

Article /5- 6ar 5alues of urrencies

% 9ee 'G@!& Jaes -& #ilent revolution% the International onetary !und, 289828:8& /&2001- 1111 +-

E 9ee @arry De,ter White8s I6reliinary Draft 6ro+osal for a 'nited ations 9tabiliation und and aan> for ing 6a+er W6C0$C%B& 6olicy De.elo+ent and


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9ection 1-6xpression of par values. (a) !he +ar .alue of the currency of each ebershall be e,+ressed in ters of gold as a coon denoinator or in ters of the 'nited9tates dollar of the "eight and fineness in effect on July 1& 1#$$- (O)

9ec-3. !oreign exchange dealings based on parity- !he a,iu and the iniu ratesfor e,change transactions bet"een the currencies of ebers ta>ing +lace "ithin their

territories shall not differ fro +arity(i) /n the case of s+ot e,change transactions& by ore than one +ercent; and(ii) /n the case of other e,change transactions& by a argin "hich e,ceeds the argin for s+ote,change by ore than the und considers reasonable- (O)

9ec- $- Obligations regarding exchange stability. (a) *ach eber underta>es tocollaborate "ith the und to +roote e,change stability& to aintain orderly e,changearrangeents "ith other ebers& and to a.oid co+etiti.e e,change alterations- (b) *acheber underta>es& through a++ro+riate easures consistent "ith this Agreeent& to

+erit "ithin its territories e,change transactions bet"een its currency and the currenciesof other ebers only "ithin the liits +rescribed under 9ection 3 of this Article- (O)-

/t "ould be +ossible& ho"e.er& to alter this +ar .alue& after /8s acquiescence& in orderto 7deal "ith a fundaental disequilibriu8 bet"een a currency .alue and the econoicfundaentals of its country- !his did occurred in se.eral occasions& the ost notoriousone being in 1#?% "hen the 'L announced a de.aluation of 1$&3= of its currency-/t is "orth noting that not only the ultilateral trading syste de+ended u+on the "ellFfunctioning of the +ar .alue syste& but also se.eral echaniss under the originalWorld an> Articles of Agreeent related to it10- !he +ar .alue syste "as& thus&central to the global econoic go.ernance institutional structure as concei.ed in rettonWoods- /n the "ords of @enry orgenthau& Jr-& 'nited 9tates 9ecretary of the !reasuryand 6resident of the retton Woods onferenceH

What are the fundaental conditions under "hich the coerce aong the

nations can once ore flourishP irst& there ust be a reasonable stablestandard of international e,change to "hich all countries can adhere "ithoutsacrificing the freedo of action necessary to eet their internationaleconoic +robles-

!his is the alternati.e to the des+erate tactics of the +ast F co+etiti.ecurrency de+reciation& e,cessi.e tariff barriers& uneconoic barter deals&ulti+le currency +ractices& and unnecessary e,change restrictions by"hich go.ernents .ainly sought to aintain e+loyent and u+holdli.ing standards- /n the final analysis& these tactics only succeeded incontributing to "orldF"ide de+ression and e.en "ar- !he /nternational

onetary und agreed u+on at retton Woods "ill hel+ reedy thissituation-11or a quarter of a century the syste "as relati.ely stable and concerns o.erco+etiti.e e,change rate de.aluations "ere softened12-!rade liberaliation negotiators

10 9ee& e-g-& its article //& section #& dealing "ith Iaintenance of .alue of certain currency holdings ofthe ban>- Also& it is re.ealing that ebers of the World an> or contracting +arties to the GA!! "ereobligated to be ebers of the / or& at least& to ha.e s+ecial e,change rate arrangeents "ith eachinstitution& but no siilar obligation "as inserted into /8s Articles of Agreeent-

11


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had not to "orry about it and "ere free to tailor trade rules that "ere silent to the+roble- /n the late ?0s& ho"e.er& the syste started to sho" signs of unsustainability-!he fi,ed syste created soe indirect effects such as the o.er.aluation of richcountries8 currencies and the under.aluation of se.eral eerging econoies- Albeit the

+ossibility of change in the +ar .alues& this "as se.erely discouraged by the syste and

countries often chose not to do so- !his created situations li>e Ja+anQs that& by the early%0s& after attaining econoic gro"th in double digits for se.eral years& still aintainedits currency at the sae +ar .alue to the dollar as in 1#$#-urtherore& se.eral authors already +ointed out to the unsustainability of the fi,ede,change rate syste- /n a seinal +a+er in 1#B3& ilton riedan already "arned thatthe fear of e,change rate fle,ibility "as o.errated since infored s+eculators "ouldal"ays tend to stabilie +rices& not the other "ay around- 13y its turn&


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syste e.ol.e& focusing ainly in hel+ing countries to o.ercoe the oil +rice shoc>s-!he /8s *,ecuti.e oard later ado+ted the RGuidelines for the anageent ofloating *,change etof 1? currencies& in an atte+t to control the floatation +rocess-1%

After se.eral atte+ts& the /nteri oittee agreed on an Rinteri reforR of the

onetary syste& including the aendent of Article /5- A 9econd Aendent of/8s Articles of Agreeent entered into force t"o years later& finally ac>no"ledgingthe right of ebers to ado+t e,change rate arrangeents of their choice (Decision o-B3#2F(%%C?3)& ado+ted A+ril 2#& 1#%% F the;2899 $ecision;)- !he / ebers "ouldno" be free to choose bet"een a set of e,change rate +olicies (e,ce+t +egging theircurrency to gold)H allo"ing the currency to float freely& +egging it to another currency ora bas>et of currencies& ado+ting the currency of another country& +artici+ating in acurrency bloc& or foring +art of a onetary union-y the end of the decade& the / had irre.ersibly changed its fundaental obecti.e inglobal econoic go.ernance- !he end of the retton Woods onetary syste eantthat its +i.otal role in stabiliing a fi,ed rate syste had to be o.ercoe- !he und no"

+layed a different role in the international econoic systeH that of guaranteeing thebalance of +ayent of countries in a free floating e,change rate "orld- /n this ne" role&it "ould not ha.e the +o"er to deterine +ar .alues for currencies e,change rates- !hene" echaniss created to su++ort this ne" role "ere based on conditional lending andsysteic sur.eillance- /n that facilitates the e,change of goods& ser.ices&and ca+ital aong countries& and that sustains sound econoic gro"th& andthat a +rinci+al obecti.e is the continuing de.elo+ent of the orderly

underlying conditions that are necessary for financial and econoicstability& each eber underta>es to collaborate "ith the und and otherebers to assure orderly e,change arrangeents and to +roote a stablesyste of e,change rates- /n +articular& each eber shallH(O)(iii) a.oid ani+ulating e,change rates or the international onetary systein order to +re.ent effecti.e balance of +ayents adustent or to gain anunfair co+etiti.e ad.antage o.er other ebers; (O)

1% /& &uidelines for the anagement of !loating 6xchange


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!he / "ould also e,ercise fir sur.eillance o.er the e,change rate +olicies ofebers as deterined by Article /5 section 3H

9ection 3- 9ur.eillance o.er e,change arrangeents(a) !he und shall o.ersee the international onetary syste in order to

ensure its effecti.e o+eration& and shall o.ersee the co+liance of eacheber "ith its obligations under 9ection 1 of this Article-(b) /n order to fulfill its functions under (a) abo.e& the und shall e,ercisefir sur.eillance o.er the e,change rate +olicies of ebers& and shallado+t s+ecific +rinci+les for the guidance of all ebers "ith res+ect tothose +olicies- *ach eber shall +ro.ide the und "ith the inforationnecessary for such sur.eillance& and& "hen requested by the und& shallconsult "ith it on the eber8s e,change rate +olicies- !he +rinci+lesado+ted by the und shall be consistent "ith coo+erati.e arrangeents by"hich ebers aintain the .alue of their currencies in relation to the.alue of the currency or currencies of other ebers& as "ell as "ith other

e,change arrangeents of a eber8s choice consistent "ith the +ur+osesof the und and 9ection 1 of this Article- !hese +rinci+les shall res+ect thedoestic social and +olitical +olicies of ebers& and in a++lying these

+rinci+les the und shall +ay due regard to the circustances of ebers(O)-

As the 1#%% Decision established& the sur.eillance echanis "ould be the one toensure that countries did not re.ert to co+etiti.e e,change rate de.aluation- @o"e.er&in the coing years& e.en this echanis "ould suffer changes fro its initial role&

becoing a ore integral +art of the / syste by adding se.eral acroeconoicconsiderations to the sur.eillance e,ercise and gradually rela,ing its concern o.ere,change rate ani+ulations- !he sur.eillance echanis e.ol.ed& +arting "ays frothe 7fir sur.eillance o.er e,change rate +olicies8- As the / staff recogniesH

!he 1#%% Decision "as crafted shortly after the colla+se of the rettonWoods syste& in the idst of considerable uncertainty as to ho" the ne"syste "ould "or>- /t focused e,clusi.ely on sur.eillance o.er e,changerate +olicies& and its co.erage "as relati.ely narro" e.en in that area- !heDecision "as e,+ected to be re.ised "ith e,+erience- @o"e.er& it reained.irtually unchanged e.en as the +ractice of sur.eillance e.ol.ed (includingto enco+ass doestic +olicies as a >ey eleent)& and a disconnectionde.elo+ed bet"een the Decision and the best +ractice of sur.eillance-1#

9o farFreaching "ere the changes suffered by the / that soe argue for the need of a7ne" fund agreeent8 since the / 7no longer described& let alone controlled& theinternational onetary syste8-20/n +ractice& these changes eant not only the radicalchange of the und8s ain role but the fall of its Article /5-A clear sign of the fundaental change of Article /5 central +lace and strength can be

+ercei.ed by the consequences of its .iolation- 'nder the original .ersion of the /8sArticles of Agreeent& countries that decided to alter their e,change rates "ithout

+erission "ould be +re.ented fro borro"ing fro the und- /f the alteration+ersisted after a Ireasonable +eriod& Article 45 section 2(b) "ould a++ly (Article /5&

1# /&I! 6xecutive "oard 'dopts 1ew $ecision on "ilateral #urveillance Over embers= 0olicies&6ublic /nforation otice (6/) o- 0%C?#& June 21& 200%

20 9ee o"enfeld& abo.e n B& at BE2


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section ?)- !his article established the +ro.isions by "hich a eber could lose itsebershi+ in the und& and letter (b) ade direct reference to the s+ecific case in"hich a eber "ould .iolate the obligations regarding e,change rate arrangeents inconnection to +ar .alues- A eber in .iolation of Article /5 could& therefore& by 7adecision of the oard of Go.ernors carried by a aority of the go.ernors re+resenting

a aority of the total .oting +o"er8& be required 7to "ithdra" fro ebershi+ in theund8 (Article 45& section 2(b))-/n this sense Article /5 not only contained an obecti.e echanis to assess co+liance(the +ar .alue)& but also carried s+ecific +ro.isions to +unish ebers that failed tores+ect its obligations& leading& ultiately& to "ithdra"al of ebershi+- n the otherhand& under the refored "ording no direct reference is +resent in Article /5 as to theconsequences of failing to co+ly "ith its obligations- Article 445/ section 2 (theequi.alent of original Article 45 section 2) establishes the consequences of the.iolation by a eber of its obligations to the und- /nstead of the original reference toe,change rate obligations though& there is a direct reference to Article 5 (o+erations andtransactions of the fund)-

Also& the ebershi+ "ithdra"al becae uch ore co+le,& requiring first that theeber be sus+ended by a aority of %0= of the total .oting +o"er and then& afteranother reasonable +eriod& a aority of EB= of the total .oting +o"er for a eber tolose its ebershi+-With no echanis to deterine e,change rates& the und no" concentrated its effortsin guaranteeing the financial health of a floating e,change rate syste- !he si+le factthat the und no" allo"ed countries to choose "hen and to "hich currencies to +egtheir currencies says a lot about the +rohibition of currency ani+ulation after the fall ofthe +ar .alue syste- 9ince the 1#%% decision& the und had no substanti.e legal rights"ith res+ect to the choice of e,change arrangeent of its ebers-21

!he e,istence of such an article& disaggregated fro the organiation8s +ractices& is notto be seen "ith strangeness- !he article 5/ of /8s Articles of Agreeent& had thesae fate due to the rise in i+ortance of +ri.ate ca+ital flo"s to in.estents and

balance of +ayent- 'n+redicted by the und8s founders& the +rohibition of lending tocountries facing significant ca+ital outflo"s and the +ossibility of the und to request acountry eber to 7e,ercise controls to +re.ent such use8& contained in this article&"ere ne.er in.o>ed by the und& in a silent recognition of its odern ina++licability22-/n the last decade& the / "as subect to criticis for its lac> of sur.eillance o.erebers8 e,change rate +olicies23- /t "as argued that the Article /5 sur.eillance re+orts"ere not +aying due attention to fundaental isalignents of soe eberscurrencies-2$!he tensions rising fro the dis+utes bet"een the '9 and hina on the

issue led to the ado+tion by the / *,ecuti.e oard of the Decision on ilateral

21 9ee astra& abo.e n 1E& at $02

22 oughton& abo.e n #& at 11- Gian.iti argues that / Article /5 section 1 has under"ent a de factotransforation fro hard la" into soft la"- 9ee G/A5/!/& I*.ol.ing criticis by orris Goldstein forer De+uty Director of the /


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9ur.eillance .er ebers8 6olicies& on June 1B& 200%-2B!his decision re.ie"ed andre+laced the 1#%% decision& introducing a rene"ed focus on eber8s e,change rate

+olicies bringing 7greater clarity and s+ecificity to "hat e,change rate +olicies countriesshould a.oid8-2?At the sae tie it foralied the Ibest +ractices of sur.eillance&de.elo+ed through the years after the 1#%% decision& e+hasiing the i+ortance of

7dialogue& +ersuasion& candor& e.enhandedness and due regard to country circustances8in in.estigations under Article /5-2%

inally& the 200% decision offered better definition to the conce+t of 7e,change rateani+ulation in order to gain unfair co+etiti.e ad.antage o.er other ebers8&relating such beha.ior to the conce+t of fundaental e,change rate isalignent- nthis& the 200% decision established thatH

A eber "ould only be acting inconsistently "ith Article /5& 9ection 1(iii)if the und deterined both thatH (a) the eber "as ani+ulating itse,change rate or the international onetary syste and (b) suchani+ulation "as being carried out for one of the t"o +ur+oses s+ecificallyidentified in Article /5& 9ection 1(iii)-

(a) Rani+ulationR of the e,change rate is only carried out through +oliciesthat are targeted atMand actually affectM the le.el of an e,change rate-oreo.er& ani+ulation ay cause the e,change rate to o.e or ay

+re.ent such o.eent-

(b) A eber that is ani+ulating its e,change rate "ould only be actinginconsistently "ith Article /5& 9ection 1(iii) if the und "ere to deterinethat such ani+ulation "as being underta>en Rin order to +re.ent effecti.e

balance of +ayents adustent or to gain an unfair co+etiti.e ad.antageo.er other ebers-R /n that regard& a eber "ill only be considered to beani+ulating e,change rates in order to gain an unfair co+etiti.ead.antage o.er other ebers if the und deterines both thatH (A) theeber is engaged in these +olicies for the +ur+ose of securingfundaental e,change rate isalignent in the for of an under.aluede,change rate and () the +ur+ose of securing such isalignent is toincrease net e,+orts-2E

Accordingly& the 200% decision enhanced the sur.eillance o.er ebers8 e,change rate+olicies- Data fro the / 9taff sho" that less than 2C3 of Article /5 9ur.eillanceind of e,change rate analysis before the 200% decision& "hileore than #0= did so in 2011-2#!heses analyses usually coe in the for of e,change

rate isalignent estiates conducted by the onsultati.e Grou+ on *,change


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!he isalignent estiates "ere subect to uch discussion and contro.ersy bet"eenebers of the / and soe of the estiates "ere not allo"ed to be +ublished intheir entirety- any re+orts only entioned .ague references such as 7substantiallyunder.aluation or oderate under.aluation8& "ithout referring to an e,act quantu-Also& this rene"ed attention to e,change rate isalignents did not +re.ent countries

fro te+ering "ith the .alue of their currencies after the 200E crisis in "hat has beenreferred to as a Icurrency "ar-309oe analysts argued that the focus "as is+laced& "ith too uch e+hasis on theeffects of e,change rate isalignent on doestic stability (national stability) aso++osed to its effects on the stability of other ebers8 econoies (global stability)-Also& the e,change rate analysis suffered criticis fro soe countries that consideredthe need for better analysis ta>ing into account the integration bet"een e,change rateand other national easures effects on o.erall econoic health-31

!he 200% decision had already tried to address the effects of national easures&including e,change rate arrangeents& to Ie,ternal stability (i-e- other ebers8econoic stability)32- A ne" decision "as drafted and ado+ted by the *,ecuti.e oard

of the / in July 1E& 2012& addressing the issue the Decision on ilateral andultilateral 9ur.eillance& also >no"n as the /ntegrated 9ur.eillance Decision (/9D)- 33!he /9D co+leented the 200% one and introduced rules 7as a ste+ to"ardoderniing the foundations of und sur.eillance and +art of a continuous effort toensure that sur.eillance reains rele.ant and effecti.e aidst the changing globaleconoic landsca+e8-3$

!he / 9trategy& 6olicy and in order to address the ne" econoic issues being raised byits ebers& es+ecially regarding the e,change rate isalignent issue and its effectson 7global econoic and financial stability8-3B

9tability is the organiing +rinci+le of sur.eillance- Article /5 consultationsshould focus on the a++ro+riate conduct of econoic and financial +olicies

+ursued by ebers to +roote +resent and +ros+ecti.e doestic and

30 9ee& e.g-& usiness /nsider& entral an>s are oc>ed in a urrency War& ctober 22& 2012 Fhtt+HCC"""-businessinsider-coCcentralFban>sFareFloc>edFinFcurrencyF"arF2012F10

31 9ee /& abo.e n 2#& at ?F%

32 According to the 6ublic /nforation otice of the /& the 200% decision brought 7a +rinci+le

recoending that ebers a.oid e,change rate +olicies that result in e,ternal instability& regardless oftheir +ur+ose& thereby ca+turing e,change rate +olicies that ha.e +ro.en to be a aor source of instabilityo.er the +ast decades8- 9ee /&I! 6xecutive "oard 'dopts 1ew $ecision on "ilateral #urveillanceOver embers= 0olicies& 6ublic /nforation otice (6/) o- 0%C?#& June 21& 200%

33 /&"ilateral and ultilateral #urveillance $ecision Integrated #urveillance $ecision & *,ecuti.eoard Decision& /& July 1E& 2012

3$ /& 6xecutive "oard 'dopts 1ew $ecision on "ilateral and ultilateral #urveillance& 6ublic/nforation otice (6/) o- 12CE#& July 30& 2012& accessible athtt+HCC"""-if-orgCe,ternalCn+CsecC+nC2012C+n12E#-ht

3B 9ee /&odernizing the 7egal !ramework for #urveillance "uilding "locks Toward an Integrated

#urveillance $ecision& +re+ared by the 9trategy& 6olicy and


12/26

balance of +ayents stability as "ell as global stability- or the latter&Article /5 consultation re+orts should discuss +otential or actual s+illo.ersfro ebers7 econoic and financial +olicies that ay significantlyi+act global stability& including alternati.e +ossible +olicy o+tions that"ould iniie the ad.erse i+act of s+illo.ers on global stability-

@o"e.er& in the conte,t of ultilateral sur.eillance ebers "ill not berequired to change their +olicies in the interest of global stability- 3?

/n this sense& the /9D sought to address the challenges brought u+ by the financial crisisand by +ercei.ed global ibalances through a ne" +ers+ecti.e to be added to /8ssur.eillance e,ercises- esides the national stability& the / "ill no" focus on thes+illo.ers of ebers8 e,change rate arrangeents and other national easures onglobal stability& 7bringing a ultilateral +ers+ecti.e to sur.eillance8-3%Article /5 ely to affect a eber8s e,change rate

+olicies or the beha.ior of the e,change rate of its currency& the anagingDirector shall& in the conte,t of the und8s e,ercise of fir sur.eillance o.erebers8 e,change rate +olicies& initiate inforally and confidentially adiscussion "ith the eber- After such discussion& the anaging Directoray re+ort to the *,ecuti.e oard or inforally ad.ise the *,ecuti.eDirectors and& if the *,ecuti.e oard considers it a++ro+riate& an ad hocArticle /5 consultation bet"een the eber and the und shall beconducted in accordance "ith the +rocedure set out in sub+aragra+h (b)

belo"-(b) A staff re+ort "ill be circulated to the *,ecuti.e Directors under co.er ofa note fro the 9ecretary s+ecifying a tentati.e date for *,ecuti.e oarddiscussion "hich "ill be at least 1B days later than the date u+on "hich there+ort is circulated- !he 9ecretary8s note "ill also set out a draft decision

ta>ing note of the staff re+ort and co+leting the ad hoc consultation"ithout discussion or a++ro.al of the .ie"s contained in the re+ort; thedecision "ill be ado+ted u+on the e,+iration of the t"oF"ee> +eriodfollo"ing the circulation of the staff re+ort to the *,ecuti.e Directors

3? /& &uidance 1ote for #urveillance under 'rticle I) +onsultations& +re+ared by the 9trategy& 6olicyand


13/26


14/26

the end of the fi,ed e,change rate syste and the fall of Article /5 ha.e not had asconsequence the irrele.ance of the und as soe had +redicted at the tie- !he /has been able to ada+t and e.ol.e to these changes& but not "ithout a dee+ o.erhaul ofits syste-!he ain difficulties faced by the / coe fro its decision +rocess& "hich is based

in "eighted .otes& o+ened to bloc>ages fro the ost +o"erful ebers- /t lac>s anenforceent echanis as the Dis+ute 9ettleent ody of the W!- /n GA!!language& Iit has no teeth-

e.ertheless& ho"e.er "ell the / syste ay ha.e ada+ted& it did not find a "ay to+reser.e its lin> "ith the ultilateral trading syste& re+resented by the +ar .aluesyste- /n reality& it lost this lin>& and the consequences of the fall of Article /5 originalstrength& the end of a fi,ed e,change rate syste and the gradual loosened control o.ere,change rate ani+ulations ha.e been felt harder& +resently& at the GA!!CW!syste-

III & The -rea.in/ o the e0%han/e rate lin. -et1een IMF an$ WTO

When the GA!! rules on international trade "ere concei.ed& the negotiators intended toconstrain e.ery unilateral easure by a country that "ould +ose a threat to fairinternational trade-


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Article 45 is the ain e,+onent of the bond bet"een the t"o systes- /t establishes thecoo+eration bet"een the t"o organiations regarding e,change rate arrangeentsatters (Art- 45H1)- /t also states that all contracting +arties should see> ebershi+ atthe / or& at least& enter in a s+ecial agreeent "ith the !action& frustrate the intent of the +ro.isions of this Agreeent& nor& by trade action& theintent of the +ro.isions8 of the / (Art- 45H$)- !he relationshi+ "as in this sensetailored "ith the .ie" that no e,change rate atters "ould Ifrustrate the intents of theGA!!- !his lin> "as essential in order to neutralie the atter in GA!!Qs +ers+ecti.e-!he sae logic "as aintained e.en after the end of fi,ed e,change rate syste- /norder to ada+t to the ne" reality of floating e,change rates and the re.a+ed /Article /5& se.eral decisions and guidelines "ere ado+ted by the !After the fall of the +ar .alue syste& the echanis had to be ada+ted "ith thecontracting +arties issuing the &uidelines for $ecisions under 'rticle II%ABaC of the&eneral 'greement (C$#3E& 2%9C2EF2#)& in January 2#th 1#E0& reaffiring thei+ortance of the und8s e.aluation of the country8s currency de.aluation- !he Wor>ingGrou+ on *,change of a co+rehensi.e analysis of the general econoic situation andeconoic +olicy strategy of the eber& and shall recognie that doestic as "ell ase,ternal +olicies can contribute to tiely adustents of the balance of +ayents8$3-!he relati.e a++roach to e,change rate +olicies "as "ell ada+ted to the ne" role

+erfored by the / after the end of the gold standard- /t did not& ho"e.er& offer thesae le.el of +rotection to the ultilateral trading syste against the effects ofe,change rate isalignents as it did in 1#$$- ore than that& the change in the und8sa++roach to e,change rate isalignents eant a brea>ing of the +rotecti.e lin> that

ustified the absence of s+ecific neutraliing echaniss in the GA!!CW! syste-n the ability of the /8s ne" sur.eillance echanis to e,ert control o.er e,changerates o"enfeld argues thatH

Article /5 did not acco+lish the obecti.es that the drafters had in ind-Go.ernents "ere reluctant to ans"er inquiries +ut by the und& and had noreal incenti.e to do so- (O) !he idea that the /& or the internationalcounity through the /& could +rescribe conduct under aendedArticle /5 co+arable "ith "hat the und +rescribed under Article 5 didnot +ro.e .iable& if indeed it "as e.er seriously considered-$$

$3 /&0rinciples of !und #urveillance over 6xchange


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Also& as soe authors ha.e argued$B& the "ay /8s Article /5 is +resently drafted& the+roof of the intent of a eber in ani+ulating its currency in order to gain aIco+etiti.e ad.antage is a hard one to gras+& es+ecially ta>ing into account the ne"role of the / and its sur.eillance echanis- inally& e.en if the / "ere torecognie a eber as a currency ani+ulator& it lac>s a dis+ute settleent echanis

or strong reedies to force a eber to change its e,change rate +olicy$?

-/n +ractice& countries "ere no" free to choose their e,change rate +olicies (frequentlythrough currency ani+ulation) as long as they did not +eg their currencies to the gold-!he / "ould in turn see> the stability of the syste and +ro.ide financial su++ort tocountries facing balance of +ayent difficulties- o siilar ada+tation "as ade&ho"e.er& at the GA!! le.el e.en though it could no longer rely on the fi,ed syste-!he GA!! contracting +arties& concerned "ith the negati.e effects of e,change ratefluctuations on international trade flo"s and ac>no"ledging that 7in certaincircustances e,change ar>et instability contributes to ar>et uncertainty for tradersand in.estors and ay lead to +ressures for increased +rotection8& ade a stateent on30 o.eber 1#E$ urging the / to i+ro.e its syste in order to ta>e into account

7the relationshi+ bet"een e,change ar>et instability and international trade8$%-/n res+onse& the / +ublished in 1#E$ a study describing the "ays by "hich suche,change rate instability could affect international trade flo"s-$E !he acadeic ande+irical e.idences "ere inconclusi.e and no systeic adustents "ere ade by thecontracting +arties to the GA!! in order to address the uncertainty and +otentialnegati.e effects of e,change rate fluctuations- esides& no +articular study "ascoissioned by the GA!! on the i+acts of e,change rate isalignents on theinstruents of the ultilateral trade syste-

oncerns resurfaced during the financial crises of the lateF1##0s& "hen largecurrency de.aluations by soe crisisFhit countries& in certain cases under/ +rograes& +ro.o>ed clais of Iunfair trade fro i+ortFsensiti.esectors in soe of their ain trading +artners and +ressure for a trade +olicyres+onse- no"ledged the negati.e i+act of

$B 9ee& inter alia& S/*e tothan> all the +artici+ants& and es+ecially 6rof- ichael Gadba"& for the in.aluable insights-

$% GA!! !

$E /&I*,change & 1#E$& W!CGC$$$


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+rolonged isalignents of e,change rates& +articularly in a regionalconte,t-$#

*.en after the creation of the W! and the considerable enlargeent of the ultilateraltrade syste sco+e& the e,change rate issue "as not incor+orated into the arra>eshAgreeents- !he 'ruguay negotiation round focused on tac>ling nonFtariff trade

barriers that "ere becoing a uch greater concern to international trade than thetraditional tariff barriers- *.en though the i+ortance of a closer coo+eration bet"eenthe / and the W! "as highlighted in the resulting agreeents ($eclaration on therelationship between the WTO with the I! 'ruguay le the issue sees .ery di- /n ebruary 2013& thegrou+ co+rising 20 aor econoies in the "orld (G20) et in the /nternationalinancial Architecture Wor>ing Grou+ eeting and +roduced a oint stateent in "hichthey declared the need to 7refrain fro co+etiti.e de.aluation& fro targeting thee,change rate for co+etiti.e +ur+oses and to resist all fors of +rotectionis8- !heydid not& ho"e.er& conden onetary easures for doestic +ur+oses that ight& as aconsequence& bear an i+act on e,change rates- !his has been inter+reted as a silentendorseent of the easures underta>en by the '9A& the *'& 'L and ore recentlyJa+an and is a signal that& at the +resent& there sees to be no +olitical "ill to discuss theissue through the +olitical channel of the G20-rail has +resented& to this date& three +ro+osals of studying the subect at the W!-Although contracting ebers ha.e sho"n sy+athy to the idea of analying the

+roble& the solution see>ing is et "ith reser.e and s>e+ticis by any "ho considerthat the / "ould be the a++ro+riate foru to such a discussion-

!he first subission of rail "as +resented to the Wor>ing Grou+ on !rade& Debt andinance (WG!D) in A+ril 2011& suggesting a "or> +rogra consisting in an acadeicresearch on the relationshi+ bet"een e,change rates and international trade(W!CWG!DCWCB3)- /n 9e+teber 20th& 2011& rail +resented its second +ro+osal onthe thee& suggesting the e,a of a.ailable tools and trade reedies in the ultilateralsyste that ight allo" countries to redress the effects of e,change rate isalignents(W!CWG!DCWCB?)-!he W! 9ecretariat +resented its ote on a


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an e,tensi.e research& but curiously it s+ea>s the Ilanguage of the / and not IW!language- /t did not touch the issue of the i+acts of e,change rate isalignent onW! +rinci+les& rules and its instruents-/t is "orth noticing that e,change rate de.aluations ha.e the sae econoic effects ofhoriontal subsidies& +rooting e,+orts "hile also inhibiting i+orts into the doestic

ar>et- !he effects of e,change rate isalignents on tariffs ha.e been discussedelse"hereB1& but also other trade instruents are +otentially affected by e,change rateisalignents& such asH tariffs& antidu+ing& subsidies& safeguards& rules of origin&GA!! Articles /& //& ///& 44/5& ust to nae soe of the rules that are certainly beingaffected by e,change rates-rail8s third subission& of o.eber 2012 (W!CWG!DCWC?E)& brought u+ thediscussion of the effects of e,change rate isalignents on such instruents as "ell asthe +ossibility of e,+loring e,isting W! rules to address such effects- /t is yet soon toconsider "hether such initiati.e "ill stiulate W! ebers to negotiate ne" traderules that ta>e into account the e,change rate issue-

IV ( The or/otten le/al lin.B2

Due to the historical and +olitical de.elo+ents coented abo.e& any trade andfinance e,+erts belie.e that the e,change rate issue is one solely under the aus+ices ofthe /- !he +roble "ith that conce+tion is that& although the contracting

+artiesCebers to the GA!!CW! did not negotiate ne" s+ecific rules to deal "ith thene" reality of floating e,change rates& the old GA!! rules are still in +lace and ha.e

been incor+orated into the W! legal syste-GA!! Article 45 is thus still in force and offers a regulatory frae"or> for dealing"ith e,change arrangeents that ight be affecting trade obecti.es- Albeit drafted in

broad lines and not offering s+ecific reedies& since it "as concei.ed at a oent "henthe currency issue seeed accordingly neutralied& Article 45 is the ain legal lin>

bet"een the t"o systes-B3!he big question is "hy it has reained unused by thecontracting +artiesCebers of the GA!!CW!P!his article bears i+ortant features concerning the relationshi+ bet"een the / andthe W! systes& es+ecially after the fall of the dollarFgold standard- !he Articlee,+licitly encourages W! ebers to see> +olicy coordination on questions "ithinthe urisdiction of the / that affect trade easures& recogniing the intrinsic relation

bet"een trade and finance- oncerning the s+ecific issue of e,change rates and itsi+acts on trade& Article 45H$ states thatH

ontracting +arties shall not& by e,change action& frustrate the intent of the+ro.isions of this Agreeent& nor& by trade action& the intent of the

+ro.isions of the Articles of Agreeent of the /nternational onetary undAn i+ortant question has been raised by the acadey regarding the relationshi+bet"een GA!! Article 45 and Article /5 of /8s Articles of AgreeentB$and "hether

B1 9ee !@


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a .iolation of Article /5 "ould be required in order to deterine a .iolation of Article45H$-BB

/n order to ans"er these questions& one ust loo> closely to the "ording used in Article45- !hree different e,change ters are used throughout the Article& each bearing as+ecific eaningH e,change arrangeents (Article 45H1); e,change action (Article

45H$); and e,change controls or restrictions (Article 45H#)- !he lin> bet"een GA!!Article 45 and / Article /5 is ade ob.ious by their titles& each citing e,changearrangeents as their subect of regulation- !he use of the ter e,change arrangeentsat the title of both articles sees to indicate it as a general e,+ression& enco+assing thedifferent actions and echaniss +ro.ided for in these articles-6aragra+h 2 of Article 45 establishes that 7in all cases8 in.ol.ing e,changearrangeents& the !

B? 9ee W!& /ndia Vuantitati.e


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!he rationaleof this +aragra+h is to a.oid the GA!! echanis of being contrary tothe "ellFfunctioning of the /- ne of the ain goals of the / is to ensure thestability of balance of +ayents (Article /Hi.) and the financial health of its ebers(Art- /Hi)- /n this sense& and in critical situations& the / allo"s for the e,ce+tional useof ca+ital controls and e,change restrictions throughout its Articles of Agreeent-B%

9iilar e,ce+tions due to / echaniss can be found in other GA!! articles& e.g.Article 5//Hc on ulti+le currencies con.ersion; Ad ote to GA!! Article 5///regarding e,change fees for balance of +ayent reasons; Article 4/5H1&3 and B(a) one,ce+tions to the e direct reference toulti+le e,change rates- !hese are the only e,change actions that are co+rised in thee,ce+tion- As noted abo.e& these e,act ters are found throughout the /8s Article ofAgreeents and indicate s+ecific e,change actions- /t is then +lausible to argue thate,change actions& other than e,change restrictions or controls and ulti+le e,changerates& e.en "hen o+erated in accordance "ith the / Articles of Agreeent& or& incontrario sensu& e.en in the absence of a foral / condenation& can still frustratethe intent of the GA!! +ro.isions and thus contra.ene GA!! Article 45H$-BE

!his analysis is rele.ant in order to correctly differentiate bet"een ani+ulators ofe,change rate (/ Article /5H3) and Ifrustrators of trade obecti.es (GA!! Article45H$)- Although related& such notions bear i+ortant differences- As already stated& the

+roof of& and /8s +olitical "ill to recognie& currency ani+ulation is co+licatedB#-ne could still argue that any e,change rate ani+ulation 7to gain an unfair co+etiti.ead.antage8 o.er other countries "ill& if effecti.e& frustrate trade obecti.es- !he o++ositeis not necessarily true ho"e.er- !here ay be other e,change actions that do notin.ol.e the s+ecific action of e,change rate ani+ulation that can frustrate the intent ofthe GA!! +ro.isions-/n this sense& the legal discussion at the W! could o.e a"ay fro the +oliticallysensiti.e discussion of identifying currency ani+ulators and could focus on theanalysis of the effects of e,change actions on trade instruents- !he / "ould thus beconsulted to +ro.ide statistical in+uts on e,change rate isalignents& "hile the W!

B%


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e,+erts "ould deterine if e,change actions "ere frustrating the obecti.es of GA!!articles-/t is i+ortant to stress though that e.en in the absence of an inde+endent .iolation of as+ecific article of the GA!!& the arguent based on GA!! Article 45H$ obligation"ould only require to deonstrate that the e,change action frustrated the Iintent of

the said +ro.ision- /n other "ords& an e,change action can .iolate Article 45H$ e.en"ithout .iolating co+letely the GA!! echanis "hose intent has been frustrated arationale siilar to the one +resent at GA!! Article 44/// concerning nonF.iolation-/n suHa) / Article /5 offers a legal basis for condening currency ani+ulators& but itsa++lication is doubtful due to the subecti.eness of the Iintent condition and also dueto the und8s ne" role in international econoic go.ernance;

b) GA!! Article 45 focuses instead on searching for the Ifrustrators of tradeobecti.es- urrency ani+ulators "ill& in ost cases& frustrate trade obecti.es& but notall Ifrustrators are currency ani+ulators;c) !he a++lication of Article 45 does not de+end u+on the deterination by the / of

"hich countries are currency ani+ulators it is u+ to the W! D9 to deterine thefrustration of GA!! obecti.es;d) !he W! ust consult and acce+t statistical in+uts fro the / regardinge,change arrangeent issues and consider the as +art of its obecti.e analysis;e) *,change actions can .iolate Article 45H$ e.en "ithout .iolating co+letely theGA!! echanis "hose intent has been frustrated a rationale siilar to the one

+resent at GA!! Article 44/// concerning nonF.iolation-f) As an e,a+le F countries that aintain de.alued currencies .iolate Article 45H$(frustration)& through the frustration of GA!! Article //H1 intents (a++lied ad .aloretariffs abo.e bound tariffs)-/n the absence of ne" negotiated rules at the W! to address s+ecific as+ects of thee,change rate and trade issue& Article 45 reains as the forgotten legal lin> bet"eenthe / and the W!-/t should be redisco.ered by W! ebers e.en if only as a eans to deonstrate theconsequences of the issing lin> to international trade-V2 "on%l#sion

riticiss of both the / and the W! handling of the situation are gro"ing bet"eencountries suffering the consequences of "hat has coe to be recognied as a Icurrency"ar- any argue that the /& through Article /5 sur.eillance echanis& is the bestinstitution to deal "ith the issue- ut& for decades& / has done nothing to counter.ailthe i+acts of currency on trade instruents- W! "as left alone to handle this crucial

issue because the lin> bet"een trade and currency "as lost in the fragentation ofretton Woods syste-!he >ey +roble is that the / has undergone a dee+ and eaningful Isilentre.olution that changed its fundaental role in the global econoic go.ernancefrae"or>- /ts relationshi+ and a++reciation of the subect of e,change rates is nothingli>e "hat it "as concei.ed for during the reton Woods negotiations- !he und has nolonger the control o.er ebers8 e,change rate .alues; neither does it ha.e the intent todo so- 'nder its +resent agenda& the / considerers e,change rates as one of the anyacroeconoic .ariables it ust o.ersee in order to guarantee national and globaleconoic stability- /n this sense& ani+ulating or enduring a certain degree of e,changerate isalignent can be a .alid tool in restructuring a country8s balance of +ayent-

!he strict i+acts on trade are not under the scrutiny of / sur.eillance-


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!he ultilateral trading syste& ho"e.er& still o+erates under the sae +resu+tion ithad "hen the GA!! "as negotiatedH that e,change rate o.eents "ere strictlycontrolled& neutraliing any +ossible harful effects on trade instruents- !he saelegal structure reains unaltered- !he ultilateral trading syste fails to ac>no"ledgethat such a lin> is no" gone& bearing substantial and horiontal i+acts for all its rules-

Although technically the legal basis for an / control o.er co+etiti.e currencyde.aluations is still +resent in the organiation8s Articles of Agreeent& the e.olution ofits role in the international econoic go.ernance deonstrates that it is hardlyconcei.able that the und "ould do it& at least not in the "ay the W! echaniss"ould require in order to neutralie the isalignent effects on trade instruents-!he recent aendents to the und8s rules and +ractices regarding Article /5sur.eillance echanis indicate that the institution is see>ing to address the issue underits o"n logic- o reference is ade& though& to "ays of addressing the effects ofe,change rate isalignents on trade rules- Also& no reference is ade to coo+eration

bet"een the / and the W! in cases "here 7i+ortant econoic or financialde.elo+ents are li>ely to affect a eber8s e,change rate +olicies8-?0

/t sees .ery unli>ely that the international onetary syste is going bac> to the hardcontrol o.er e,change rate .ariation siilar to the one in +lace during the dollarFgoldstandard- /n this sense& the rules of the ultilateral trading syste ust ada+t to thisne" reality& ta>ing into account the effects of e,change rate isalignents on itsechaniss- ontinuing to ignore the fundaental shift in the international onetarysyste "ill only +ost+one a serious +roble and endanger the trade syste to econoicirrele.ance-!he signs are already there& as the +resent Icurrency "ar has been +ushing countries tota>e an e.er gro"ing +rotectionist and defensi.e +osition- As /r"in "arned in 2011H

eft unresol.ed& these tensions o.er e,change rate +olicy could gi.e rise tounilateral action- !his "ould not only underine the credibility of theinternational institutions that ha.e res+onsibility in this area& but could leadto daaging retaliation that "ould be difficult to contain and further har a"ea>ened "orld econoy- !he solution is for the international counity&in +articular the / and the W!& to "or> out ne" rules to hel+ defusecurrent and future dis+utes o.er e,change rate +olicy and clarify theconditions under "hich trade sanctions ight be considered an a++ro+riatereedy-?1

While di+loats and e,+erts discuss ho" to deal "ith the +roble& there is already cleare.idence that e,change rate isalignents are destroying any of the tradeinstruents- As "as sho"n by !horstensen& aral and ucas ?2& o.er.alued currencies

can nullify a++lied and bound tariffs negotiated in +ast ing for theani+ulators of / Article /5& as the "or> of Jose+h Gagnon fro the 6eterson

?0 /&"ilateral and ultilateral #urveillance $ecision Integrated #urveillance $ecision & *,ecuti.eoard Decision& /& July 1E& 2012

?1 /r"in& abo.e n ?& at 33

?2 !horsensen et al& abo.e n B1


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/nstitute in Washington& "ho see>s a solution inside the /& but also +ro+oses tradetariffs as a +ossible "ay of enforcing good beha.ior fro distorting ebers- ?3orerecently& red ergsten and Jose+h Gagnon +ublished another article in "hich theynae 9"iterland& Ja+an& /srael& 9inga+ore& hina& alaysia& !hailand& and oile,+orters as currency ani+ulators-?$

!his +ro+osal tries to de.elo+ a ethodology based on / Article /5 conce+t ofani+ulation of e,change rates and is based on the agnitude of reser.es& currentaccount and currency isalignents- @e naes 9"iterland& Ja+an& /srael& 9inga+ore&hina& alaysia& !hailand& and oil e,+orters as currency ani+ulators and definesani+ulation of currencies as the result of go.ernent +ushing do"n the currency .aluethrough official financial flo"s (go.ernent s+ending& ta, rates& and oney creationthrough interest rate) or ani+ulation through ca+ital control easures such as ta,es orregulatory restrictions- !his a++roach is done under the logic of the /-!he second a++roach is to loo> for the Ifrustrators of the obecti.es of the W!Agreeents& as established by GA!! Article 45- !he idea is to create a echanisinside the W! that neutralie the effects of e,change rate isalignents on the

e,isting trade instruents as correction of tariffs& or the introduction of an e,change rateisalignents clause in antidu+ing& antiFsubsidies or safeguards instruents- !hisechanis should follo" all the GA!! traditional ritualsH in.estigation& te+oralityand a++lication on a sectorial basis& since the effects of isalignents are differentaong sectors- ne e,a+le of a correcting echanis through antiFsubsidies is

+ro+osed by iaFa+os and Gil-?B!he effects of e,change rate isalignent are so de.astating that a solution to the

+roble ust be sought iediately& "ithout "aiting for a ne" ing for the yth that Iat the long range&equilibriu "ill be reached- !he conce+t of tie for econoists is not the sae as for

urists- !here is no such a thing as .iolating a rule until a solution is reached in the longrun- /t sees as there is also a issing lin> bet"een econoists and la"yers- !hey ust"or> together to guarantee that the W! aintains its indis+ensable role as a guarantorof international fair trade-/n the absence of ne" negotiated rules at the W! to address s+ecific as+ects of thee,change rate and trade issue& Article 45 reains the only +ossible legal lin> bet"eenthe / and the W!- /t is a forgotten lin>& but it ust be re.i.ed and i+ro.ed-As cases of trade frustrations ulti+ly& ebers "ill feel ore te+ted to test itsa++licability through the W! Dis+ute 9ettleent 9yste& by e,+loring Article 45

liits& and this delicate and utost i+ortant issue "ill be left& again& to be resol.ed bythe A++ellate ody of the W!-!he ost urgent tas> of the W! in these con.oluted ties is to loo> for the issinge,change rate lin> bet"een the W! and the /& lost in the last decades& and rescue itfro the archi.es of the international organiation8s history-

?3 9ee GAG& Jose+h& Iobating Wides+read urrency ani+ulation& 0olicy "rief 23428&6etersen /nstitute& Washington& 2012-

?$ 9ee *


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*ither this lin> is reconstructed or the W! and the / "ill ultiately fail in theirission as rele.ant international institutions for effecti.e global econoic go.ernance-

BIBLIOGA'H3

A'/& arc& The Trade, $ebt and !inance 1exus% at the +ross4roads of icro4 andacroeconomics& discussion +a+er o- ?& W!& 200$A'/& arc& !ulfilling the arrakesh andate on +oherence% Ten @ears of+ooperation between the WTO, I! and World "ank& discussion +a+er o- 13& W!&200%*


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/&odernizing the 7egal !ramework for #urveillance 'n Integrated #urveillance$ecision& +re+ared by the 9trategy& 6olicy and >:4A& an> of anada& 200EA!!& Aaditya& 9'


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the “missing link” between the wto and the imf

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