The IMF and the World Trade Organization
April 19, 2017
The IMF and the WTO are international organizations with about 150 members in common. While the IMF’s central focus is on the international monetary and financial system, and the WTO’s is on the international trading system, both work together to ensure a sound system for global trade and payments.
What objectives do the IMF and the WTO have in common?
The International Monetary Fund (IMF) is an international organization of 189 member countries that works to ensure the stability of the international monetary and financial system. The IMF’s mandate includes facilitating the expansion and balanced growth of international trade, promoting exchange stability, and providing the opportunity for the orderly correction of countries’ balance of payments problems. The IMF was established in 1945.
The World Trade Organization (WTO) is an international organization of 164 members that deals with the rules of trade between nations. With Russia’s accession in August 2012, the WTO encompasses all major trading economies. The WTO works to help international trade flow smoothly, predictably, and freely, and provides countries with a constructive and fair outlet for dealing with disputes over trade issues. The WTO came into being in 1995, succeeding the General Agreement on Tariffs and Trade (GATT) that was established in 1947.
The work of the IMF and the WTO is complementary. A sound international financial system is needed to support vibrant international trade, while smoothly flowing trade helps reduce the risk of payments imbalances and financial crisis. The two institutions work together to ensure a strong system of international trade and payments that is open to all countries. Such a system is critical for enabling economic growth, raising living standards, and reducing poverty around the globe.
How the IMF and the WTO work together
The IMF and the WTO work together on many levels, with the aim of ensuring greater coherence in global economic policymaking. A cooperation agreement between the two organizations, covering various aspects of their relationship, was signed shortly after the creation of the WTO.
Regular consultation: The IMF has observer status in certain WTO bodies, and may participate in meetings of certain WTO committees and working groups. The WTO Secretariat attends meetings of the IMF Executive Board or the Board Committee on Liaison with the World Bank and other International Organizations on matters of common interest. Macro-critical trade issues may feature in Fund surveillance activities and can be addressed in the context of IMF-supported programs, when needed, to meet the program’s objectives. Equally, IMF surveillance reports are important inputs to the WTO’s periodic reports on member countries’ trade policies (Trade Policy Reviews).
The WTO Agreements require that it consult the IMF when it deals with issues concerning monetary reserves, balance of payments, and foreign exchange arrangements. For example, these agreements allow countries to apply trade restrictions in the event of balance of payments difficulties. The WTO’s Balance of Payments Committee bases its assessments of restrictions in considerable part on the IMF’s determination of a member’s balance of payments situation.
Informal consultation between IMF staff and the WTO Secretariat takes place regularly regarding trade policy and global economic developments, as well as on advice for individual countries. Examples of consultations include visits by senior IMF staff to the WTO, and vice versa, to make presentations and attend discussions on issues of common interest. The IMF, the WTO, and the World Bank hold a regular conference to further facilitate the exchange of views among academics, civil society, and staff of the three organizations on current trade issues. The inaugural IMF/World Bank/WTO Joint Trade Workshop was held in December 2011; the second conference took place in June 2013, while the third was hosted by the IMF in November 2014, the fourth was hosted by the WTO in June 2015, and the fifth was hosted by the World Bank in November 2016.
Technical assistance and training: The IMF, the WTO, and other international organizations and donors often work together to help countries improve their ability to trade. The Enhanced Integrated Framework (EIF) for trade-related technical assistance to Least Developed Countries (LDCs) supports LDCs to be more active players in the global trading system by helping them tackle supply-side constraints to trade.
Fund assistance for trade liberalization: The Trade Integration Mechanism (TIM), established in April 2004, is available to all Fund member countries whose balance of payments positions might suffer, albeit temporarily, as a result of multilateral trade liberalization. It is not a lending facility, but rather a policy aimed at making Fund resources more predictably available under existing IMF facilities.
High-level coordination: The Managing Director of the IMF and the Director General of the WTO consult regularly on a range of trade-related issues. The First Deputy Managing Director attended the December 2005 WTO Ministerial Conference in Hong Kong, China, and the November 2007 WTO General Council Meeting in Geneva. Management participated in the Fourth Global Review of Aid for Trade, hosted by the WTO in July 2013. Finally, management of both institutions frequently participate in the annual IMF/World Bank/WTO Joint Trade Workshops.Looking forward, cooperation and consultation between the IMF and WTO will continue to be key, given the increased areas of mutual support and responsibilities between the two institutions. Potential areas of heightened interaction include financial services and trade facilitation. The IMF strongly supports the role of the WTO in ensuring openness, transparency, and stability in the global trading system, including its role in enforcing trade rules.