WORLD TRADE
ORGANIZATIONWT/WGTDF/W/8
16 July 2002
(02-3936)
Working Group on Trade,
Debt and FinanceOriginal:  English
COMMUNICATION FROM THE EUROPEAN COMMUNITY
AND ITS MEMBER STATES
The following communication, dated 12 July 2002, has been received from the Permanent
Delegation of the European Commission.
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I. INTRODUCTION
1. The European Community (EC) welcomes the establishment of a Working Group on Trade
Debt and Finance under the auspices of the General Council. The EC intends to contribute to the work
of this Working Group to help examine the issue and fa cilitate the report of the General Council to the
Fifth Session of the Ministerial Conference on progress in the examination of the relationship betweenTrade, Debt and Finance, and possible recommendations in this respect. The purpose of this EC
communication is to contribute to setting the me thodological framework for the Working Group and
propose issues for consideration and study, on a non-exhaustive basis. The EC, however, looks
forward to moving to a more substantive phase of the work in this Working Group, as soon as
possible, on the basis of proposals by Members.
II. SCOPE AND OBJECTIVE OF THE EXERCISE
2. The Working Group on Trade, Debt and Finance (hereinafter referred to as "the Working
Group") has been established pursuant to paragraph 36  of the Doha Ministerial Declaration with the
task of examining (i) the relationship between trade, debt and finance and (ii) possible
recommendations on steps that might be taken within the mandate and competence of the WTO to (a)
enhance the capacity of the multilateral trading system to contribute to durable solutions to the
problem of external indebtedness of developing and least-developed countries, and (b) to strengthenthe coherence of international trade and financial policies, with a view to safeguarding the multilateral
trading system from the effects of financial and monetary instability.
3. The EC wishes to underline some aspects of this exercise that should guide the Working
Group in its examination:
A. E
XAMINING THE RELATIONSHIP BETWEEN TRADE , DEBT AND FINANCE
4. The EC sees this process, initially, as one of information exchange and improving
understanding of the problems and opportunities. This pertains to the underlying mechanisms and
issues relevant to possible recommendations on the contribution of the multilateral trading system to
tackling external indebtedness, and to the coherence of trade and financial policies.WT/WGTDF/W/8
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5. As regards the organization of work, the EC attaches importance to a fully open examination
of all components of the trade-debt-finance nexus. In  particular, the process of examination should not
be limited to specific questions relating to WTO provisions or a few specific trade policy tools.
6. Issues relating to trade, debt and finance cover several policy areas and fall under the mandate
of different institutions. The process of information exchange and examination of the issues shouldtherefore invite contributions from the relevant international organizations, such as the World Bank,
IMF, UNCTAD and the regional development banks. In particular, these organizations should be
invited to present studies, and current and planned activities relating to indebted countries, with each
institution focusing on its own area of competence.
B. C
OHERENCE OF ACTIVITIES TO MAXIMISE EFFECTIVENESS AND SYNERGY
7. An important part of the work of the Working Gr oup will be to look at ways to strengthen the
coherence of policies of the different organizations, whose mandate relates to the trade-debt-financenexus. In this context, the EC wishes to reca ll that in the Uruguay Round Declaration on the
Contribution of the WTO to Achieving Greater  Coherence in Global Economic Policymaking,
Ministers recognised that coherence between the structural, macroeconomic, trade, financial and
development aspects of economic policymaking increases the effectiveness of these policies.
8. One important means to improve coherence will be to ensure better synergy between different
policy areas through transparency and strengthened co-operation between relevant organizations.
This, however, must not blur the distinct responsibilities of these organizations, each of which must
continue to act within its own mandate and competence. In this context, the EC considers that the
process of examining the interrelations and of considering possible recommendations for actions for
the WTO could possibly bring to light the need for complementary actions and measures that falloutside the mandate and competence of the WTO. The Working Group should take full account of
such possible complementary actions and steps  and work to ensure the coherence between policies
falling within the mandate of other organizations and possible recommendation within the WTO
framework. The activities of the Working Group should thus build on progress and experience already
made under the coherence mandate.
9. The Working Group should also build on progress made in other fora, such as the Monterrey
International Conference on Financing for Development. The EC welcomes the consensus reached at
the Monterrey conference in favour of increasing the coherence and consistency of the international
monetary, financial, and trading systems in support of development. In particular, the EC agrees on
the need to improve the relationship between the UN and the WTO on development issues, and to
strengthen their capacity to provide technical assist ance to all countries in need of such assistance,
with a view to increasing the gl obal economic system’s support for development. Similarly, within the
overall objective of coherence, the EC wishes to recall the importance of coherent and co-ordinated
approaches to trade related technical assistance and capacity building.
C. I
SSUES FOR CONSIDERATION BY THE WORKING GROUP
10. Many, if not most, of the issues relevant to  the trade-debt-finance nexus, and which may form
the basis for consideration and possible recommendations by the Working Group are comprehensivelyoutlined in the survey of literature compiled by the Secretariat. Without wishing to exclude
consideration of any of these, or of any other issue raised by Members during the discussions, the EC
wishes to underline already now a few issues that it considers of particular relevance for the work of
the Working Group.WT/WGTDF/W/8
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1. Trade liberalization and indebtedness
11. Trade liberalization in relation to imports and exports tend to decrease indebtedness by
encouraging growth. However, because tariff cuts can cause a decline in fiscal revenue, attention
should be given to possible complementary measures such as identifying alternative sources of fiscal
revenue or improvements in the tax collection systems.  Building administrative capacity is, of course,
a highly relevant issue in this context. The Working Group could usefully address this issue and
request relevant organizations (in particular, the IMF, but also WCO for customs simplification
measures) to provide advice on reform measures, their sequencing and application. The
implementation of trade facilitation/customs reform process has also been shown to improve revenue
collection and is worth analysing further. In order to enhance the understanding of the issue, specific
country studies may be useful. Trade liberalization in export markets, such as preferential access for
developing countries and MFN based liberalization in the context of WTO negotiations, are equallyimportant in this context. Consideration could be given to the availability of export credit instruments
for developing countries. Another issue for consideration would be the possible linkages between
trade protectionism and overvalued exchange rates.
2. Integrating trade in economic reform
12. In the context of economic reform, poverty and social impact assessments, the correct
sequencing of liberalization measures, appropriate regulatory reforms (aimed, inter alia, at protecting
access of the poor to services) and the provision of adequate flanking policy measures are key to
ensure that liberalization supports sustainable development and poverty eradication. This is all the
more important for highly indebted poor countries for which debt service obligations must be taken
into account in designing economic reform programmes. It is therefore important that trade policy isintegrated in the overall policy reform and that trade liberalization takes place in the framework of
good domestic governance, ensuring an environment that is conducive to trade and investment. The
PRSP process offers a good framework for integratin g trade in development policies. Transparency in
government procurement and adequate domestic regulation of competition are key elements of good
governance. The Working Group could consider, together with relevant organizations such as theIMF, the World Bank and UNCTAD as well as bilateral development partners, how best to integrate
trade into economic reform programmes and ensure WTO conformity for sustainable reform. The
Integrated Framework for Trade-related Technical Assistance to the Least Developed Countries is a
useful example of a mechanism that integrates trade in the domestic economic and development
policies.
3. Addressing supply-side constraints
13. Domestic trade liberalization and improved access to foreign markets, combined with an
environment conducive to investment, are important  for the economic growth potential of developing
countries. Increased export earnings and investment flows are particularly important for those
developing countries that are highly indebted. Ho wever, many developing countries lack sufficient
infrastructure and capacity to make use of the opportunities offered by trade liberalization or to be
able to attract productive and export oriented investment. Measures to address supply-side constraintsshould therefore form part of economic reform programmes. The Working Group could usefully
consider supply-side capacity building in relation to economic reform programmes, and relevant
organizations, such as UNCTAD and the World Bank, could be invited to present their activities in
these areas.
4. Investment and indebtedness
14. Foreign Direct Investment (FDI) is an increasingly important source of foreign capital inflows
for many developing countries, often overtaking the importance of Official Development AssistanceWT/WGTDF/W/8
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(ODA) flows, to the point that in many countries of the developing world FDI has become the single
most important source of capital formation. Provided the  right circumstances prevail, FDI can thus be
considered in many cases as the most effective way of generating increased export earnings and
national income, and in turn will contribute to alleviating indebtedness. However, heavily indebted
developing countries also frequently suffer from economic instability and uncertainty, which canmake it more difficult for these countries to attract foreign investment. The Working Group could, in
co-ordination with the Working Group on Trade and investment, look at factors that help to attract
FDI and consider recommendations that will support increased FDI flows to highly indebted
developing countries. In this context, the multi lateral framework envisaged in the WTO to secure
transparent, stable and predictable conditions for long-term cross-border investment will be an
important contribution to increasing FDI flows as  will be measures to make customs and trade
procedures more transparent and predictable. Another important element is the ability of hostgovernments to control anti-competitive practices. The multilateral framework envisaged in the WTO
to enhance the contribution of competition policy to international trade and development is an
important factor in this context.
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