WORLD TRADE
ORGANIZATIONWT/WGTDF/W/16
12 November 2002
(02-6233)
Working Group on Trade,
Debt and FinanceOriginal:  English
COMMUNICATION FROM THE AFRICAN GROUP
The following communication, dated 8 November 2002, has been received from the
Permanent Mission of Kenya on behalf of the African Group.
_______________
I. INTRODUCTION
1. The establishment of the Working Group on Trade, Debt and Finance, pursuant to paragraph
36 of the Doha Ministerial declaration, is one of the more concrete manifestations of the
development-oriented work programme arising out of  the Doha mandate.  It is recognition, by the
Ministers, of the interlinkages between trade, de bt and finance in an increasingly interdependent
global economy and the need for a holistic approach to the questions of economic growth anddevelopment.
2. The issues that fall under the purview of this Working Group are particularly relevant to the
African Group in light of the aims and objectives of the New Partnership for Africa’s Development
(NEPAD).  At the inaugural session of the Asse mbly of the African Union which took place in
July 2002, in Durban, South Africa, the African Heads of State and Government rededicated
themselves to the objectives of NEPAD, "as a programme of the African Union for strengthening
inter-African cooperation and integration in a globalising world and to overcome the prevalence ofpoverty and strive for a better quality of life for all the peoples of Africa".
3. The integrated treatment of trade, debt and finance issues by this Working Group has the
potential to contribute to finding durable solu tions to the development problematic.  In this
connection, this contribution by the Africa Group seeks to:
(i) highlight the salient features of the trade, debt and finance interface from an African
perspective;
(ii) demonstrate WTO’s competence and mandate in this area;  and
(iii) make recommendations on the way forward.
II. INTERFACE ISSUES
A. T
RADE AND FINANCE
4. According to UNCTAD’s most recent publication on Africa “Economic Development in
Africa:  Performance, Prospects and Policy Issues”, Africa’s share of world exports fell from
4.6 per cent in 1980 to 1.6 per cent in 1999 and its share of world imports fell from 3.6 per cent to
1.9 per cent during the same period.  Moreover, African exports continue to be dominated by primarycommodities.  Despite registering progressive increase in the share of manufactures in African exportsWT/WGTDF/W/16
Page 2
in the 1990’s, 80 per cent of African exports consisted of oil and other primary commodities by the
end of the decade.
5. The decline in Africa’s share in world exports can be explained by the downturn in the terms
of trade i.e. decline in the prices of African exports (primary commodities) relative to their imports
(manufactures/ capital goods).  The deteriorating terms of trade are further aggravated by volatility inreal export prices of commodities.  Exchange rate misalignments have also been identified as one of
the factors hampering diversification efforts of African countries and the competitiveness of African
exports.
6. The large current account deficits experienced by most African economies, as a result of these
adverse terms of trade, have not been offset by capital inflows.  Despite the phenomenal increases in
foreign direct investment flows  (FDI) to developing countries in the 1990’s, Africa’s share was
estimated at 1 per cent of FDI flows to developing countries.  Even these meagre flows were destined
for the oil and mineral sectors.  This has led to Africa’s heavy reliance on official development
assistance (ODA) to fill this inevitable resource gap.  However, there has been a steady decline in
ODA flows in the last decade.
7. The inadequate public and private capital flows to Africa and the declining commodity prices
underscore the imperative for paradigm shifts that would allow for strategic frameworks for theattainment of long-term economic growth and development objectives.  The role of fair trade as a
source of development finance need not be over-emphasised.  In this context, the group considers the
following issues important:
• meaningful market access to products of export interest to African countries,
principally agricultural products;
• the provision of  adequate finance that would improve Africa’s participation in
international trade by addressing supply-side constraints,;
• a multilateral policy dialogue on primary commodities, and
• examination of the effect of exchange rates on competitiveness.
B. T
RADE AND DEBT
8. The total external debt of Africa stood at USD 325 billion in 1998 (Economic Commission
for Africa data).  For most African countries, debt as a proportion of exports of goods and services
exceeded 200 per cent.  Africa’s debt to export and debt to GNP ratios in 2000 were 180 per cent and66 per cent respectively, the corresponding ratios for East Asia being 74 per cent and 33 per cent
respectively, a vivid remainder of Africa’s relative indebtedness even in the aftermath of the
East Asian financial crisis.
9. The various initiatives by the internationa l community, most notably the original HIPC
initiative and it’s enhanced derivative, represented a growing awareness of and the politicalcommitment to address the debilitating effects of the debt overhang on the prospects for economic
growth of African economies.  Despite the well-mean ing nature of the enhanced HIPC initiative, it
has not so far succeeded in providing an exit for most of the 33 African countries that were considered
eligible for debt relief/reduction under the initiative.  Only Burkina Faso, Mauritania, Mozambique,
Tanzania and Uganda had reached the completion point as of July, 2002.
10. The poor trade performance of African countries can be directly linked to their unsustainable
debt levels as reduced export earnings from declin ing commodity prices hamper their ability to meet
debt servicing obligations.  Conversely, ballooning debt service payments are a drain on the
exchequer which is expected to, inter alia , provide resources for enhancing trade capacity.  The
working group could, therefore, engage the Bretton W oods institutions with a view to re-invigoratingWT/WGTDF/W/16
Page 3
the debt reduction agenda by identifying the shortcomings of the previous initiatives.  UNCTAD’s
contribution to this policy dialogue will be highly desirable.
III. WTO’S COMPETENCE AND MANDATE
11. The work envisaged for this working group, in essence, requires greater cooperation with the
Bretton Woods institutions so as to contribute to achieving greater coherence in global economicpolicy-making in line with Art.III.5 of the Marrakesh Agreement establishing the WTO.  Further, Part
IV of GATT 1994 on Trade and Development provides an explicit mandate for the WTO’s role on
development matters under the rubric of global economic governance.
12. The WTO Secretariat note WT/WGTDF/W/3 is a chronicle of the history of the discussions
regarding the relationship between the international financial system and the multilateral trading
system since the GATT days.  It also enumerates the various WTO provisions that are relevant to the
interlinkages between trade, debt and finance.  The following WTO Agreements/provisions, amongothers, are relevant to the work of the working group and hence demonstrate WTO’s competence in
this area :
• GATT 1994 Part IV- Art. XXXVI in which references are made to the prices of the
exports of less-developed contracting parties and their dependence on a limited rangeof primary products exports and the need for adequate financial assistance for
development to address their predicament.
• The Decision on Measures Concerning the Possible Negative Effects of the Reform
Programme on Least-Developed and Net Food-Importing Developing Countriesrecognizes the need for financial assistance to improve their agricultural productivity
and infrastructure.
• GATS – Annex on Financial Services- contains provisions that allow a Member, for
prudential reasons, to take measures affecting trade in services in order to ensure the
integrity and stability  of the financial system.
• Agreement on Agriculture- since direct linkage is drawn between falling commodity
prices and unsustainable debt stocks, how does the reform programme assist inameliorating the debt burden?
• GATT 1994 Art. XVIII:B Balance-of-Payments provisions recognizes the balance of
payments difficulties experienced by developing countries as a result of instability oftheir terms of trade.
• The Enabling Clause, the Agreements on Subsidies and Countervailing Measures, on
Trade-Related Investment Measures and on Technical Barriers to Trade require that
developing country Members’ financial needs be taken into account,
• Financial and technical assistance provisions contained in various WTO Agreements
and the Doha commitments on technical cooperation and capacity building are
testimony to the direct correlation between trade performance and financing needs.
13. The fact that the issues are still being discussed , despite the history of the debate and the
various relevant provisions in the WTO Agreements, illustrates the complexity of the interrelationship
of the issues and the need for an innovative durable solution.
IV. RECOMMENDATIONS
14. The marginalization of Africa in the multilate ral trading system and in international capital
markets is not an irreversible phenomenon. African Governments have embarked on economic reformprogrammes, at the national and regional levels, whose overriding goals are poverty eradication
through, inter alia, integration into the global economy on equitable terms. Such efforts require theWT/WGTDF/W/16
Page 4
complimentary support of the international community. In this regard, the Working Group, as an
appropriate forum for linking multilateral trade policy with other economic policy measures, can
make a positive contribution to the crafting of development strategies.
15. The recommendations by the working group to the fifth Ministerial Conference, through the
General Council, should be informed by the outcome  of the work on the following issues that are
considered pertinent by the African group:
• Review of existing relevant WTO Agreements with a view to addressing financial
instability and external indebtedness.  Such a review should be oriented towards
identifying the causes of the external account imbalances consistently experienced by
African countries.  The UNCTAD communication (WT/WGTDF/W/5)  contends that
these imbalances stem from debt and debt servicing payments and not trade deficits.
Further elaboration could be sought from  UNCTAD and other relevant international
organizations;
• Ways and means of contributing to the diversification efforts of African countries
away from commodity dependence to value-added exports.  The design and
actualization of an international commodity policy, in cooperation with other relevant
organizations such as the Common Fund for Commodities, is a crucial element of the
expected outcome of the work of this Working Group.  Such course of action willinevitably benefit from an analytical review of the relationship between declining
terms of trade and the debt burden;
• The working group could also serve as the WTO body tasked with the monitoring of
the implementation of the outcome of the UN Conference on Financing for
Development.  The direct relationship between trade performance and financingrequirements for addressing supply-side constraints provides the rationale for this
undertaking;  and
• Exchange of experience among Members on the impact of capital account
liberalization on exchange rates and hence competitiveness.  The IMF, Regional
development banks and UNCTAD should be invited to contribute to this debate.
__________