WORLD TRADE ORGANIZATION RESTRICTED
ORGANISATION MONDIALE DUCOMMERCEWT/SPEC/23
29March 1996
ORGANIZACI ÓNMUNDIAL DEL COMERCIO(96-1138)
Original: English
anglais/
inglés
WORKING PARTY ONTHE ACCESSION OFCHINA
Communication from theInternational Monetary Fund
Thefollowing communication1hasbeenreceived fromtheInternational Monetary Fund with
therequest thatitbecirculated tomembers oftheWorking Party.
GROUPE DETRAVAIL DEL'ACCESSION DELACHINE
Communication duFonds monétaire international
LeFonds monétaire international afaitparvenir auSecrétariat lacommunication ci-après1,
endemandant qu'ellesoitdistribuée auxmembres duGroupe detravail.
GRUPO DETRABAJO SOBRE LAADHESI ÓNDECHINA
Comunicación delFondo Monetario Internacional
Seharecibido delFondo Monetario Internacional lasiguiente comunicación1,conelruego
dequesedistribuya alosmiembros delGrupo deTrabajo.
1English only/anglais seulement/inglés solamante.WT/SPEC/23
Page2
Statement oftheRepresentative oftheInternational Monetary Fund
totheWorking Party onChina 'sAccession totheWTO
22March 1996
Mr.Chairman,
TheManaging Director oftheInternational Monetary Fund would liketoconvey amessage
regarding theclauses onexchange arrangements inthedraftProtocol onChina 'saccession totheWTO.
Iwould request thatthismessage beplaced ontherecord oftoday'smeeting oftheWorking Party.
Iamalsocirculating totheWorking Party theattached staffstatement totheExecutive Board ofthe
Fund (BUFF/95/23), which wasmade ontheoccasion ofthe1995Article IVconsultation withChina,
andwhich explains ourconcerns inmore detail.
TheManaging Director 'smessage isasfollows:
"The Fund fullyshares theobjective ofmembers oftheWorking Party ofassisting China in
moving toanopen exchange andtrade system. Weagree thatcomplementary exchange andtrade
liberalization willbeintheinterests ofChina, itstrading partners, andtheworld community. Let
mealsosaythatweunderstand theintention ofthedraftProtocol inwishing toensure thatexchange
measures arenotusedtofrustrate trade agreements.
Chinahasbeensteadilyliberalizingitsexchangesystem.TheassessmentoftherecentArticleIV
consultation mission toChina, whose report isexpected tobediscussed bytheFund'sExecutive Board
on1April, isthatinpractice China isalready close toachieving current account convertibility. The
authorities areundertaking areview ofexisting foreign exchange lawsandregulations, andthestaff
hasemphasized theimportance ofbringing them intolinewithpractice andremoving theremaining
restrictive features. TheFundstaffisworking actively withChina onthereform ofitsexchange system
asaprelude toitsacceptance oftheobligations ofArticle VIII,Sections 2,3and4oftheFund'sArticles
ofAgreement inthenearfuture.
However, inclusion ofexchange provisions, ascurrently drafted inthedraftProtocol, raises
serious concerns. These provisions giverisetoimportant questions regarding theirconsistency with
therights andobligations ofFund members under theFund'sArticles, andwithestablished practice
fordealing withtheexchange systems ofcommon members. Moreover, these provisions risk
inconsistency withArticle XVofGATT (1994), Article XIoftheGATS, andprinciples setforth in
theDeclaration ontheRelationship oftheWorld Trade Organization withtheFund. Wesuggest that
thedraftProtocol dropallreferences toexchange measures under Fund jurisdiction. Alternatively,
wewould bewilling tocooperate withtheWorking Party todevelop aformulation onexchange
arrangements inthedraftProtocol thatwould dealwithourconcerns. Wewould alsobewilling to
provide totheWorking Party regular briefings onthestatus ofChina 'sexchange regime."WT/SPEC/23
Page3
Statement bytheStaffRepresentative onFund/WTO Jurisdictional Matters attheDiscussion
oftheArticle IVConsultation withthePeople 'sRepublic ofChina
Executive Board Meeting 95/27, 22March 1995
Traditionally theFund andtheGATT havepromoted external liberalization intheirrespective
areas ofjurisdiction -exchange measures intheFund andtrade measures intheGATT. Inthecase
ofChina, thestaffandBoard oftheFund haveencouraged China toliberalize itsexchange system,
andwithconsiderable success. China isnegotiating aprotocol onitsmembership intheWTO, and
alistoftariff andtrade concessions. Atissue, however, istheunprecedented inclusion inthedraft
Protocol onChina 'smembership oftheWTO ofobligations relating toitsexchange system.
Specifically, thecurrent draftprovides:
"1. China shallnotuseforeign exchange controls orrestrictions toregulate thelevelor
composition oftradeingoods andservices. China shall, by[xdate], establish aunified foreign
exchange market, remove allrestrictions onaccess tothismarket andeliminate guidelines
specifying thepriority usesofforeign exchange.
2. China shall, by[xdate], bring itsforeign exchange regime intoconformity with
obligations under Article VIIIoftheIMF. Individual requests offoreign exchange forcurrent
account transactions shallnotbesubject toanyform ofapproval, andtheissuance ofaletter
ofcredit orabankguarantee uponpresentation ofaninvoice shallnotbesubject toanyform
ofgovernmental restriction.
3. China shallnotresort tolaws, regulations orother measures, including requirements
withrespect tocontractual terms, which haveastheirobject oreffect toinfluence foreign
exchange earnings orexpenditures."
Leaving aside questions oftheprecise meanings ofthese commitments (which, asphrased,
create certain ambiguities), theydoestablish obligations intheareaofexchange restrictions. IfChina
weretoviolate theseobligations, otherWTO Members might eventually beauthorized totakeretaliatory
action.
There isnoquestion thattheFundandtheparties negotiating withChina intheWTO framework
areseeking thesame goal: adurable liberalization ofChina 'srestrictive system anditsintegration
intheworld economy. However, theFund staffisconcerned thatserious problems could arisefrom
thewaythisdraftProtocol affects theestablished division ofresponsibilities between theFund and
theGATT, nowWTO. Some ofthese concerns areelaborated below.
1. Article XV,paragraph 9oftheGATT 1994 recognizes therightofaWTO Member thatis
aFund member tomaintain exchange controls orrestrictions inaccordance withtheFund'sArticles.
Fund members havenotinthepastbeenrequired towaive thisrightasacondition foraccession to
theGATT.
2. Inthisrespect, itmaybenoted that,foranon-member oftheFund applying forWTO
membership, Article XV,paragraph 7oftheGATT 1994 onspecial exchange agreements would
explicitly prevent theimposition ofobligations inexchange matters generally more restrictive than
those imposed bytheArticles ofAgreement oftheInternational Monetary Fund onmembers ofthe
Fund. Theinclusion ofobligations onexchange restrictions intheProtocol could leadtoacasewhere
anon-member oftheFund istreated more favourably thanaFund member.WT/SPEC/23
Page4
3. AMinisterial Declaration intheFinal ActontheWTO 'srelationship withtheFund callsfor
thecontinuedapplicationofArticleXV,whichrecognizestheFund'sjurisdictionoverexchangematters,
andtheWTO Agreement callsforcooperation withtheFund withaviewtoachieving greater coherence
inglobal economic policy making. Itisparticularly important atthisjuncture, withtheUruguay Round
Agreements coming intoeffect, togivesubstance tothese provisions.
4. ThedraftProtocolwouldcreateanunfortunateprecedent,whichwouldconflictwiththeprinciple
ofuniformity oftreatment under theFund'sArticles byestablishing twoclasses ofFund members
inrespect oftheirexchange regimes.
5. Beyond jurisdictional issues between theFund andtheWTO andtheparticular issueofChina,
thedraftProtocol could haveimplications fortheFund asafinancial institution. TheFund makes
itsresources available toitsmembers incaseofbalance-of-payments need. Inthisrespect, theFund
should beabletoexercise itsjurisdiction under itsArticles inorder toeffectively protect itsresources,
including through temporary approval ofexchange restrictions.
Theincorporation oftheexchange clause (ascurrently drafted) intheProtocol onChina 's
membership intheWTO would haveanumber ofeffects. Firstly, itwould mean thatamember enjoying
itsrights under theFund'sArticles could besubject toapunitive action under therules ofanother
international body. Itcould alsomean thatthisBoard 'sjudgement onamember 'sexchange system
could bedisregarded bythejudgement ofWTO bodies. Thisisnotconsistent withtheestablished
pattern ofjurisdiction between theFund andtheGATT.
Anopportunity foradiscussion ofthesubstance ofthese issues relating tothejurisdictions
oftheFund andtheWTO might beafuture meeting oftheCommittee onLiaison with the
CONTRACTING PARTIES (CGATT).