Apr 27, 1998

 

FINANCE: IMF EMPIRE OVER SOUTH EXPANDS, WITH SOME WTO HELP

 

Geneva, 23 Apr (Chakravarthi Raghavan) -- The International Monetary Fund, with some help from the WTO secretariat, appears to be attempting to use the so-called "special relationship" between the Fund and the WTO to extend its "empire" over developing countries, in their trade policies as well as in trade disputes at the WTO.

Reading pronouncements of the IMF managing director and senior officials and the staff over the years, there is no secret that the IMF wants to have an overall suzerainty role over the finance, economic and trade policies of developing countries and transition economies.

In the Asian crisis, where the IMF has signed agreements with a number of countries, there has been sharp criticism of the IMF's role in using the agreement to further the commercial interests of US financial enterprises, and also of other enterprises in restricting competition.

The latest attempt by the IMF to expand its role was before the WTO Dispute Settlement Body Wednesday, when the IMF got itself an invitation to attend the meeting and make a statement (in the Argentina-US dispute where panel and appellate body rulings were adopted) to make a statement, in effect asking panels to take IMF's purported expertise and advice.

India, in effect challenged the interpretation of the IMF and of the WTO secretariat (in getting the IMF invited to make such a statement and the manner in which the 'consensus' of members was obtained), and said it reserved its rights and would raise the issue before the General Council at an appropriate time.

 

The IMF made the statement at the DSB, after the adoption of the report of a panel, as modified by the appellate body, on a dispute between the US and Argentina over some specific duties and fees that took the tariffs beyond the levels bound in the WTO/GATT. Argentina before the panel had argued that it was part of its agreement with the IMF, but the panel did not seek the views of the IMF. The appellate body said the panel could have sought the views, but on ubstance upheld the panel ruling against Argentina.

In getting invited as an "observer", and in a statement, the IMF representative spoke of the "special relationship" between the Fund and the WTO, "give the history of Fund/GATT relations", and the Fund as "uniquely placed" to answer factual questions about fund-supported programs in countries.

Citing the recent Fund/WTO cooperation agreement, and the Fund's interest in matters relating to Fund conditionality, the right of dispute panels to seek information from experts, IMF statement said, "we would like the record to reflect the Fund's strong interest in being consulted by panels in such cases."

Since the IMF has conditionality agreements for lending monies only with developing countries and transition economies, its jurisdiction is hence only with these, and not the developed countries. Its efforts thus to inject itself into the dispute settlement processes thus affects only developing countries in disputes with others.

It tilts the asymmetry and handicaps of the system even further against the developing world.

In the early drafts of the cooperation agreement, negotiated between the secretariats of the Fund and the WTO, a provision had been sought to provide the IMF a right to intervene before panels on trade disputes between WTO members, where the Fund had an interest.

The draft accord that was concluded between the two executives, providing for representatives of each to be able to participate in the others' meetings had a paragraph which said: 

"The Fund shall inform in writing the relevant WTO body (including dispute settlement panels) considering exchange measures within the Fund's jurisdiction whether such measures are consistent with the Articles of the Agreement of the Fund."

This would have enabled the IMF to intervene not only in any dispute arising over the GATT/GATS balance-of-payments disputes, where the IMF data are to be accepted, but in other aspects like operations of foreign banks and insurance companies etc.

 And if the IMF gets its way over capital account convertibility by Members, it would achieve for the foreign investors far beyond what the GATS or an multilateral investment agreement would.

 

During the Uruguay Round negotiations, at the time of the 1988 Mid-term review, the GATT and the IMF sought through a so-called agreement to promote "coherence", jurisdiction to enable each to use the other to exercise jurisdiction over policies of developing countries.

Subsequently, in 1993 when the agreements were concluded, and subsequently at Marrakesh, the IMF had sought a special position (over and above the ones relating to BOP), but this was rejected by the negotiators.

The WTO/IMF agreement draft, negotiated between the heads of WTO and IMF), and put before the WTO General ouncil for approval in 1996, provoked controversies among the members.

There were questions raised whether the WTO's Dispute Settlement Understanding (an integral part of the Uruguay Round accords, incorporated as an annex to the WTO, creating procedural and substantive rights and obligations among members), which had rules on set who could appear before panels etc, could be amended through the WTO/IMF executive agreement.

The WTO secretariat, in a note at that time to the members, explaining the IMF ability to intervene before dispute panels, had said that this provision in the draft agreement had bee included "at the request of the IMF, for whom it was a minimally acceptable provision compared to the more expansive panel access that seemed to be one of the IMF's (perhaps the major) negotiating objective." 

The WTO secretariat, for good measure, had added that this IMF "request" could be accommodated without any amendment to the WTO's DSU.

But the issue became controversial at the WTO, with several members balking at giving the IMF a right in disputes, which is purely between Contracting Parties (WTO members) relating to their rights and obligations. Even rights of third parties, who may be affected, are limited before panel proceedings under the DSU.

Ruggiero, in informal consultations (in summer of 1996, and during the preparations for Singapore), had told the WTO ambassadors, that the agreement having been negotiated and initialled, and approved by the IMF executive board, put his own prestige at stake.

Ultimately, after much consultations, the General Council adopted a decision for the implementation and interpretation of the agreement, further qualified the IMF rights before the DSB and panels. This interpretative decision said, among others:

"4. In respect of the implementation and interpretation of these Agreements, it is decided that: 

(a) The procedures for granting IMF observership in the DSB pursuant to paragraph 6 of the IMF Agreement shall be implemented as follows: The Director-General shall convey the invitation of the DSB to the IMF to send a member of its staff as an observer to meetings of the DSB where matters of jurisdictional relevance to the IMF are to be considered. For other meetings of the DSB, the Director-General may propose to the Chairman of the DSB that a member of the MF's staff be admitted as an observer to a particular meeting, or in respect of particular agenda items proposed for a meeting, of the DSB.

For meetings of other WTO bodies for which attendance is not specifically provided for or excluded in the Agreements or in the above sub-paragraph, the Director-General may propose to the Chairman of a WTO body that a member of the IMF be admitted as an observer to a meeting where particular matters of common interest to the WTO and the IMF will be under discussion; similarly, the Director-General may propose to the Chairman of a WTO body that a member of the World Bank staff be admitted as an observer to a meeting where particular matters of common interest to the WTO and the World Bank will be under discussion.

(b) In light of Articles III:5 and V:1 of the Marrakesh Agreement establishing the World Trade Organization, Article XV of the General Agreement on Tariffs and Trade 1994 (and, in particular, Article XV:2) and Articles XI and XII of the General Agreement on Trade in Services, the General Council considers it appropriate that whenever the IMF wishes to submit its views to a panel on whether an exchange measure within its jurisdiction is consistent with the IMF Articles of Agreement, it shall submit these views by directing a letter containing those views to the Chairman of the DSB. The Chairman of the DSB shall inform the chairman of the panel of the availability of this communication which, unless the panel decides otherwise, shall remain confidential to the panel and to the parties to the dispute.

Nothing in this Decision nor in the Agreements shall affect the rights and obligations of Members under the Dispute Settlement Understanding, including those provided for in Article 13 thereof." 

India, one of the several countries (others included at that time the USA, Brazil, Egypt etc) that had objected (in the consultations for approval of the WTO-IMF cooperation agreement) to the IMF being involved at the DSB on matters relating to disputes among members on their rights and obligations, took the floor at the DSB Wednesday and said that situation arising out of the IMF's observations raised some systemic issues.

Indian ambassador, Narayanan, said his delegation had taken careful note of the IMF comments, but the situation arising from the IMF's observations raised some systemic issues.

Like many other delegations, India had been "actually involved" in the negotiations of the IMF and WTO (executive heads) and the General Council decision on the agreement. We did not understand the second portion of para 4 (a) as a provision for enabling IMF to make observations of the type they have made today. Therefore, I would like to say that the situation we are facing today is something we would like to carefully reflect upon. We reserve our right to raise the matter in the General Council, if necessary at the appropriate time in the light of our understanding of para 4(a) of the relevant General Council decision.

Interestingly, the IMF statement before the DSB made no reference to a member's "WTO-based rights", though public criticisms by mainstream economists have noted the IMF attempts in its conditionality packages in Asia to discourage or force some of these countries to give up some of their rights.

At the time of the first agreement with Indonesia, it was widely reported in the western media, that the IMF was requiring Indonesia to accept and implement any ruling that would come from the WTO on Indonesia's aid to national car project (allegedly by those close to President Suharto) disputes with US, Japan and EC.  

Under the WTO rules, the WTO head, Renato Ruggiero, told a WTO-organized NGO environment symposium in March, there is no obligation for a country to accept and implement a ruling, though it is generally encouraged, and that a country which was unable to or did not want to implement an adverse ruling had only to give compensation to the other side.

Ruggiero had then made the comment in relation to the shrimp-turtle ruling against the US (when only an interim report had been made, but leaked to environmental lobbies, who began campaigning on it). 

But when Ruggiero was asked at that symposium on the IMF conditionality for Indonesia, requiring it to adopt such an ventual ruling, and how this could be justified, Ruggiero said since this concerned another international organization he would not comment.

Subsequently, it has been reported, the IMF package has specifically demanded that Jakarta abandon its help to the car project (without awaiting any rulings at the WTO).

Recently, the 'Institutional Investor', a US publication specializing in various investment issues, carried an interview with Mr. Ruggiero, titled "Ruggiero's revolution", and this was included in the WTO's official daily press review, which is made available to delegations.

While carrying, in a question and answer form, Ruggiero views on some of the current issues, the article had a blurb about Ruggiero and his role in financial services agreement, and said that "The WTO finally forged the agreement on December 12 with the help of the International Monetary Fund, which no doubt used the leverage of the Asian crisis to spur recalcitrant nations."

The WTO leadership, and before that the old GATT, have been trying to use the arguments about need for "coherence" at global level between finance and trade systems, to establish such a relationship and exercise powers over developing countries in their trade policies.

This attempt, surfaced in 1988, at the Montreal mid-term review meeting of the Uruguay Round, but rejected by negotiators. It has been repeatedly resurfacing during the Uruguay Round, at Marrakesh and since then.

With the kind of turnover in representation of developing countries, and the lack of institutional memories in missions and capitals in such matters, trade negotiators are unaware of past history, and the IMF has been bringing up the issue at every opportunity and, with help from the WTO secretariat has been inching forward.

In the latest foray of the IMF into the WTO, the delegations were advised about the request from the IMF and the DSB chairman's intention to invite the IMF. But it was done in such a way that unless some delegation chose to challenge and oppose it, consensus in favour was presumed.

Only India is reported to have objected, but was persuaded to withdraw its objection. Trade officials made it appear that he objection was related to the US dispute with India on its BOP-related restrictions, where the US apparently wants to get the IMF expert view.

However, the Indian objection voiced in the DSB shows that it is more fundamental, and systemic.