Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/80072 
Year of Publication: 
2012
Series/Report no.: 
WTO Staff Working Paper No. ERSD-2012-23
Publisher: 
World Trade Organization (WTO), Geneva
Abstract: 
Rising current account and merchandise trade imbalances marked the years before the global financial and economic crisis. These imbalances either contributed to or precipitated the crisis and to the extent that they create systemic risks, it is desirable that they be reduced. There are many factors related to macroeconomic, structural, exchange rate and financial policies that contributed to the imbalances. The inability to manage these issues at the international level reflects the coherence gap in global governance. This paper examines the contribution that the WTO can make in its three areas of activities - negotiations, rule-making and dispute settlement - to deal with trade imbalances and with the main factors leading to them, including exchange rate misalignments. First, market opening efforts in services, including in the area of financial services, can reduce policy-related distortions and market imperfections in surplus countries that lead to the build-up of unsustainable imbalances. Second, in the context of a broad international effort to coordinate macroeconomic, exchange rate and structural policies to deal with the roots of imbalances (the first-best solution), there is a general efficiency argument that could be made for the use of WTO-triggered trade actions to enforce cooperative behaviour towards rebalancing. Absent this first-best response, trade rules alone would not provide an efficient instrument to compensate for the weaknesses in international co-operation in macroeconomic, exchange rate and structural policies.
Subjects: 
Trade imbalance
current account
exchange rates
international policy coordination
WTO
international sanctions
JEL: 
F13
F31
F32
F42
F51
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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