WORLD TRADE  
ORGANIZATION  WT/GC/W/527 
WT/WGTDF/W/22 16 March 2004 
 
(04-1149) 
General Council 
Working Group on Trade, Debt and Finance  
 
 
 
EXPERT GROUP MEETING ON TRADE FINANCING 
 
Note by the Secretariat  
 
 
 
 
 
 
 
 
I. INTRODUCTION 
1. On 27 January 2004, the Director-General chaired a meeting in the WTO of experts in the 
area of trade financing to exchange views on how the WTO can best contribute to improving the access of developing countries to more plentiful and secure sources of trade financing, particularly in 
periods of financial crisis.  This issue has been raised in the WTO in the past by a number of 
developing-country Members, for example during the emerging markets' financial crisis in 1997-98.  
More recently, it was discussed in the WT O Working Group on Trade, Debt and Finance
1 and at the 
General Council meeting on Coherence in 20032 when the Managing Director of the IMF agreed that 
his staff would work on the issue in collaboration with the WTO. 
2. The meeting in the WTO was a follow-up to one convened by the IMF in May 2003, 
involving representatives of private banks, export cr edit agencies, regional development banks and 
other international organizations, to consider how lines of credit for trade financing might best be maintained in periods of crisis.  The results of the IMF meeting were encouraging, and have been 
reported in an IMF paper that  is available on its website.
3  
3. At the follow-up meeting in the WTO, two ar eas of the WTO's work were discussed – the 
Doha negotiations on services, in particular fina ncial services, and work under the WTO's Coherence 
mandate, particularly vigilance in keeping markets ope n in periods of financia l crisis and avoiding the 
use of trade measures that might undermine coordi nated efforts by the international financial 
community to maintain lines of trade fi nancing in exceptional circumstances. 
                                                      
1 WT/WGTDF/M/2 (paras. 36-42).  In its report to  the General Council in July 2003, the Working 
Group stated:  "Based main ly on experience gained in Asia and else where, there is a need to improve the 
stability and security of source s of trade-finance, especially to help deal with periods of financial crisis. Further 
efforts are needed by countrie s, intergovernmental organizations and all interested partners in the private sector, 
to explore ways and means to secure appropriate and pr edictable sources of trade-finance, in particular in 
exceptional circumstances of financial crises." (WT/WGTD F/2).  See also "Improving the Availability of Trade 
Finance in Periods of Crisis", WTO Discussion Paper No.2 (2003). 
2 WT/GC/M79. 
3 www.imf.org: "Trade Finance in Periods of Crises: An Assessment of Key Issues", 23 January 2004. This document has been prepa red under the Secretariat's own 
responsibility and without prejudice to the positions of Members and to their rights and obligations under the WTO WT/GC/W/527 
WT/WGTDF/W/22 Page 2 
 
 
 II. INCREASING THE AVAILABILITY OF TRADE FINANCING   
A. I
MPROVING THE SUPPLY -SIDE  
4. The expert meeting convened by the IMF in May 2003 produced a number of 
recommendations, inter alia, to increase the harm onization of emergency tr ade financing schemes 
provided by public institutions such as export cr edit agencies and regional development banks, and 
the coordination of the activities of public and pr ivate financial instituti ons through co-financing 
operations.  In addition, the IMF acknowledged the positive role that central banks might play in 
periods of financial crisis, and left open the possi bility that "IMF programmes could be flexible in 
accommodating the use of external resources and fo reign exchange reserves in support of well 
designed trade-finance schemes".4 
5. Among the initiatives pursued since the IMF me eting is an effort led by the Asian 
Development Bank (ADB) and other re gional development banks to coor dinate the way in which they 
design and implement their trade-finance facilitati on programmes, building on a pioneer programme 
developed by the European Bank for Reconstruction and Development.  Some degree of integration 
has been achieved already among these programme s, allowing for the gradual establishment of a 
short-term trade-financing fac ilitation "global alliance" involving nearly all regional development 
banks, including the Inter-American Development Bank, the Islamic Development Bank, and the 
African Development Bank.5  The programmes are designed to foster partnerships with local and 
international banks.  
6. Beyond the provision of short-term financing facilities, there is also increased demand by 
private banks for the involvement of regional develo pment banks in the longer-end of the market, for 
instance in providing credit enhancement facilities  to help export credit agencies in developing 
countries become more effective partners in  the expansion of north-south trade.   
7. It was noted at the meeting in the WTO that th e fact that the profile of the trade financing 
issue has been raised in the IMF and the WTO is encouraging regional development banks to become 
more active in this area. 
8. The harmonization of emergency schemes and coordination of rele vant players are considered 
important to create greater security of trade financ ing during periods of crisis.  The importance, in 
addition, of the role of the domestic banking sector was also highlighted, with reference to the Asian 
financial crisis.  One view was that the shortage of trade financing in Asia at that time did not 
necessarily result from a lack of mobilization by th e international community, but rather from 
difficulties of re-lending funds on the domestic mark et.  Coordinated efforts had been made by export 
credit agencies, development banks and other official  agencies to maintain open lines of credit, but 
some domestic banking systems encountered problems in intermediating these funds.  Part of this was 
explained by the context at the time of exchange  rate overshooting, in which few local companies 
were willing to purchase imports in foreign currency becau se of the exchange rate risk or were able to 
accurately anticipate export demand for their products .  Only a small proportion of the funds made 
available by regional development banks, for example, had been re -lent by local export credit 
agencies due to difficulties either of intermediation or of appraising the creditworthiness of companies 
in times of uncertainty.  At the same time, some felt that the depth of the crisis had a chilling effect on 
                                                      
4 IMF, op. cit. 
5A survey undertaken by the ADB found that the main private banking groups are interested in it being 
involved in the provision of short-te rm trade credit through th e provision of comprehensive guarantees to them 
as confirming banks, both in crisis-hit countries and in countries where local banking conditions are relatively 
unknown to large international banks.  WT/GC/W/527 
 WT/WGTDF/W/22 
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 the intervention of international public agencies, a nd that their high standards had not allowed for the 
drawdown of funds by local financia l institutions.  In that context, one suggestion was to encourage 
regional swap arrangements among cent ral banks to foster the replenishment of reserves and promote 
trade in regional currencies.  
9. The effectiveness of credit lines or guarantees s upplied by international public agencies has 
been reviewed in light of lessons drawn from th e Asian financial crisis.  The long lead times 
necessary to put in place lines of credit or guarantees  during the crisis, as well as their relatively high 
cost at the onset of the crisis, have been acknow ledged by regional development banks.  They also 
recognize that these lines of credit and guarantees have to fit better the needs of each country, taking 
into account whether a local export credit agency  exists and following an assessment of the 
capabilities of the local banking sector to intermedia te the funds.  Intervention from export credit 
agencies has to be balanced betw een the needs of importing countries and the interests of exporters. 
10. As a result, certain instruments have been improved and closer partnership between public 
entities and the local private sector is being sought.  For example back-to-back loans had been viewed 
as good liquidity tools, but at the onset of the crisis  they may not have been as well targeted as hoped.  
The order of intervention has also been re-examine d to ensure that finance and guarantees provided by 
regional development banks would benefit directly the private sector.  These elements have been 
taken into account in modifying the trade-fina ncing facilitation programmes proposed by regional 
development banks, with a view to encouraging pr ivate-to-private flows and tailoring them to the 
specific circumstances of beneficiary countries.  Regarding regional risk-sharing arrangements such 
as swaps, there is currently a lively dialogue amongst several countries in the Asian region about the 
Asian Bond initiative, tapping more domestic capita l, and becoming less reliant on foreign sources of 
funds.  The ADB is actively supporting these initiatives a nd this is reflected in the growing number of 
risk-sharing arrangements it has signed with local export credit agencies.  
11. All institutions benefited from improvements in credit and guarantee facilities achieved in the 
aftermath of the Asian crisis.  As a result, credit lines and guarantees are better targeted and demand-
driven.  Interventions take better account of the orig ins of a financial shock, for example, whether a 
shortage of trade financing results from changes in market sentiment driven by socio-political factors 
or macroeconomic and exchange rate factors.  Improvements have therefore been in the direction of greater flexibility by regional development ba nks and export credit agencies from developed 
countries, through increased local presence, impr oved knowledge of local market conditions, and 
partnership with the private sector. 
B. I
MPROVING CONFIDENCE AND FOSTERING CRISIS PREVENTION TOOLS ON THE DEMAND -SIDE 
12. The importance of crisis prevention is emphasized by all concerned.  It involves a wide range 
of considerations, including the stability of macro economic conditions, reforms in the local financial 
system to ensure its safety and soundness, greater  depth and liquidity in different segments of the 
local banking market, improved economic governan ce, and, in general, a micro-economic 
environment conducive to competition, transparency, and openness, including a liberal trade environment.  Importance is attached to an on- going dialogue between the local government and all 
investors in a country, so as to help maintain confidence when shocks occur.  This dialogue, 
particularly if it involves regular exchanges of in formation on the situation of the country and the 
creditworthiness of exporters, importers, and local tr ade financing providers, can help prevent the 
massive withdrawal of capital witnessed in the p ast and ensure that core foreign investors are  
prepared to support a country in periods of cris is.  Private banks with large trade financing 
commitments indicated that they would continue to  support a country if they believed in – and were 
informed of – the underlying strength of its reserves and institutions. WT/GC/W/527 
WT/WGTDF/W/22 Page 4 
 
 
 13. Improving disclosure, transparency and in general the environment for providing trade 
financing must nevertheless be reinforced by "p ro-growth" strategies.  Following the succession of 
financial crises in emerging markets, foreign banks ' trade financing commitments are growing again 
and most of them are willing to invest in ne w emerging market economies.  Creating permanent 
instruments, along the lines of those used for em ergency purposes, could contribute to maintaining 
flows of trade financing to developing countries, although it was noted that the nature of trade 
financing instruments was changing and seemed recent ly to involve more traditional bank lending and 
less specialized instruments such as documentary credits. 
III. THE WTO'S CONTRIBUTION THROUGH MARKET ACCESS 
14. The liberalization of financial markets is regard ed as an important tool with which to address 
some of the issues mentioned above, for example co nducting pro-growth strategies, promoting crisis 
prevention, and avoiding demand constraints linked to the weakness of the local banking system.  In 
this regard, the current round of negotiations under the GATS can be used to increase the WTO's 
contribution to making the provision of trade-fina ncing more secure and more readily available, 
particularly in developing countries. 
15. Commitments in GATS schedules, either cross-border or through commercial presence, help 
generate a climate of predictability and legal certain ty for the provision of trade-financing by foreign 
banks, and allow WTO Members to create deeper and more liquid markets domestically for these services.  It allows them also to benefit from the ex perience of large international banks active in this 
area of finance, and provides them with a substitute for local export credit agencies.  
16. GATS commitments can be formulated so as to target trade-financing services in particular, 
within the broad category of "all types of lending"  and the narrower one of "financing of commercial 
activities".  Ninety WTO Members currently have GATS commitments on lending activities in 
general, including trade-financing.  Most of  these commitments have been made under mode 3 
(commercial presence), under which limitations may be placed on, for example, foreign ownership or 
on the number of foreign service providers.  Thir ty-eight Members have made commitments on 
lending activities in general under mode 1 (cross-borde r).  At the time of the Asian financial crisis, 
some Members liberalized their restrictions on trade in financial services shortly after making commitments under the Agreement on Trade in Fina ncial Services (the Fifth Protocol under the 
GATS), but have not to date made commensu rate commitments in their GATS schedules. 
17. There is no impediment to defining trade-fina ncing activities specifically and narrowly in a 
GATS schedule.  One example of a Member that has u sed its own terminology in this regard is Chile, 
which has made a GATS commitment in "credit granti ng, defined as current loans, loans in letters of 
credit, issue and negotiation of letters of credit for imports and exports, i ssue and confirmation of 
stand-by letters of credit".  Similarly, Moro cco defines trade-financing as "lending to finance 
commercial transactions with Morocco".  Other fina ncial services linked to trade-financing can also 
be considered for similar treatment, for example cr edit reference analysis, and the insurance of cargo 
or goods in transit which is part of the transaction th at is made through a letter of credit.  It was noted 
in the expert group discussion that although such GATS commitments may not prevent foreign banks 
from cutting credit lines in periods of crisis, they foster local, regional and international financial 
activity and lead to stronger and more resilient ma rkets that can encourage foreign banks to remain 
engaged. 
18. The contribution of WTO membership, and of  commitments under the Agreement on Trade 
in Financial Services, is seen more broadly also  in the expert group as helping Members to build 
modern, more efficient, financial markets with hi gher standards of management and regulation that 
are more resilient in times of crisis.  For exam ple, certain emergency programmes offered by export  WT/GC/W/527 
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 credit agencies cannot be activated in the absence of local infrastructural support, such as a proper 
legal environment, accounting standards, and in ternational commitments with respect to the 
enforcement of debt obligations.  Nor can ne w Basle standards of banking supervision be 
implemented without this infrastructure.  In additio n, some of the technical proposals made in the IMF 
report to favour the participation of private banks, such as the securitization of trade-financing claims, 
are posited on the existence of a relativ ely liberal financial environment.  
IV. THE WTO'S CONTRIBUTION IN THE AREA OF RULES 
19. One concern that has been raised in the past, particularly by some export credit agencies in 
developed countries, is how emergenc y trade-financing that they make available in times of crisis on 
concessionary terms might be treated under the WTO's rules, and particularly the Agreement on 
Subsidies and Countervailing Measures (ASCM).  Th e context in which this was addressed in the 
expert group meeting was of a political consensus ex isting in the international community at the time 
of a financial crisis to provide special financia l support, usually under IMF-supported programmes. 
20. In clarifying the scale of this concern, th e WTO Secretariat noted that the prohibitions 
contained in the ASCM are rather limited in sc ope.  The Agreement prohibits only two kinds of 
subsidy, of which a subsidy contingent upon export  performance seems to be most relevant in the 
context of trade-financing.  A significant numbe r of developing-country Me mbers are exempt from 
this prohibition, and nothing in the Agreement would prohibit other WTO Members from intervening to ensure the availability of trade-financing for im ports in periods of crisis  so long as no contingency 
on export performance was involved. 
21. A second point relates to actions by multilateral and regional bodies to ensure access to trade 
finance in times of crisis.  The ASCM is in general drafted to address situations where a WTO 
Member is subsidizing the production or sale of its own goods, and it is not entirely clear whether or 
not the Agreement applies where the subsidizing en tity is not within the territory of the Member 
whose goods are allegedly being subsidized.  Le aving aside this legal uncertainty, many WTO 
Members appeared to be of the view that deve lopment aid provided by multilateral development 
institutions lay outside the scope of ASCM disciplines,  or in any event that it would not be proper to 
take action under the Agreement in this context.  To date, no Member has challenged multilateral 
development assistance as a subsidy in WTO dispute settlement proceedings.   
22. It was also noted that the Agreement contains  a "safe haven" for export credit practices that 
are in conformity with the interest rate provisi ons of the OECD Arrangement on Officially Supported 
Export Credits.  Thus, to the extent that the actions taken to insure that a Me mber has access to trade 
financing are taken in conformity with those pr ovisions, the prohibition on export subsidies will not 
apply.  The OECD Arrangement applies in the case of credits with a maturity of two years or more.  In cases where the Arrangement is not applicable, step s to ensure access to trade financing, such as 
through export credits or export credit guarantees, would not create problems if they did not involve a 
subsidy. 
23. Discussion in the expert group focused on the app licability of the Agreement to export credit 
agencies providing short-term export financing in times of crisis on concessional terms (or with a 
"blanket" government guarantee), and how certain of  these practices might be accommodated in times 
of acute financial crisis.  Rather than taking up this  issue from the point of view of WTO rules, it was 
felt that there was need for more conceptual work  to define an economic benchmark which allowed 
risk to be properly priced in extreme situations, for example of a currency crisis.  It was noted that this 
was difficult to do a priori, given the day-to-day uncer tainty that prevailed at such times, and that it 
was difficult also to stipulate "market clearing" conditions that would allow commercially viable WT/GC/W/527 
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 behaviour to be defined.
6  It was noted also that even if such a benchmark could be found and agreed 
on, no existing institution had the mandate to dete rmine when "exceptional circumstances" exist.  
24. In practical terms, the Director-General suggest ed that when circumstances arise in which the 
international financial community takes coordinate d action to provide special financial support to 
maintain trade flows in periods of crisis, he w ould bring this promptly to the attention of WTO 
Members through the General Council.  In doing this , he would consult closely with the Managing 
Director of the IMF.  In the interest of greater coherence between trade and financial policies, it would 
seem that such circumstances should be taken du ly into account by WTO Members when making 
trade policy decisions, and every effort should be ma de to keep markets open to exports from crisis-
hit economies.  
 
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6 This problem arises also in the context of the OECD Arrangement.