WT/WGTDF/W/72  
5 May 2014  
(14-2718)  Page: 1/2  
Working Group on Trade, Debt and Finance   
 
  EXPERT GROUP MEETING ON TRADE FINANCE – 25 APRIL 2014 
INFORMAL REPORT BY THE WTO SECRETARIAT 
1.  The objective of the April 2014 meeting was threefold: (i) to take stock of the current market 
situation, with a focus on factors such as liqu idity, risks and price patterns by countries and 
regions (ii) to consider progress on prudential and non-prudential regulatory issues (iii) to examine 
possible trade finance issues that may be of G-20  interest during the Australian Presidency and 
beyond. 
2.  In his opening remarks, the Director-General  of the WTO underlined the importance he 
attached to this direct dialogue, and of keeping the channels of communications open. Although 
trade finance did not feature in the WTO's core text, there was no doubt about the centrality of this work for the institution, a message confirmed by the Chair of the WTO's Working Group on Trade, Debt and Finance. The Director-General said that all recent evidence had pointed to 
continued difficulties for developing countries in accessing trade finance, in particular in the 
smallest and/or the poorest, and even for SMEs in larger and more developed countries. While the WTO had been, and is continuing, to support multilateral development banks (MDBs) in filling part of this market gap, there was a structural ri sk that production and trade opportunities of 
developing countries be undercut, because of the inability of the local and international financial 
sectors to support such new trade. The Director-General is open to taking an advocacy role where necessary. However, to be truly effective, any su pport by the Director-General would require (1) 
the support of WTO Members; (2) well-built, do cumented and fact-based cases demonstrating 
difficulties for traders; (3) effective communication; and (4) practical solutions that could be 
supported by the international community, though various fora, the G-20 or others. The expert group had an important diagnosis and advisory role to play in this regard. He looked forward to 
further engagement with the group.   
3.  With respect to the current market situation, Members of the expert group generally considered 
there was no overall capacity constraint globally. Liquidity was sufficient in the largest trading hubs, in line with the favorable risk profile of the industry (0.02% of loss record on short-term 
trade finance) and the relatively easy monetary policies run in the major economies. US dollar 
funding was a less pressing issue outside the United States than it has been, in part because of 
the emergence of alternative currencies, notably the RMB in the Asia-Pacific area, which increased funding opportunities and choice. Among the good news was the fact that liquidity was returning 
for trade in the Southern region of Europe; some countries had been graduating from trade 
finance facilitation programs from MDBs (the Philippines); while in others the local financial sector 
had increased its ability to support traders (Bangladesh). In Africa, the largest regional banks had shown greater ability to syndicate larger trade finance deals, mostly in the commodity area, without external support. In general, more and more local and regional banks invested in trade, 
filling in part the gap left by the retreat of global banks since the financial crisis. The problem was 
that markets had become more selective, and supply focused on the best rated "customers", leaving smaller traders with less finance than even before. 
4.  Hence the continued difficulties focused on the small and medium-sized enterprises in low-
income countries, and higher-income countries of Asia, Latin America, the Middle-East, and Africa. 
The activity of MDBs was a good proxy for the exis ting market gap, from this point of view, and 
the demand on MDBs risk mitigation prod ucts for trade had never been so high. 
5.  The was very little appetite by private market s to venture into most of Sub-Saharan Africa, 
leaving the IFC, the ITFC (Islamic Development Gr oup), and the African Development Bank to fill WT/WGTDF/W/72 
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  only part of a financing gap estimated between USD 30 and 50 billion – perhaps more. The Asian 
Development Bank had received particularly strong demand, inter alia, from clients in Viet Nam, Pakistan, Bangladesh, and Sri Lanka. Particularly strong demand had been addressed to the Inter-American Development Bank (+40%), in line with capital movement reversals, higher risk aversion, and continued structural weakness in lo cal financial sectors. The EBRD had been quite 
active in supporting trade in Ukraine and Russia lately, but also in the MENA region, which was 
benefitting from ITFC support (Egypt and other countries). IFC's GTFP products were equally 
distributed across the world and were in high demand. 
6.  With respect to regulatory matters under the Basel framework, the Director-General pointed to 
recent steps by the Basel Committee on Banking Supervision to ensure fair prudential treatment of 
the trade finance industry, particularly traditional instruments such as letters of credit and the like. This included a lowering of the leverage ratio on letters of credit, which he hailed as a pro-trade, pro-development step, since letters of credit are used heavily in trade with developing countries. 
The dialogue with the Basel Committee had greatly benefited from the facts reported in the trade 
finance register, compiled by the ICC and fed by data from the industry. At this stage, the revised prudential regulation for trade finance seemed to be  better in line with the low risk profile of trade 
assets. 
7.  The discussion which was initiated at the previous meeting on other non-prudential regulatory 
issues described as "know-your-customers" (KYC) requirements was continued. The debate did not 
focus on the regulatory requirements themselves, which legitimately aimed at increased transparency in financial relations, rather on the various ways that they are being structured, 
defined and implemented according to different countries and regions. However, more clarity was 
needed on whether the lack of harmonization in countries' requirements had led to missed trade 
opportunities for developing countries. The trade industry ought to come up with more fact-based evidence, in terms of trade foregone, lost correspondent banking relations, and other possible 
criteria, before one could assess the impact of lack of regulatory harmonization in this area. 
However, several participants, including multilateral development banks, made the point that, while the lack of harmonization in this area could clearly increase the cost of trade in developing 
countries, the weight did not fall on the WTO to fix the problem. WTO representatives confirmed 
that the KYC issue was not in the WTO jurisdiction, and that dialogue had to be conducted with the 
appropriate governance structures (OECD FATF).  
8.  WTO senior management concluded that there seemed to be continued interest and call for 
involving the WTO in discussions and initiatives on improving the availability of trade finance 
globally. Subject to the Members' continued in terest, WTO management was ready to keep the 
channels of communications open and offered to continue this forum. The financing of trade was an important factor in the ability of countries to trade, but like trade facilitation (a topic at the heart of the WTO mandate), action required mu lti-agency co-operation. WTO management will 
consider possible messages, if any, that could be sent on trade finance to the upcoming G-20 
meetings. One could be a renewed, explicit suppo rt for multilateral development banks' trade 
finance programs, in the face of growing demand for supporting trade in challenging regions of the 
world. 
 
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