WT/WGTDF/W/84  
 
16 May 2017  
(17-2585) Page: 1/3 
Working Group on Trade, Debt and Finance   
 
 EXPERT GROUP MEETING  ON TRADE FINANCE – 29 MARCH 2017  
INFORMAL REPORT BY T HE WTO SECRETARIAT  
1.1.  The objective of the March 2017 meeting was twofold: (i) to take stock of the current market 
situation (ii) to examine possible areas of cooperation between parti cipants based on proposals by 
the WTO Director -General in his 2016 publication: "Trade Finance and SMEs". Such proposals are: 
boosting trade finance facilitation programs, reducing the knowledge gap, improving synergies on 
capacity -building and gap detecti on. 
1.2.  In his opening remarks delivered on behalf of the Director -General, the Deputy Director -
General stated that, based on the evidence provided by the Asian and African Development Banks’ 
surveys,  trade finance gaps had remained high but stable at USD $1.6 trillion (some 10 % to 15% 
of trade finance markets ), and was falling disproportionally on small and medium -sized 
enterprises' ( SMEs ) trade. Fifty-eight per cent of SMEs saw their trade finance requests rejected. 
This situation could not continue since  SMEs were the heart of wealth, job creation and innovation . 
Trade finance gaps with the greatest  trade opportunities were highest , notably in developing 
countries. The lack of trade finance was therefore an obstacle to building a more inclusive trading 
system.  
1.3.  Since the publication of the Director -General's proposals, progress had been made . WTO and 
G-20 Members had supported the Director -General's efforts and recommendations. The Director -
General had met heads of organizations, such as the International Tra de Finance Corporation 
(ITFC, part of the Islamic Development Bank's Group) and of the World Bank's International 
Finance Corporation (IFC), with a view to mov ing the trade finance  agenda forward. He  had agreed 
with the CEO of IFC to co -host a high -level d ialogue with the main stakeholders, scheduled at the 
fall meetings of the IMF and World Bank in October  2017. The idea was to bring together 
multilateral development banks, private sector representatives, prudential and other regulators, at 
head of institu tion level. A preparatory meeting for multilateral development banks was scheduled 
to be co -hosted on the first day of the Aid -for-Trade Global Review.  
1.4.  The high -level round table would address some of the proposals of the Director -General and 
his partners,  including the scaling up of trade finance facilitation programs and increasing their 
synergies. New and innovative ways of seeking synergies were welcome. Training efforts also 
needed to be increased. A dialogue with regulators, notably in the area of kno w-your-customer 
(KYC) and anti -money laundering (AML) could usefully be conducted to address the trade and 
development dimension of trade finance. Finally, efforts to track the trade finance gap needed to 
be enhanced.    
1.5.  The meeting started with a review o f the current market situation. The contrast 
characterizing the situation in recent years had narrowed. The market could thus be described as 
being dual, with excess liquidity for large lenders and "premium" clients, the large traders. At the 
lower end of the market, small and medium -sized enterprises (SMEs) suffered, both in developed 
and developing markets, from the impact of reduced correspondent banking networks, the greater 
selectivity of banks, and the focus of the largest institutions on the best rat ed "customers". 
Participants confirmed a firming up of trade demand in recent months, in all regions of the world; 
which, in turn, contributed to reduce excess liquidity gaps at the higher end of the market. In Latin 
America, Brazil had bottomed out, where as in Asia the mood was more confident. The rise in trade 
demand in countries such as Indonesia, Viet Nam, and Bangladesh, in market segments previously 
dominated by China, was noted. Most participants confirmed a stronger outlook for commodity 
markets , benefiting Sub -Saharan Africa and the Middle -East and North Africa (MENA) region.   WT/WGTDF/W/84  
 
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1.6.  The (modest) improvement in the trade outlook did not necessarily mean an immediate 
improvement in trade finance market conditions at the lower end of the market, particularl y for 
SMEs. In China, the combination of Basel III implementation and stricter caps on lending actually 
meant a greater selectivity of clients. At the same time, China was implementing stricter KYC -AML 
requirements; with the result that large Chinese banks  have had to close many correspondent 
banking relationships. This "flight to quality" was also affecting the commodity sector, as 
confirmed by a leading commodity trading firm. Excess liquidity was focused on the largest 
companies, but could not be fully a bsorbed, leaving SMEs to be dependent on financial facilities 
extended by these companies. While a pan -African bank representative indicated that the 
reduction of correspondent banking relationships in the continent had slowed down, the knock -on 
effect of previous reductions and prudence in accepting new ones was seriously affecting trade 
finance in Africa. A large United States bank clearing US dollar transactions noted that the 
"precautionary" mindset on KYC -AML implementation had forced out small African  banks, despite 
their impeccable due diligence records. In the MENA region, the introduction of new bankruptcy 
laws has been affecting SMEs. In Europe, the perception of KYC -AML risk was very high in view of 
the potential fines to be applied. This was conf irmed by the representative of the European Bank 
for Reconstruction and Development (EBRD), who stated that AML -KYC requirements had become 
so tight that some countries, notably in Eastern Europe, had become virtually "un -bankable".    
1.7.  Representatives of m ultilateral development banks (MDBs) said that trade finance facilitation 
programs had been designed to support small trade transactions in the poorest countries. These 
countries cumulated poor country risk and a high perception of AML -KYC risk. MDBs could  only do 
so much .. The CEO of ITFC shared his concern regarding the poorest countries of the Organization 
of Islamic Co -operation (OIC). He emphasized the growth in ITFC's portfolio, in particular towards 
SMEs. The ITFC had already stepped in, increasing i ts support to trade in the OIC by 15%. The 
African Development Bank (AfDB) was also making progress. The 4 -year sunset clause regarding 
the African Development Bank's trade finance facilitation program had been lifted, which meant 
that trade finance had be come part of the normal operations of the bank. The AfDB welcomed risk -
sharing agreements with partner institutions. The EBRD had a record year in supporting trade in 
2016. It stepped in to alleviate liquidity shortages in Egypt, Greece and Cyprus. The EBR D-
supported trade transactions helped supply essential commodities and goods for the local 
population. Many countries were struggling to keep correspondent banking relationships, as a 
result of KYC -AML procedures. The EBRD had to put in place a platform on information exchange 
for due diligence, as local companies and banks could simply not comply with the 40 or more 
minimum guidelines  imposed on them. The Asian Development Bank (ADB) was increasing the 
scope of its programs, now operating in 20 countries. The ADB has been increasing the risk that it 
assumed under risk -participating agreements , and new funded risk distribution programs. On AML -
KYC, it was coordinating a pool of data on compliance infraction among banks, an early warning 
system , and the promo tion of a global legal identifier.  All in all, current support for trade by MDBs 
was stable, at around USD $30 billion a year, compared to  a USD $1.6 trillion trade finance gap in 
developing countries.  
1.8.  Professional organizations made several points. The In ternational Chamber of Commerce's 
(ICC) Banking Commission wished to step up its advocacy role and to set up meetings with the 
Basel Committee on Banking Supervision. Creating standards for digital finance was also a priority. 
The Berne Union and Internati onal Factoring Association reported a slower increase in insured 
trade credit and factoring flows in 2016, contrasting with the record increases of the past decade.  
1.9.  It was clear that efforts were being made to scale up trade finance facilitation programs, in 
one direction or the other, either by extending countries' coverage, or by supporting new 
categories of banks and traders. Demand for supply chain finance programs was increasing. MDBs, 
such as the ADB, were looking at how to respond to such demand. Inn ovative products were also 
being proposed to operators (factoring arrangements). The ITFC presented ideas for the creation 
of a multilateral development bank (MDB) SME Trade Fund, structured in two sub -funds: (i) a 
trade finance fund for SMEs, and (ii) a t echnical assistance facility to offer a comprehensive 
solution to increase the competitiveness of SMEs involved in trade. Some early reactions were 
offered during the meeting. In general, institutions wished to move towards a higher -level of risk 
coverage (up to 100%).  
1.10.   Regarding capacity -building, there was an overall desire by private and public institutions to 
team up on delivering more technical assistance, hence reducing the "knowledge gap". This 
implied that professional organizations from the private  sector cooperate with multilateral WT/WGTDF/W/84  
 
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development banks, with a view to increasing potential global outreach and minimize costs. This 
was gradually happening. For example, the ICC e -learning institute was cooperating with Factoring 
International and other pr ofessional institutions, while obtaining the support of the Asian 
Development Bank. This was a good start.  
1.11.   Participants committed to improve gap detection and mapping. Considerable progress has 
been made by the Asian and African Development Banks, through  their respective trade finance 
gap studies, which were being updated. Almost all participants in the room, including MDBs, the 
ICC banking commission, the FCI and the Berne Union, contributed to the Asian Development 
Bank survey. There was strong support for the continuation of such surveys in the future.  
1.12.   As in previous years, there had been a fair amount of discussion on non -prudential 
regulatory issues described as "know -your-customers" (KYC) requirements and anti -money 
laundering regulations (AML). For the WTO, the question was to define the possible "trade" content 
of any future dialogue with the OECD's Financial Action Task Force (FATF), and more generally 
with the Financial Stability Board (FSB). Any future dialogue needed be fact -based.  To this exte nt, 
the analytical basis for linking AML -KYC requirements, on the one hand, and de -risking, on the 
other, had been relatively weak. The expert group took note of the recent reports by the World 
Bank, International Monetary Fund (IMF) and Bank of Internatio nal Settlements (BIS), highlighting 
the relationship between the fall of correspondent relationships and its impact on financial 
exclusion. The BIS had issued broad recommendations on how to address some of these problems. 
Supervisors should follow a risk -based approach, provide greater clarity and stability on the extent 
of obligations, and promote a greater use of KYC "utilities", etc . 
1.13.   The expert group also supported the greater use of utilities such as the KYC repository, 
which had been created by SWIFT.  Already, 2500 financial institutions used it. However, the 
SWIFT repository needed to be further promoted, including by regulatory authorities. Other 
information -pooling initiatives had been mentioned. To save certain countries from trade finance 
exclusio n, the EBRD had to establish an information -pooling platform for KYC purposes, for trade 
companies and bankers in Eastern Europe. However, it was noted that the exchange or pooling of 
information was severely constrained by countries' privacy laws. The ADB  strongly argued in 
favour of the generalization of the Global Legal Entity Identifier, as a way to promote KYC -AML 
implementation while reducing its cost. In general, the expert group requested a dialogue with 
FATF to be able to design a "rule -book" for t rade finance, as AML -KYC requirements had become 
too much of an "open -book". Such a rule book could simply be extracted from the very complex 
overall rule book of the FAFT. It was felt that trade finance, which was a very organized and 
documented business,  was only too often mixed with less documented financial transactions (such 
as remittances), and had to suffer excessive controls.  
1.14.   The 2016 BIS report on correspondent banking had called for a greater dialogue between 
financial institutions and the FAFT. T he report promoted the use of utilities mentioned above, and 
that of the Global Legal Entity Identifier. As stated on several occasions, the WTO Secretariat 
indicated that it would be happy to engage, to the extent that the WTO could bring value and data 
to that dialogue. It also considered that the industry had to collect the necessary data and 
formulate its own terms of dialogue with regulators. The establishment by the industry of a clear 
agenda for such dialogue should therefore be a priority. Collectin g the appropriate data should 
follow.  
1.15.   The Deputy Director -General noticed, during this meeting, a positive engagement in 
supporting and implementing the WTO initiative in favour of reducing trade finance gaps in 
developing countries, with a focus on SMEs. The process of building support within the WTO will 
continue. Some members of the expert group may be called upon to contribute in the coming 
months, notably in the context of the round tables mentioned above.  
 
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