WT/WGTDF/W/77
19 May 2015
(15-2616)  Page: 1/3
Working Group on Trade, Debt and Finance  
 
 EXPERT GROUP MEETING ON TRADE FINANCE – 26 MARCH 2015 
INFORMAL REPORT BY THE WTO SECRETARIAT 
1.1.  The objective of the March 2015 meeting was twofold: (i) to take stock of the current market 
situation (ii) to consider progress on issues of policy interest. 
1.2.  In his opening remarks delivered on behalf  of the Director-General, the Deputy Director- 
General Yi indicated that this group was part of a wider process aimed at reaching global solutions 
to ease the flow of finance for development – this included trade finance of course. The United 
Nations was currently looking at financing for development as a key to achieving the Sustainable Development Goals (SDGs) post-2015. The Secretar y-General of the United Nations, Ban-Ki Moon, 
and Director-General Azevêdo would discuss the WTO contribution to this important issue – this 
being an opportunity to factor in trade finance as a standing item for development-related work. 
WTO developing country Members needed to know what  kind of finance they count on if they were 
to integrate into the global economy through trad e. This is why this group is part of a WTO, 
Director-General led process, a point which Direct or-General Azevêdo confirmed in the afternoon's 
WTO Seminar on "Access of Developing Countries to Trade Finance: An Assessment of Remaining Gaps".  
1.3.  At last year's meeting, the Director-General had noted that while trade finance did not 
feature in the WTO's core texts, there was no question about its centrality in WTO work. To be truly effective, it required: (1) the support of WTO Members (2) well-built and documented cases 
demonstrating difficulties for traders, and (3) prac tical solutions that could be supported by the 
international community. Regarding point one, WTO Members had taken ownership of the topic 
more than ever before, notably after the Secret ariat had published an assessment of remaining 
financing gaps and underlying reasons in WTO Document WT/WGTDF/W/74/Rev.1. Members had 
stated that there was "the need for the WTO, including its Director-General, to continue its 
diagnosis, advisory and advocacy role on the availability of trade finance in developing countries, in partnership with the IMF, World Bank Grou p and other multilateral development banks". 
Regarding point two, this group had been instrumental, in recent years, in gathering large 
amounts of information that had never been colle cted before. This has been the key to a better 
understanding of problems, and credibility in enga ging with interlocutors. Berne Union data had 
been most important in establishing a causal relationship between the fall of trade finance and the 
fall of trade during the global financial crisis, but more was currently needed in the context of a 
current joint project. The trade credit registry of the International Chamber of Commerce (ICC) could be usefully extended to other segments of trade finance. The surveys by the African and 
Asian Development Banks, combined with the "global survey" by the ICC provided reasonable 
evidence of the financing gaps in specific areas and the reasons behind them. Methodologies needed to be improved, but work went in the righ t direction. The WTO was happy to contribute to 
it. The group needed to be more convincing an d establish firmer causal relationships between 
correspondent relationships and regulatory reporting. For the time being there was simply too little evidence for a meaningful dialogue at the international level. Regarding point three, the Deputy Director-General mentioned the good initiatives and partnership that had emanated from this 
group. The WTO was pleased to work with multilateral development banks, and other donors, to 
support the creation and expansion of trade finance facilitation programs. WTO management was happy to provide additional support to these programs when necessary, in international fora, and 
at the Board of Directors of the institutions concerned. The WTO will continue to play a 
constructive role in the evaluation of these programs, when asked. WT/WGTDF/W/77 
 
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  1.4.  The WTO was happy to offer this forum for brainstorming as well. This was where the IFC (in 
full) presented for the first time a project to pool "know-your-customers" (KYC) information, several years ago. In the past year multilaterals have teamed up with the industry's professional 
organizations to create an information pool, under the umbrella of Swift.  
1.5.  With respect to the current market situ ation, Members of the expert group generally 
considered that liquidity was still relatively abundant, but that not everyone had access to it. The demand for trade finance has been growing relatively slowly in the past year, in correlation with 
the subdued growth of trade flows in value, which itself was explained by some re-shoring of 
industrial activity, an increasing share of emergi ng markets' production directed toward domestic 
consumption (China for example), lower commodity prices, and conjunctural developments in Asia and Europe.  
1.6.  Liquidity was sufficient in the largest trading hubs, in line with the relatively easy monetary 
policies run in the major economies. Core documentary trade continued to lose pace relative to open account financing (as evidenced by Swift declining statistics on Letters of Credit), although 
liquidity was sufficient to support core documentary business. Other structural market changes 
included continued deleveraging by global banks, which causes were analyzed in relation with the KYC issue (below). While in some areas of the world (Africa), the reduced exposure by global 
banks offered opportunities for local and regional banks to expand market share and for non-banks 
to offer innovative forms of trade finance (albeit in limited amounts), for trading houses to offer pre-payment facilities and for (global) factoring to reach record levels of activity. However, in other cases, such as in Latin America, regional and mid-sized banks had difficulties in keeping up 
with the pace of reduction of correspondent banking relationships with international banks. This 
took place in a context in which the crisis and post-crisis support system in favor of trade finance had been lifted. Pricing for trade had increased by  30 per cent, and the risk profile had gone up.  
Besides, the capacity by local and regional banks to originate trade finance deals was more limited 
than that of global banks. The situation in Latin America and Africa was mirrored in other parts of 
the world. There was a sense that in the medium  run local and regional players were gaining 
ground, and would continue to do so, in relation with the expansion of intra-regional trade, local 
and regional banks following their customers. Howeve r, the risk capacity of the new players, albeit 
improving, was not the same as that of established banks, despite the current abundant liquidity. The competitiveness of the local infrastructure (including financial infrastructure) for trade was not 
always competitive, and could explain upward pricing and hesitations to increase capacity. In a few 
cases, such as for Chinese banks, there was a cl ear trend to "go global" and establish a global 
footprint, with a clear objective to offset some of the lost capacity left by existing international 
players.   
1.7.  Participants made the point that in this ch anging environment, large corporates continued to 
benefit from easy financing at low rates, although prices tended to be on the rise along with the 
increasing cost of compliance; at the same time SMEs were still "suffering", both in developed and 
developing markets from the impact of reduce d correspondent banking networks, the greater 
selectivity of banks and the focus of the largest institutions on the best rated "customers". One alternative for the smaller traders was to disinter mediate transactions, and seek credit insurance 
for those who could access and afford it. However, such strategy had its own challenges. Globally 
the trade credit insurance market was levelling off, with an increase in political risk and of claims, reduced political support for trade and rise in regulatory costs. 
1.8.  The activity of MDBs was a good proxy for th e existing market gap; from this point of view, 
the demand on MDBs risk mitigation products  for trade had remained high for multilateral 
agencies. These agencies operated where commercial banking did not want to be. There was still 
little appetite by private markets to venture in most of Sub-Saharan Africa, leaving the IFC, the 
ITFC (Islamic Development Group), and the Africa n  D e v e l o p m e n t  B a n k  t o  f i l l  o n l y  p a r t  o f  a  
financing gap. A survey by the African Developm ent Bank of 300 banks operating in 45 African 
countries was presented. It found that the market for trade finance was somewhere between 330 
and 350 billion US dollars but estimates for the value of unmet demand for trade finance in Africa 
was between 110 and 120 billion US dollars. The Asian Development Bank conducted a similar survey in Asia, where the unmet demand was around 800 billion US dollars. Small and medium-
sized enterprises were the most credit constrained as 50 per cent of their requests for trade 
finance are estimated to be rejected. This is compared to just 7 per cent for multinational 
corporations. Both studies highlighted a number of structural difficulties faced by local financial 
systems (lack of know-how and risk-taking capaci ty) and the reduction in correspondent banking WT/WGTDF/W/77 
 
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  relationships since the financial crisis. The Islamic Development Bank highlighted the high prices, 
fees, and collateral requirements faced by trader s engaged in the poorest countries, with certain 
regions getting more risky as well. The EBRD described its commitment to countries in Eastern Europe, which faced falling commodity prices, and to countries with low ratings such as Greece 
and Middle East and Africa (MENA) countries. The IFC continued to receive high demand for its 
products, with half of its portfolio located in Africa. Since the great financial crisis, the IFC had supported US dollars 50 billion in trade in poor countries. 
1.9.  Regarding policy issues, there had still been  a fair amount of discussion regarding regulation 
and its impact on the supply of trade finance. Several participants highlighted that, although capital costs for lending had increased under Basel III, the regulatory treatment of trade finance, in terms relative to other assets, had been improved as a result of the discussions with the Basel 
Committee on Banking Supervision. Positive news was also brought in relation to the treatment of 
factoring under the LCR. Other participants, nota bly from developing countries regions, thought 
that there were clear benefits from a financial system that had become safer – this yielded 
benefits in terms of risk and liquidity management that offset part of the increase in capital cost 
from Basel III. Some participants made the point that the ICC register was not used as much as it should, and needed to be promoted as well as expanded. Other participants made the point that 
the problem no longer was with Basel III minimum guidelines, but rather with the lack of a level  
playing field stemming from uneven implementation across jurisdictions. 
1.10.  Most of the discussion on regulation – as was the case in the past two-three years – focused 
on other, non-prudential regulatory issues described as "know-your-customers" (KYC) 
requirements. Progress had been achieved in so me areas, although the analytical basis for 
progress in others remained weak. For example, headways have been made in terms of pooling KYC basic documentation, in a repository to be managed by Swift – an idea that had been 
supported for some time by MDBs. The reposito ry will help reduce compliance costs. The 
discussion thus focused on the extent of required transactional due diligence on clients, and on clients of clients. Several institutions referred to their desire to focus on safe trade, and on the 
growing awareness of financial crime and anti-money laundering (AML) regulation, but the 
perception of reputation risk would remain high so long as the regulators' requirements would not 
be stabilized and better harmonized internationally. Some participants proposed to establish best practices on AML/KYC, others to dialogue with the appropriate governance structured (OECD 
Financial Action Task Force). The ICC proposed to launch a study and collect data, with a view to 
come up with more fact-based evidence, in term s of trade foregone, lost correspondent banking 
relations directly linked to KYC regulation, and other possible criteria, in order to assess the impact 
of lack of regulatory harmonization in this area.   
1.11.  At this meeting and at the subsequent WT O seminar on trade finance, both the Director-
General and Deputy Director-General of the WTO de livered a strong message that the lack of trade 
finance could act as major trade barriers, impeding the ability of the affected countries to integrate 
the global trading system. The expert group help ed understand the realities on the ground, and 
induce cooperative solutions – so this dialogue was needed. Given the complexity of issues, some of which related to structural changes within the financial sector, the multi-stakeholders approach 
of the expert group was necessary. The WTO mana gement committed to follow developments in 
this area closely, and advocate action wherever this was possible and well grounded, and continue to support the actions of other multilateral development banks. It also committed to put trade 
finance on list of objectives to be achieved by United Nations MDG's 2015, with a view to set the 
topic – treated in an ad hoc manner by institutions during and post-crisis –within the overall international development agenda. WTO staff wo uld continue to provide strong support to 
collective trade finance work, with WTO Members' support, as recorded during the afternoon 
seminar.   
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