RESTRICTED  WORLD TRADE  
ORGANIZATION  WT/WGTDF/M/17 
7 January 2009 
 
 (09-0023) 
Working Group on Trade, Debt and Finance  
  
 
REPORT OF THE MEETING OF 26 NOVEMBER 2008 
 
 1. The seventeenth meeting of the Working Group on Trade, Debt and Finance (WGTDF) was 
held on 26 November 2008 under the Chairmanship of Mr. Martin Glass (Hong Kong, China).  The 
Working Group adopted
 the agenda contained in WTO/AIR/3275. 
2. In his introductory remarks, the Chairman  recalled that Members had agreed to meet in the 
autumn to consider written submissions that were expected at that time from some Members. The 
meeting was also timely as it came in a period when issues of contagion between the financial crisis and its consequences for the "real economy" were starting to have consequences for international 
trade. At the July meeting of the Working Group, Members' statements had focused in particular on 
the topic of the availability of trade finance for de veloping countries, following the Secretary's report 
on an Expert Group Meeting which had been convened by the WTO the previous April. Subsequently, 
Brazil had made a written submission which had b een circulated in document WT/WGTDF/W/39.  
The submission highlighted issues relating to the av ailability of trade finance for developing countries 
in periods of financial strain and the impact of Basel  II rules on such availability. Also, in light of the 
rapid deterioration of financial c onditions globally, including for trade finance, the Director-General 
had chaired a meeting of the Expert Group of prac titioners on 12  November to take stock of the 
actual situation in world markets and brainstorm po ssible options for filling market gaps. He had then 
briefed members – also on 12 November – as to the outcome of the Expert Group meeting at an informal Heads of Delegation (HoDs) meeting. Th e Secretariat had produced a short report of the 
Expert Group meeting which had been circulated in document WT/WGTDF/W/40.  
3. Against that background, the Chairman suggest ed that the present meeting be organized in 
three stages. First, the presentation by WTO Secr etariat of its report (WT/WGTDF/W/40) and follow-
up steps. Second, the presentation by Brazil of  its submission, followed by comments from 
delegations. Third, since Basel II rules had been rai sed as an issue affecting the availability of trade 
finance, a presentation on those rules by Mr. Karl Co rdewener, Deputy Secretary-General of the Basel 
Committee on Banking Supervision, followed by a dialogue with WTO members on this topic. 
Agenda Item 2.A
: Report by the Secretariat on the Expert Trade Finance Meeting of 
12 November 2008 
4. In introducing this agenda item, the Chairman  indicated that on-going work to boost the 
availability of trade finance for developing countries was one of the eight initial themes identified for 
the Working Group's (WG) examination, and on which work had been undertaken since 2003 by 
experts and members alike. Not only had much progr ess been made in the past few years by financial 
institutions, but the Working Group had also cont ributed to raising awareness, including through 
regular reports to the General Council. Therefore, th e WG should continue to be associated with this 
work and be duly briefed on the recent expert group meetings.  
5. The representative of the Secretariat  drew his oral presentation from information provided in 
document WT/WGTDF/W/40. The Expert Group mee ting had in particular concluded that one 
possible means of addressing current problems of scarcity of trade finance was for international and WT/WGTDF/M/17 
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  regional leaders to shoulder some of the risk thr ough co-financing between public and private sector 
institutions, thereby enticing more private lenders b ack into that market. Th at message was passed to 
many of the G-20 leaders at a meeting in Washington on 15 November. Against this background, it was encouraging to see that more had been done to help tackle the risk and liquidity problem. The World Bank's International Finance Corporation ha d doubled its trade finance facility to $3 billion 
and most regional development ba nks were now doing the same thr ough similar programs set up since 
the G-20 had met. The OECD and export credit ag encies were also stepping in more actively. 
Although tensions were still visible on trade finance markets, the message seemed to be translating 
gradually into action. Medium-term cooperation betw een the various kinds of  financial institutions 
should involve more sharing of information, a nd should improve ways of dealing with risks 
cooperatively. 
6. The Chairman
 opened the floor for comments and statements by Members. 
7. The representative of India  said that the G-20 Finance Ministers and Central Bank Governors 
at a meeting held in Sao Paulo on 8-9 November had noted that the cu rrent financial crisis had largely 
been a result of excessive risk taking and faulty risk management practices in financial markets, 
inconsistent macro economic polici es which had given rise to domestic  and external imbalances as 
well as to deficiencies in financial regulation and su pervision in some advanced countries. Since the 
previous meeting of the Working Group, most i ndustrialized countries had fallen into recession and 
the OECD had warned that the zone could face its worst economic downturn for 25 years. Emerging economies such as China, Brazil, Ru ssia and India were also likely to  experience slower growth.  As 
the financial crisis was spreading around the world, many developing countries faced the prospect of 
having decades of hard work in alleviating povert y and improving living standards undone.  Clearly, 
the impact of the financial crisis would be felt most of all by those least equipped to face it.  
8. India's economy continued to be robust but was beginning to feel the impact of the 
crisis. Capital inflows from external commercial bo rrowings had come down considerably.  There had 
been net outflows of portfolio investments by forei gn institutional investors.  Exports which were 
growing at over 20% in the first half of the current financial year  had sharply decelerated because of 
reduced demands in major markets.  The combin ation of net outflows, reduced availability of 
international capital combined with exchange rate volatility had slowed the growth momentum of the 
economy. As noted by the Secretariat, the cost of  trade finance had increased for developing countries 
and its availability had come down due to the general ri sk aversion in international financial markets.  
The banks were reluctant to deal with lesser known foreign banks or to accept their Letters of Credit 
and, if they did, sought higher charges for rec onfirmation. The Government of India was working 
with the concerned financial institutions in India an d abroad to ensure that  trade finance was made 
available at reasonable prices. After identifying liq uidity as a main problem constraining its financial 
system, Indian authorities infused considerable additional liquidity into the market, and the 
representative described detailed measures to this end.  However, a lasting solution to the trade finance 
problem had also to come from collective global action.  
9. he noted that paragraph 5 of the background note by the Secretariat acknowledged that only 
partial data was available on the overall volumes and cost of trade finance and therefore urged that 
this aspect be kept on the agenda of the meetings  of the Working Group so as to monitor progress on a 
continuous basis. The Director-General of the WT O in his statement on 12 November had stated that 
the trade finance situation was likely to deterior ate further in the months to come. Given the 
importance of the role that trade, debt and fina nce played in the overall global trade, economic and 
social development of the WTO, he therefore requested  that this item be also retained on the agenda 
of the Working Group and monitored on a continuous basis in its future work. 
10. The representative of Japan
 expressed his delegation's appreciation to the Chairman and the 
Secretariat for convening the meeting with the participation of a representative from the Basel  WT/WGTDF/M/17 
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  Committee on Banking Supervision at a time when the international community was looking with 
renewed interest on financial market rules and governance. His delegation also appreciated the 
opportunity to exchange views on trade finance and the spill-over effects of the financial crisis on 
world trade during the informal HODs meeting of  12 November. Given the deterioration of global 
economic conditions, support of governments to the real economy – whether through fiscal stimulus 
or by facilitating the availability of trade finance – was important in all countries and regions. Japan 
supported the proactive role of the WTO Director-Gen eral in trying to bring the attention of world 
leaders to the lack of availability of trade financ ing as being a potential transmission effect from the 
financial crisis to the real economy. By bringing actors together, assessing the situation and trying to 
find solutions at the WTO level, th e Director-General's in itiative had lead to the shared recognition of 
the issue by the international community, including  leaders of the G-20 and of APEC. Of greatest 
importance was the need to respond collectively a nd individually to the global credit crunch, in 
particular when it affected trade finance markets.  At the APEC summit, Japan had taken up the issue 
and had proposed the establishment of an Asia-Pacific  trade insurance network to facilitate intra- and 
extra- regional flows of trade and investment, through cooperation on insurance and re-insurance 
among export credit agencies in the region. The delega tion of Japan encouraged the WTO to continue 
its work on trade finance, under its general "Coherence Mandate" resulting from the Marrakech 
Agreement.    
11. The representative of Pakistan  expressed his satisfaction that the WTO had spurred 
international financial agencies, banks and other act ors to come together to seek a solution on trade 
finance, since the credit crunch resulting from the pres ent financial crisis was bound to constrict trade. 
The 1980 and 1990 financial crises had originated in  developing countries, but the present one had 
started in the developed world and was spreadi ng rapidly to developing countries. International 
financial institutions and government s were rethinking the global financial architecture, and this 
should be done in a way so as to avoid a disconnect between the developed world and developing countries on implementation of policies and reforms. As  had already been outlined, most international 
trade was done on a cash or short-term credit basi s. Unfortunately, developing countries were facing 
an unprecedented time of credit freeze and increasing  risk premiums. Hence, there was a need for 
trade finance to keep the momentum  and stimulate trade, which in the long run would help developing 
countries to trade and grow. While previous debt cr ises in developing countries were subject to relief 
plans, such plans had generally come too late. This  time again, the expected slowdown was likely to 
keep a considerable debt overh ang on developing countries which w ould restrict and inhibit their 
ability to engage in trade, with the ultimate repercussion of looking inwards and being more 
protective. Therefore, beyond boosting credit risk insu rance and other risk mitigating instruments for 
trade finance, there was a need to  think in broad terms and maintain – if not, increase – the flows of 
official development assistance (ODA) at this par ticular period of time. There was also a need to 
revisit the global financial architecture because of its regulatory deficits, both nationally and 
internationally, in a way that would associate bette r with the developing countries in reforms, in 
particular those worked out at the BIS. Beyond trade finance, such broader issues should not be 
forgotten by the Working Group, be it debt overh ang, increasing poverty risk or the weakening of 
domestic financial institutions. 
12. The representative of Hong-Kong, China
 stressed that the reduction of trade finance due to 
the global liquidity crunch could have a potentially disastrous effect on international trade flows and 
growth. Early recognition of this crisis should he lp ensure that the necessary steps were taken to 
mitigate this impact. The holding of such a timely  meeting was testimony of the common efforts to 
take up this challenge. Concerte d efforts were needed and H ong Kong, China was committed to 
contributing to the work of the WGTDF.  His dele gation wished to share with members some of the 
measures that had recently been put in place to assi st Hong Kong, China's small- and medium-sized 
enterprises (SMEs) in securing loans from the financ ial markets. To this effect, Hong-Kong, China 
had prepared a submission describing measures  of support taken by economic and financial WT/WGTDF/M/17 
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  authorities.
1  He described some of these measures, in  particular the enhanced services provided by 
the Hong Kong Export Credit Insurance Corporati on, an Enhanced SME Loan Guarantee Scheme, 
and measures of encouragement for banking instituti ons to extend loans to SMEs. These efforts had 
been well received by the private sector. The In ternational Chamber of Commerce had recommended 
Hong Kong, China as a role model in providing export insurance and his delegation hoped that 
sharing its own experience could help provide usef ul references to other members and stimulate 
further discussion on how to address the challenges faced  in such areas. Finally, he urged all Members 
to do their utmost to conclude successfully the Doha Development Agenda which would serve as a 
decisive contribution to counter the current global slowdown. 
13. The representative of Korea  said that an unprecedented global financial crisis was taking 
place. By jeopardizing access to trade finance, par ticularly for developing-country exporters, the 
current crisis represented an important challe nge to both exporters a nd importers. The WTO's 
initiative to gather financial experts and seek an optimal solution was timely and important. Trade 
finance was the lubricating oil for worldwide trade supply chains and the collapse of trade financing 
could result in increased costs for exports and re duced trade worldwide. This, in turn, could 
undermine the multilateral trading system by worsening the current depression in the world economy. 
It was therefore essential that trade finance continue d to flow to prevent the contagion of the current 
financial crisis to the real economy. In this regard, as mandated in paragraph 36 of the Doha 
Ministerial Declaration, his delegation believed th at it was important for the WTO Secretariat to 
continue to take stock of current market conditions , and to take the appropriate measures to address 
the difficulties faced by developing countries in accessing trade finance. 
14. The representative of Cuba  said that the culture of deregula tion and liberalization of financial 
services and trade was one of the causes of the curre nt international financial crisis. While it was 
widely thought that concluding the Agricu ltural and NAMA modalities would be important 
contributions to emerge from the current crisis , the WTO should also do more in the Working Group 
on Trade, Debt and Finance whose mandate was relevant to current world developments. The 
Working Group had so far made few recommendati ons and had taken few measures. His delegation 
wished to make recommendations in favour of highly indebted countries, as mandated under 
paragraph 36 of the Doha Ministerial Declarati on. At the HODs meeting of 12 November, several 
delegations had mentioned the ACP proposal  (WT/WGTDF/W/30) of April 2005 which had 
suggested the establishment of a permanent WTO Co mmittee on Trade, Debt and Finance, an idea 
that was still supported by Cuba. Cuba would be  submitting a communication along these lines. There 
were sufficient elements to consider that the Working Group on Trade, Debt and Finance ought to 
make a more substantial contribution than it had done  to date, in particular in favour of developing 
countries which faced external debt problems, falling o fficial financing, restrictions in private credit 
(including trade finance) and capital outflows, a nd hence in some cases external payment problems. 
Other countries had been affected by the fall in commodity prices.  
15. Cuba's submission would further be supporti ng the creation of a standing committee for 
Trade, Debt and Finance, mandated to seek bi nding solutions on some of these problems. The 
submission would also propose that the Working Group be given a year to look at the possible elements for a mandate to that Committee – by li nking issues of government debt and trade finance, 
looking at the impact of exchange rate on trade, examining the impact of debt overhang on the competitiveness of developing countries, consideri ng the behaviour of credit markets on net food- 
importing countries, and other issues. The financial cr isis should not detract from the food crisis faced 
by many developing countries, resulting in drastic reductions of food imports and malnutrition in the 
poorer countries. Another important topic was cohere nce between policies at international level and 
links with sustainable development. Improving ma rket access was therefore not enough. It needed to 
be inserted into coherent policies linking trade, debt and finance. 
                                                     
 
1 The submission was distributed at the meeting and subsequently circulated in WT/WGTDF/W/41.  WT/WGTDF/M/17 
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  16. The representative of Turkey  thanked the Secretariat for its report on the Expert Group 
Meeting on trade finance and said that he hoped th at the Expert Group process would continue. He 
welcomed the representative of the Basel Committee and hoped that the WTO and the Basel 
Committee would cooperate more clos ely in the future in the area of  trade finance. The Berne Union 
should also be more engaged on this issue. The next  meeting of the Berne Union, to be held in the 
Spring of 2009 in Istanbul at the invitation of the Turkish Exim bank, would give an opportunity for 
the Turkish authorities to raise their concerns a bout trade finance. The representative thanked Brazil 
and Hong Kong, China for their respective submissi ons and supported the proposed items for a work 
agenda proposed by Brazil.  He would bring to th e attention of the Exim Bank and Central Bank of 
Turkey the experience described by H ong Kong, China in its communication. 
17. The representative of El Salvador , on behalf of the small and vulnerable economies (SVEs)  
and LDCs , welcomed the Secretariat report and the effo rts made by the WTO in the context of the 
financial crisis to raise awareness of the intern ational community about the importance of financing 
trade. He hoped that solutions could be adopted  rapidly and considered the Working Group as 
essential in identifying and tackling the problems of l ack of trade finance. As an SVE, El Salvador 
reiterated the importance of technical assistance a nd aid-for-trade in enabling their businessmen to 
access credit to carry out trade transactions, and hen ce benefit truly from trade liberalization. While 
recognizing the problems encountered by developed countries at the present moment, these countries should nevertheless keep their commitment toward s developing countries. The WGTDF work should 
therefore be intensified with a view to contributi ng to finding solutions that enabled the financing of 
trade to be guaranteed for developing countries. 
18. The representative of th e European Communities
 recalled that his Ambassador had expressed 
support for a pro-active approach by the Director-Gener al on the issue of trade finance.  He said that 
lack of trade finance could potentially be one of the main vectors of transmission of the financial 
crisis onto the real economy. The WTO should do what  it could to avoid trade finance from drying up. 
In this regard, he underlined the engagement of WT O Members in particular to give  support to the 
recent statement by the OECD, the G-20 Declaration, and to other actions by individual governments. 
The private sector and ECAs should also play their role by way of increasing partnerships, information and risk sharing, as outlined by the Secretariat. WTO Members could also address the 
wider financial crisis by agreeing to modalities befo re the end of 2008. Not only did the WTO had an 
important role to play to prevent protectionist reacti ons to the financial crisis, but it should also further 
advance the DDA agenda to give a strong signal to the private sector that opportunities for further 
trade would be created. 
19. The Chairman
 closed the session on this matter by tha nking the Secretariat for its report.  
Having noted the desire by the Director-General to  invite the Expert Group to meet again in the 
Spring of 2009, he said he as hopeful that the Working Group would benef it from being briefed on 
further development in future.     
Agenda Item 2. B : Communication by Brazil – WTO Document WT/WGTDF/W/39   
20. The Chairman  invited the delegation of Brazil to  present its communication and said he 
would give the floor afterwards to those delega tions wishing to follow up with statements or 
comments. 
21. The representative of Brazil  said that the meeting of the Working Group was particularly 
timely as the financial crisis was still unfolding and showed its negative impact on international trade 
and growth, especially to the detriment of devel oping countries. He thanked the representative of the 
Basel Committee on Banking Supervision and the WT O Secretariat for their contributions to the 
meeting. The current situation showed that th e mandate provided by paragraph 36 of the Doha 
Ministerial Declaration had never been so rele vant. Concerned by the spill-over effects from the WT/WGTDF/M/17 
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  financial crisis since August 2007, Brazil had de cided to contribute to the discussion within the 
Working Group by presenting its communication (WT/WGTDF/W/39) with a view to drawing attention to three points:  (i) the impact of the curr ent credit crunch in trade finance;  (ii) the possible 
pro-cyclical effects of the Basel II agreement on the international financial system;  and (iii) the issue 
of a possible new cycle of external indebtedness for developing countries. He then presented Brazil's 
arguments under these three points based on the information provided in WT/WGTDF/W/39. In 
conclusion, he said that Brazil reiterated its a ppreciation for the initiative taken by the Director-
General to discuss in the WTO the impact of the financ ial crisis on international trade, in particular in 
the field of trade finance. In this respect, the Expert Group meeting that the Director-General had 
chaired confirmed that the market for trade financ e had considerably deteriorated in the past six 
months and that the situation was expected to worsen in the coming weeks. Hence, the inputs 
provided by the experts should also be taken up by the Working Group. The seriousness of the 
problem required contributions of all kinds and WTO Members should share their national experiences. While the Working Group could have a role in identifying trade-related measures that 
could mitigate the negative effects of the financial crisis, Brazil firmly warn ed against protectionism 
and the use of trade-distorting subsidies. At the meeting of the G-20 hosted by Brazil and the recent 
meeting of leaders held in Washington on 15 November , the need to resist protectionist pressures and 
to conclude the Doha Round were stressed as being a response to the crisis in  the area of trade. The 
Working Group could also contribute to disseminating this message as well.          
22. The representative of Singapore
 stressed the importance of the problems regarding the 
availability of trade finance and the usefulness of the 12 November Expert Group meeting. She 
wished to make a few remarks on the Basel II fra mework. While it had been introduced to correct 
previous Basel I rules, in this period of stress of  financial markets there was concern that the new 
framework had had an unintended proc-cyclical im pact on the international financial system. The 
transportation sector, including shipping compan ies, was depending on global macroeconomic and 
trade conditions. Basel II would potentially make  bank lending to borrowers dependant on these 
conditions more capital-expensive in  an economic downturn. However, given the fact that Basel II 
had only recently come into force, it might still be t oo early to determine its pro-cyclical effects. It 
was therefore important that the Working Group conti nue to monitor the situation closely. The Basel 
Committee had established a Capital Monitoring Gr oup to study this issue, and Singapore was a 
participant to that Group. In light of this, Singapore supported Brazil's proposal that the WGTDF 
included in its work programme the further examinat ion of issues such as the impact of Basel II on 
trade finance and the wider issue of the availab ility of trade finance in developing countries. 
23. The representative of India  thanked Brazil for its very timely and comprehensive 
communication. India agreed and concurred with several  of the sub-proposals contained in that paper, 
particularly those relating to urging the Working Gr oup on Trade, Debt and Finance to further discuss 
the multi-faceted aspects of trade finance. The repr esentative said he would make his observations on 
the Basel  II framework after the presentati on by the representative of the Basel Committee on 
Banking Supervision. 
24. The representative of Korea  thanked the Basel Committee for accepting the invitation of the 
Working Group. It was an appropriate step for th e WGTDF to examine Basel II issues at this critical 
juncture. There was a need to mon itor relevant market conditions a nd look for alternatives to mitigate 
the problems in trade finance. As for Basel II, Ko rea had the same concerns as Brazil of having to 
fully implement the new rules in such a period of fi nancial instability, and had similar fears that the 
new rules could have a pro-cyclical impact on the in ternational financial system at a time of recession, 
thereby discouraging bank lending. In this respect , it was necessary to devise some supplementary 
measures to minimize the side effects of the B asel accord. The presence of the representative of the 
Basel Committee was therefore particularly welcome.  WT/WGTDF/M/17 
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  25. The Chairman  then briefly summed up some of the observations and reflections heard during 
the first two items of the meeting's agenda. He said th ere had been elements of substance, in particular 
an interest for further work on core issues relate d to the mandate of the Working Group, such as on 
trade finance, and other implications of the fina ncial turbulence for the world trading system. Some 
delegations had expressed the view that the work  of the WGTDF should be re-focused in that 
direction – which already answered the question raised by him and some of his immediate 
predecessors about the direction that the Group's wo rk should take. It was also well understood that 
some of the issues raised in the context of trade finance could be solved by the WTO, or were not 
even under its remit.  It had also been mentione d that the Working Group had already examined some 
of these issues but, indeed, the recurrence of financ ial turbulence since the Asian crisis did raise 
questions in the WTO since that was part of its e nvironment. Perhaps issues of contagion, availability 
of trade finance, etc., should be revisited with r espect to their potential impact on the real economy 
and the global trading system. These issues had certainly  been central features of the meetings held in 
2008. 
Agenda Item 2. C : Trade Finance in Developing Coun tries: Participation of the Deputy 
Secretary-General of the Basel Committee on Banking Supervision to the 
Working Group Meeting, followed by questions and answers with Members   
26. The Chairman
 recalled that in response to a request from a Member, he had suggested in his 
conclusion at the WGTDF meeting in July that  a representative of the Basel Committee on Banking 
Supervision be invited to come and discuss with WTO Members the issues of Basel II implementation 
and trade financing for developing countries. He thanked Mr. Cordewener, Deputy Secretary-General, 
for his positive response to the invitation. He then recalled that the Secretariat of the Basel Committee 
on Banking Supervision had previously  participated in a meeting of the Expert Group on trade finance 
that had been held in 2004.  He said that Mr. Co rdewener had prepared a presentation on the Basel II 
framework and was willing to respond to Members' questions and observations. 
27. The representative of the Basel Committee on Banking Supervision  made a comprehensive 
presentation of the Basel II framework to the Wo rking Group on Trade, Debt and Finance which was 
divided into four parts:  (i) the Basel Committee;  (ii) Introduction to Basel II; (iii) the Treatment of 
Trade Finance;  and (iv) Cyclicality.2  
28. The Chairman  thanked the representative of the Basel Committee on Banking Supervision 
and opened the floor for questions and observations.  He suggesting th at all comments be made before 
Mr. Cordewener provided answers. 
29. The representative of Chinese Taipei  asked about credit ratings and observed that under the 
standardized approach to assess credit risk there w as currently no alternative to ratings from private 
credit rating agencies. He asked whether any core principle would be considered by the Basel 
Committee to supervise the credit rating agencies in th e future and whether, in general, there was any 
possible way to improve the performance of these agencies. 
30. The representative of India  thanked the representative of the Basel Committee on Banking 
Supervision for his comprehensive presentation which had contributed to his delegation's 
understanding of the potential links between Basel II and trade finance. He asked several questions, 
including in particular – and as Brazil had done – ab out the impact of implementing Basel II rules in a 
period of financial instability, affecting notably tr ade finance;  whether unde r the new framework the 
current re-assessment of risks would not dis-prop ortionally affect trade finance;  and about the 
possibility for confusion between the systemic risk  and customer's risk under the new rules. Also, 
                                                      
2 The presentation was distributed at the meeting and subsequently circulated in WT/WGTDF/W/42. WT/WGTDF/M/17 
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  given the relationship between the pr obability of default and the level of charges/prices charged to the 
borrower under the new framework, he asked how could the new rules not exacerbate the negative 
effects of recessions on banks' lending? Regarding credit rating agencies, he concurred with the 
representative of Chinese Tapei about the lack of s upervision of such agencies and asked who rated 
them. He also asked what under Basel II rules were  the disincentives for unsound risk management. 
Finally, he asked about the importance of the P illar I relative to other Pillars under the Basel II 
framework. 
31. The representative of Brazil
 said that his delegation unders tood from the presentation that 
under the Basel II risk-weighted approach, banks ha d to hold greater amounts of capital to make up 
for heightened perception of risk.  Brazil therefor e wondered whether this approach did not reduce the 
banks' liquidity and ability to lend in such circumstances. 
32. The representative of the European Communities  thanked the representative of the Basel 
Committee for the Committee's contribution to the Wo rking Group. He said that Basel II rules were 
fundamental to ensure that the financial syst em remained safe and sound and to avoid to the 
maximum extent adverse effects of financial crises  on the world trading system. As raised during the 
presentation by the representative of the Basel Committ ee, the question of pro-cyclicality of Basel II 
had to be seen in the light of the alternatives of not  having stringent rules at all. Having said this, the 
issue of pro-cyclicality had been discussed for year s in the Basel Committee, and apparently there had 
been a pre-disposition by the experts participating in  those discussions to review the problem again. 
Hence, the issue needed to continue to be ta ckled in the Basle Committee by the competent people 
and his delegation hoped that WTO Member s would be debriefed of any outcome. 
33. The representative of the Basel Committee on Banking Supervision  indicated that Members' 
questions had related to three areas: (i) the superv ision of rating agencies;  (ii) whether Basel II was 
treating trade finance in the same way as Basel I;  and (iii) pro-cyclicality. On rating agencies, he said 
that the Basel Committee did not intend to supervise them per se . What was under consideration 
under the G-20 work stream was to review the treatment of ratings under Basel II which would only 
be relevant for the standardized approach a nd under the securitization framework. While the Basel 
Committee had been aware for some time of the prob lems posed by using exte rnal assessments of the 
riskiness of banks, there was for the time being no real  alternative to it (no public institution seriously 
intended to do the job comprehensively) – alth ough he was aware of some views about imposing 
stricter regulation on rating agencies. However, th e Basel II framework tried to incorporate a number 
of safeguards, for example a set of eligibility cr iteria for rating agencies to be recognized, and it 
imposed several disclosure requirements on the methodologies used by them. Regarding trade 
finance, he said that the basic requirements of Basel I and Basel II were unchanged, e.g., the 20 per 
cent credit conversion factor. He did not know whet her trade finance was any riskier than other 
finance – since there was hardly any evidence – but he reiterated that Basel II, being based on risk-
sensitivity, to the extent that a loan was more risky than another one, the bank had to hold more 
capital. Some measures had been taken to dampen this  effect, in particular the preferential treatment 
given to small- and medium-sized enterprises – whic h resulted probably in such treatment being more 
favourable than under Basel I. On pro-cyclicality, cyclical elements were unavoidable under a risk-
sensitive, capital-based system. Inversely, no one was advocating a return to the Basel I approach. So, 
the issue was to avoid pro -cyclicality. He believed that much  had been done to avoid this 
shortcoming. He mentioned that "probability of de fault" assessment had to be done on the basis of 
long-term data.  Banks were requi red to engage into stress-testi ng and had been encouraged to 
maintain buffers for capital adequacy purposes.           
34. The Chairman  thanked the representative of the Basel Committee for his presentation and 
clarifications on the links between the Basel II frame work and the whole issue of trade finance. He 
noted that work was continuing on  the Basel II framework in the B asle Committee. He said he would 
not summarize what had been a useful exchange of  views during which important clarifications were  WT/WGTDF/M/17 
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  given. Before closing the meeting, he raised a point of order. The Working Group, as it did every 
year, had to produce a report for the final session of the General Council in December. As this second WGTDF meeting had taken place rather late in th e year, and given the heavy workload that was 
expected on other WTO issues, he suggested that the Secretariat prepare a report and issue it for 
approval by Members on a lapse-of-time basis. The report should be short and focussed on trade 
finance, as was obvious from the Working Group's meetings.  He asked Members whether there was a 
consensus on this approach. 
35. It was so agreed
.  
36. The meeting was adjourned . 
__________