. /.   WORLD TRADE  
ORGANIZATION  WT/WGTDF/W/46 
17 September 2009 
 (09-4385) 
Working Group on Trade, Debt and Finance  
 
 
EXPERT GROUP MEETING ON T RADE FINANCE – 15 SEPTEMBER 2009 
 
 
Informal Report by the WTO Secretariat  
  1. The objective of the 15 September 2009 meeting was threefold: (i) to take stock of current 
market conditions, with a particular focus on regi ons, liquidity, risks and prices patterns; (ii) to 
discuss the implementation of the G20 package, pa ying attention to its effectiveness and user-
friendliness in terms of products and type of customer s; and (iii) to consider any progress made by the 
various actors in the market by way of improving sh ort-term to medium-term market structures, and 
looking ahead at future steps.  
2. On the current market situation, most particip ants agreed that the situation was starting to 
stabilize in both primary and secondary markets following the big drop in trade volumes that occurred during the last quarter of the 2008 and the first quarter of 2009. Prices, which had been increasing sharply in the first half of the year, gradually d eclined during the summer as the tightness of liquidity 
began to recede in the second quarter of 2009. Also, a decrease in the probability of default of bank 
customers has contributed to making trade finance attractive again relative to other kinds of lending, 
and hence contributed to market easing. In this r espect, China has played an important role in the 
increase of competition and the reduction of spreads,  a phenomenon that manifested itself across Asia 
through increased intra-regional trade channels. China had recently made significant purchases of 
commodities, which had stimulated the market. In ge neral, the de-stocking pr ocess had ended in Asia 
and in developed countries, which was favourable to the recovery of trade and trade finance.  
3. With respect to liquidity, the common view was that the situation had improved for the larger 
banks on tenures up to one year, albeit selectively ac ross regions and categories of banks. Hence, the 
situation had not fully recovered. While the largest  banks both in developed and developing countries 
could rely on some excess liquidity, capital requi rements for short-term trade-related lending under 
Basel II remained a serious constraint for engaging in new business. Also, liquidity had not returned 
in some regions and countries, namely Africa, central American countries, key Eastern European 
countries, some low-income countries in South-East Asia and in Central Asia. Participants expressed 
concern regarding the situation in Kazakhstan and Uk raine, where perceived risk is was very high and 
bank default could have systemic repercussions in trade finance markets.  In emerging economies 
where the situation had much improved, such as Braz il, China and India, tier 2 and tier 3 banks were 
still net borrowers. European and US markets had not recovered fully yet either. Finally, while 
government-backed export credit agencies had stepped in to the trade insurance market to make up for 
the gap left by the lower supply from private insura nce companies, the amount of claims was rising 
sharply. Non-OECD Export Credit Agencies had beco me more involved, and fees plus spreads were 
anywhere between 200 to 400 basis points above LI BOR. Most public-backed institutions, though, 
increased market capacity in relation to higher claims. 
4. With respect  to the implementation of the G 20 package, there was broad recognition that the 
package had increased market capacity. Programs alread y existing before the crisis were now in full 
operation while new programs were starting to delive r. In general, through, the overall additional 
capacity of programs promoted by multilateral agencies had not been fully utilized. Some of the WT/WGTDF/W/46 
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  commercial banks explained that the lack of u tilization derived from the procedures in place, the 
distribution of risk sharing, a lack of flexibility and at times red tape. Another issue preventing banks 
from fully reaping the benefits of the G20 package w as related with the rigidity of the Basel II rules. 
Little progress had been made in convincing the regulators either to waive the strict tenure 
requirement imposed on trade finance or to find another accommodation to recognize the self-
liquidating character of short-term trade finance.   
5. With respect to progress made in other areas, the following points were discussed during the 
meeting. First, the market intelligence data gather ing activity developed by the ICC was in progress, 
and should hopefully, with the collaboration of th e various actors involved – including the main banks 
and the ADB – rapidly result in the collection of a firs t set of data. This should be a deliverable by the 
time of the next meeting of the Expert Group.  Second, with respect to Central Europe and in 
particular Kazakhstan, there was a shared view th at cooperation across banks and financial institutions 
should result in a common position in respect of th e current situation. The Director-General also 
stressed the fact that different channels should be used to address this situation, which had the 
potential to undermine the credibility of the G-20 trade finance initiative. Other institutions should 
become involved. The Director-General would writ e to heads of these institutions to this effect. 
Finally, to make Basel II rules more flexible, two different tracks should be followed. The first one was to act at political level and remind leaders of unfulfilled G-20 commitments. The second one was 
the longer-term objective of bringing a more scientif ic approach and necessary data to demonstrating 
the low risk related to trade finance.  
6. The Director-General concluded that the market situation had, by and large, been improving – 
although that assessment had its pl uses and minuses, particularly regarding low income and weak 
economies. He urged all implicated institutions to continue to act together and cooperatively to 
shoulder risk, which had not disappeared from the current banking environment.  The WTO would 
continue to act by way of persuasion and awareness-building, and eventually by trying to leverage political energy to address the challenges of trade finance. However, the group should continue to 
work for tangible results by way of cooperation a nd common projects. This should be visible in a 
number of fields at the next meeting, such as utilization rates of extra capacity put in place by 
multilateral institutions, improved data collection sy stems for banks and ECAs, a register organized 
by the ICC, and continued work at the technical  level with the BCBS on increasing the flexibility of 
the Basel II rules.  On its side, the WTO would cont inue to liaise with relevant partners, including at 
the level of the upcoming G-20 Summit in Pittsburgh.  In the longer run, the group would have to 
think about its role once the crisis period was being phased out.   
 
 
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