WORLD TRADE  
ORGANIZATION  WT/WGTDF/W/52 
5 April 2011 
 
 (11-1703) 
Working Group on Trade, Debt and Finance  
 
 
 
EXPERT GROUP MEETING ON T RADE FINANCE – 24 MARCH 2011 
 
Informal Report by the WTO Secretariat  
  1. The objective of the 24th of March meeting was threef old: (i) to take stock of the current market 
situation, with a focus on factors such as liquidity , risks and price patterns by countries and regions; 
(ii) to consider progress on the G-20 mandates rela ting to trade finance, which derived from earlier 
concerns expressed in the Expert Group; and (iii) ta king a longer-term view of the trends in trade 
finance markets, including issues related to the financing of global value chains and structural 
impediments limiting the capacity of poor countries to access trade finance – the latter having a link to 
the Aid-for-Trade Initiative. 
2. With respect to the current market situation, par ticipants agreed there had been a sustained overall 
improvement in trade finance markets, in line with th e recovery of trade and finance. This translated 
in trade finance volumes growing at double-dig it rates in the BRICs, with falling margins and 
generally improving risk profiles of trade portfolios.  In leading trading nations of Latin America and 
Asia, spreads had fallen below 50 basis points fo r tier one banks, and competition to assume such 
risks was intense among international banks. In some  regions, local finance was coming back, albeit 
selectively. Challenges and risks included the hangove r effects of past or current sovereign debt 
crises, which resulted in the confusion of the count ry and counterparty risks, including in middle-to-
high income countries; the difficulty facing small a nd medium-sized enterprises in finding "clean" 
financing in both developing an d developed countries; and the unw illingness by international banks to 
take risks in low-income countries which contribute d to low domestic capacity and the high cost of 
doing business.  
3. In sum, the overall improvement in markets con cealed an uneven situation, which could broadly 
be characterized for traders as fo llows: (1) large corporates using the trade services of large banks in 
both developed and developing countries were bene fitting from higher volumes of finance and lower 
costs; (2) smaller but solid corporations using the services of tier one local banks around the world 
were also in a position to benefit from the recovery of trade demand, to the extent that such local 
banks had stepped back into trade finance (which  seemed increasingly to be the case, although with 
some constraints such as the low availability of dollars in local markets); and (3) a third group 
comprising small businesses in small countries having limited financial sector capacity to "oil" trade, 
was increasingly requesting support, in particular from regional development banks and the IFC. One 
could include in such wide group the small busin esses relying on second or third tier banks in higher 
income countries, which could also face difficulties in accessing trade finance.   
4. This third group was the prime target of trad e finance facilitation programs run by regional 
development banks and the IFC. Th ese institutions faced questions in ternally about the continuation 
of their risk-mitigation programs in favor of trade in developing countries, on the grounds that the 
peak of the financial crisis was behind them and th at other priorities required attention and resources. 
The representatives of these institutions made the poi nt that, although their programs had been beefed 
up during the crisis, the demand for their products ha d never been so high and several institutions had 
either reached their capacity limits or budget ce ilings. Excess demand by the private sector could 
hence not be satisfied.  Now and in the future, they  needed to stay engaged because they were serving WT/WGTDF/W/52 
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customers meeting structural constraints in accessi ng trade finance on affordable terms – due to well-
known weaknesses of local financial sectors, aggravat ed by the current withdrawal of international 
banks from some of the poorest countries. Their programs also contributed to bridging the gap between the actual level of commercial risk, whic h was very low or non-existent, and the high 
perception of risk, which deterred large commercia l banks from operating in these countries. By doing 
due diligence on local banks, multilateral developmen t banks contributed to filling the information 
gap that prevented endorsing and i nvesting banks from emerging regions of the world to invest in 
other developing countries.  
5. The Director-General of the WTO indicated that this message was consistent with the assessment 
of the Expert Group on Trade Finance on the existenc e of remaining gaps in trade finance, and on the 
effectiveness of trade finance programs to address it. The report, which had been commissioned by G-
20 leaders in Seoul under paragraph 44 of the Seoul Summit Document, had been well received at the 
last meeting of the G-20 Sherpas, and had revealed that only a third of the 60 poorest countries in the world benefited regularly from the services offered under these trade finance programs. The lack of risk mitigation programs in these countries partly  explained the very high fees and collateral 
requirements paid by local importers. Such high fees were out of line with risk statistics revealed by 
the ICC loss default register on trade finance. Given the strong demand for these programs and their 
development orientation, the Director-General  supported the Report's recommendations that the 
priority was to strengthen trade finance facilitati on programs where they existed, and create some 
where they did not yet exist. Time was of the essence in reaching these goals. From a geographical point of view, priorities were in Africa and Asia. Following one or two comments on the report, the 
Director-General indicated that it would be forw arded to the G-20. The Director-General also 
committed to provide support to MDBs willing to  extend their trade finance programs, as 
recommended by the Report. 
6. Participants acknowledged that the extended dialogue with the Basel Committee on Banking 
Supervision since the Seoul Mandate (paragraph 41 of  the Summit Declaration) had been fruitful and 
contributed to a better understanding of the issues at  stake. This dialogue had been supported by the 
continued efforts of the banking community under the ICC Banking Commission, to gather information on losses arising from default in trade finan ce markets.  In this context, in 2010 the quick 
establishment of a "pilot" registry containing information from nine global banks had considerably helped establish such dialogue on the basis of facts.  The registry will be extended to a total of 16 
global banks in 2011, with extended data requirements. Data should be ready to feed into the Basel 
Committee review process. 
7. Looking forward, the WTO Director General opened a discussion on two issues that needed to be 
reflected upon, both within the Expert Group and within the Membership of the WTO. One was related to the financing of global supply chains , which accounted for a significant share of trade 
finance and involved increasingly sophisticated tec hniques of cash and receivable management, a part 
of which service was provided by banks. The other was related with the need to increase capacity 
building in trade finance – a recommendation of th e above-mentioned G-20 repor t – and in general on 
how to address the capacity and technological gap af fecting low income countries in handling modern 
trade finance. With respect to the latter, two multilateral development banks were engaged in 
providing training and advisory services to low income countries based on donor funds. In this 
context, the IFC had been organizing and paying fo r the training of 3,000 bankers in Sub-Saharan 
Africa. Other MDBs expressed their interest in engaging in similar activities. One possible option 
would be to link these capacity-build ing efforts to the Aid-for-Trade Initiative. The ICC indicated that 
in the area of documented trade finance, product st andards such as bank payment obligations had been 
developed to be user-frie ndly and available through electronic means. While this was designed to 
reach the lowest end of the small businesses market s, more had to be done to make it known and 
bridge the technological divide.   WT/WGTDF/W/52 
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8. With respect to the rapid expansion of open acc ount transactions, which allowed big buyers in 
international trade to pay part or all of their suppliers for the purchase of goods, without necessarily 
requiring third party payment guarantees, several ba nkers said that one of the challenges for the 
banking community was to re-intermediate some of these flows and provide added value to their 
corporate customers. It was crucia l to assess risk in rapidly changing cross-country value chains, and 
this required a large amount of data to be coll ected within banks. Some cooperation between MDBs 
and banks could be examined in building up risk  models that would further secure these operations. 
However, one MDB highlighted the development dimension of such complex systems, as small 
businesses in developing countries had currently very little opportunity to benefit from such services – 
a reason why it was developing a supply chain fac ility available to SMEs in poor countries. A 
discussion took place on the pros and cons of the grow ing interest of hedge funds and private equity 
funds in investing in trade finance. 
9. In concluding the meeting, the Director-Gener al indicated that the WTO would continue to 
address the challenges of trade finance with its mu ltilateral partners becaus e a lack of adequate 
functioning of trade finance markets could be as important a barrier to trade as more traditional 
obstacles. The current difficulties faced by a wide number of developing countries at the margin of the 
main routes of trade also showed that there was a risk of a market divide between the "haves" and 
"have nots". The Director-General asked the ICC, in  cooperation with the WTO Secretariat, to prepare 
a short "issues paper" (one or two pages maximum)  on this topic and on the challenges of supply 
chain financing.  He also requested the IFC – toge ther with fellow MDBs – to prepare material on the 
issue of trade finance capacity-building and the wa y to link it to the Aid-for-Trade Agenda. These 
issue papers ought to be presented eventually to the WTO Membership (in particular at the WTO 
Working Group on Trade, Debt and Finance), bot h for educational as well as operational purposes. 
 
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