. /.   WORLD TRADE  
ORGANIZATION  WT/WGTDF/W/38 
14 July 2008 
 (08-3394) 
Working Group on Trade, Debt and Finance  
 
 
 
EXPERT GROUP MEETING ON TRADE FINANCE - 25 APRIL 2008 
 
Note by the Secretariat  
 
 
1. Concerns about the scarcity of trade finance for developing and low-income countries have 
been identified as an issue for exam ination by the Working Group on Trade, Debt and Finance, in its 
initial stage of examination, as reported by WTO Document WT/WGTDF/1.  The interest 
of Members for this issue, which appeared in the wa ke of the Asian financial crisis, led the Managing 
Director of the IMF and the Director-General of the WTO to convene in 2003 and 2004 the main players to find ways to improve flows of trade -financing (for example letters of credit and other 
documentary credit) in particular by encouragi ng regional development institutions to expand WTO-
compatible and innovative ways of finance.  The outcome of the discussions by experts has been 
subject to various reports to the Working Gr oup, under WTO Document WT/WGTDF/W/22 and 23, 
and from the Chair of the Working Group to the General Council in WTO Document WT/GC/W/527.  
2. Further efforts to boost trade finance for deve loping countries have been carried on under 
Aid-for-Trade mandate since 2005, as the Aid-for-Trade Task Force and subsequent regional and 
global meetings revealed that developing the abilit y of developing countries to generate or obtain 
sufficient flows of finance for the expansion of their trade expansion was a priority under the 
programme. 
3. In this context, the WTO hosted an expert meeting on trade financing on 25 April 2008, 
the third of such expert group meetings after that  of 2003 and 2004.  It also took place exactly six 
month after the Global (and regional) Aid-for-Trade  Review in which the subject matter featured 
prominently.  In this meeting, there were represen tatives of regional banks active in all continents, the 
IFC (World Bank Group), the Berne Union (public and private sector trade insurance and export-
import banks) and leading private sector banks (Royal  Bank of Scotland, just having bought the trade 
financing portfolio of ABN-AMRO, JP Morgan an d Commertzbank).  The Chairman of the Working 
Group on Trade, Debt and Finance was invited by the Director-General of the WTO to attend the meeting on his own capacity.  The objective of the meeting was not only to take stock of progress in 
terms of increased financing for developing countries, but also, in the wider scheme of things, to 
exchange views on the potential spill-over effects of  current financial turbulences on the availability 
of trade finance both in devel oped and developing countries.  
4. After the introduction by the Director-General of the WTO highlighting that regional 
development banks and the IFC had increased by  30 per cent the amount of guarantees for trade 
finance operations (+50 per cent in the number of tran sactions) in the past year, particularly in Africa 
and Latin America, representatives of these institutions indicated that demand for their trade finance 
facilitation program, which are covering the payment risk of an import/export between two countries 
(and hence helping the issuing and receiving banks to obtain AA or AAA financing terms on the trade 
credit involved), is currently roofing up because of  the liquidity shortage and increased spreads in 
banking markets.  The only region that was relativel y immune from a tightening of funding conditions 
was Africa, because the continent had not been involve d in the sub-prime crisis so was not subject to WT/WGTDF/W/38 
Page 2  
 
  the same constraints; however, in that continent th e risk came from the inflation of commodity prices, 
which required pre-shipment financing of unknown scale until now. 
5. All in all, demand for trade financing is currently  larger than what the private sector was able 
to cover at the current (rising) cost.  Already, the longer maturities (three years) were no longer 
proposed by banks. The question arose as to who woul d cover the gap.  In the medium-to-long term 
markets, a member of the Berne Union indicated that there might be scope for stepping in more 
aggressively – at market price – particularly as information on credit risk among Berne Union members was flowing well.  On short-term trade credit, regional development banks said that could 
do more through co-financing with private sector banks on larger middle-income countries which 
were currently facing capacity constraints (countri es such as Nigeria, Russia, Kazakhstan), although 
the IFC and the African Trade In surance Agency warned  that middle-income countries operations 
should not crowd out poor' countries markets an d South-South SMEs' trade (transactions from 
$50,000 to $200,000). 
6. It seems that risk co-sharing between the public and private sectors appeared to be one of the 
best solution, provided that private banks, RDBs and Berne Union members actually do share credit 
risk information among themselves – which they are not doing right now.  To lift that impediments to 
co-financing, the IFC volunteered to develop a uniform standard of KYC (know-your-customer) 
information required by them to engage into trade financing operations with partners in 
developing countries, and hence to exch ange that information among themselves . 
7. Two other impediments seemed to be limiting the supply of trade finance, one on the side of 
RDBs, one on the side of banks.  On the RD B's side, representatives requested WTO support in 
convincing management and board members of their own institutions to give greater support to their 
programmes, which are often seen as purely "financial" (them being part of private sectors branches of RDBs) while their programmes should be regarded as facilitating trade.  The representatives had 
called on the Director-General of the WTO to remind the management and board of their own 
institution that trade finance is a priority under the Aid-for-Trade initiative, and hence an 
important need of the international trading community . 
8. On the side of banks, Basle II rules, which di fferentiate capital adequacy ratios according to 
the end use of funds seemed to penalize trade fina nce operations in favour of developing countries. 
Although trade finance is less risky than any other kind of finance, balance-sheet exposure to least-
developing countries costs them apparently three tim es as much as exposure to developed countries 
on this type of financing.  It was therefore proposed that the attention of the BIS Committee on 
Banking Regulation or BIS management be drawn directly on the fact that the LDC risk on 
trade finance should not be excessively pena lized relative to developed country risk.  
9. Finally, the group was particularly grateful that  private sector and public sector participants 
had been giving an opportunity to exchange views in  this informal forum, and informal networking 
will hopefully continue until the next meeting, next year. 
__________