RESTRICTED  WORLD TRADE  
ORGANIZATION  WT/WGTDF/W/34 
30 September 2005 
 (05-4355) 
  
  
DRAFT 
 
REPORT (2005) OF THE WORKING GROU P ON TRADE, DEBT AND FINANCE  
TO THE GENERAL COUNCIL 
  
I. INTRODUCTION 
1. The Working Group on Trade, Debt and Finance was established at the 4
th Session of the 
Ministerial Conference in Doha in November 2001, with the following mandate1:   
"We agree to an examination,  in a Working Group under the auspices of the General 
Council, of the relationship between trade,  debt and finance, and of any possible 
recommendations on steps that might be taken within the mandate and competence of 
the WTO to enhance the capacity of the multila teral trading system to contribute to a 
durable solution to the problem of external indebtedness of developing and least-developed countries, and to strengthen th e coherence of international trade and 
financial policies, with a view to safeguarding the multilateral trading system from the effects of financial and monetary instab ility.  The General Council shall report to 
the Fifth Session of the Ministerial Conference on progress in the examination." 
2. The Report to the General Council prior to the 5
th Session of the Ministerial Conference is 
contained in WT/WGTDF/2.  At that time, the Ge neral Council took note of the work that had been 
accomplished by the Group, and of the agreement in  the Group to continue its examination process on 
the basis of eight themes that were identifie d as being of further interest to Members.2  On 1 August 
2004, the General Council agreed that a report to the 6th Session of the Ministerial Conference on the 
Working Group's work should be made in line with its Doha mandate.   
II. THE GROUP'S ACTIVITIES SINCE THE 5TH SESSION OF THE MINISTERIAL 
CONFERENCE 
A. OVERVIEW  
3. In response to interest raised in the Working Group about the issue of trade financing, the 
International Monetary Fund (IMF) held a seminar in  May 2003 with the invo lvement of the principal 
stake-holders, including international financial ins titutions, other multilateral organizations such as 
the WTO, regional development banks, export credit ag encies and private sector banks.  This seminar 
served as a basis for a paper by the staff of the IM F laying out proposals to ensure more secure and 
predictable sources of trade-finance.  In January 2004, the Director-General, Dr. Supachai, followed 
up by inviting the same group of experts to discuss the contribution that the WTO could make to the 
process (see WT/WGTDF/W/22 and 23).  Dr. Supachai briefed the General Council on 
12 February 2004 on his initiative, and suggested th at the issue be brought back to the Working 
Group.   
                                                      
1 WT/MIN(01)/DEC/1, para. 36. 
2 WT/WGTDF/2, paras. 27 and 28. WT/WGTDF/W/34 
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4. The Working Group held six formal meetings  between May 2004 and October 2005 (13 May 
2004, 4 October 2004, 10 December 2004, 18 April 2005, 4 July 2005 and 3-4 October 2005).  The Working Group was chaired by Ambassador Pé ter Balás (Hungary) in 2004, and in 2005 by 
Ambassador Kweronda-R uhemba (Uganda).  
B. T
RADE FINANCING  
5. At its meeting on 13 May 2004, the Working Group addressed the topic of trade financing.  
The representative of the IMF recalled that during r ecent financial crises, trade financing to crisis 
countries fell dramatically.  The scale of the collapse seemed to be disproportionate to the level of 
risk.  A concern to the IMF had been that a collap se in trade finance meant that a country's ability to 
export – and therefore to increase export earnings to help it out of a crisis – could be seriously 
compromised.  As to the lessons to be learned, it appeared that improving the resilience of emerging 
market economies was the key objective to achieve in order to avoid future crises of this kind.  The 
focus needed to be on implem enting the right economic policies and institutional reforms to 
strengthen the legal and regulatory framework for international transactions, foster competition in 
foreign trade sectors, and deepen local capital market s.  Recent experience suggested that an effective 
approach could be built around mu ltilateral development bank trade -finance facilities in support of 
actions by the country authorities to facilitate a resu mption of private sector financing, complemented 
by a more coordinated approach by export credit agencies.   
6. The representative of the WTO Secretariat recalle d that the first discussion on trade financing 
had taken place in the Working Group in July 2 002.  At the time, a presentation by the Asian 
Development Bank had drawn significant interest from emerging market economies, in particular 
from those countries which had been affected by th e abrupt interruption of trade credit lines during 
recent financial crises.  Some Members had indicated that this issue was at the heart of the matters 
that the Working Group should be addressing.  So me low-income countries expressed longer-term 
concerns with respect to on-going difficulties to attract  this type of finance, due to low credit ratings, 
debt overhang, and limited access to international financ ial markets.  Of particular interest in the 
Report by the Director-General to the General Council (WT/WGTDF/W/23) was the link made 
between the trade-financing problem and the role of the WTO's Agreements on Trade in Financial 
Services and on Subsidies and Countervailing Measures.  
7. Several Members considered that improving the availability of trade finance was linked with 
WTO disciplines through GATS commitments on trade in  financial services  and liberalization of the 
financial services sector.  Commitments helped WTO Members build more modern and efficient 
financial services markets, with higher standards of management and regulation, which would be 
more resilient in times of crises.  Wider GATS commitm ents not directly linked to this particular area 
of finance would also help to encourage financial institutions to remain engaged in local markets, 
thereby fostering stronger markets with enhanced liquidity.  There were differing views on whether a 
large number of operators in a market exacer bated or mitigated herd behaviour.   
8. In the view of some Members, GATS commitments per se  were not the main determinant for 
increased trade financing.  For example, the leve l of GATS commitments did not truly represent the 
level of local competition in countries.  Also, expe rience with liberalization confirmed the importance 
of the right sequencing of measures.  Nor was it clear that GATS commitments in times of crises were sufficient to maintain adequate  lines of credit for trade.   
9. Some Members considered that in the long run fi nancial services liberalization contributed to 
stronger financial stability and improved access to cr edit.  Strong regulatory frameworks, including 
prudential rules and anti-competitive practices, were  pre-conditions for successful liberalization of 
financial services.  It was important that count ries had in place sound prudential regulatory systems 
operating in a non-discriminatory manner in order to support market access for foreign suppliers.  WT/WGTDF/W/34 
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10. Members also addressed the issue of trade fi nancing as it relates to the WTO Agreement on 
Subsidies and Countervailing Measures.  It was widely felt that trade financing for imports, as long as it was not contingent on export performance, would not  be subject to the disciplines of the Subsidies 
Agreement.  Similarly, development financing provided by multilateral development institutions 
would be outside the scope of the Agreement.   
11. Another Member considered that schemes deali ng with the financing of essential imports of 
inputs would be compatible with the Agreement, in th at they would not be explicitly export subsidies.  
It was noted that export credit agencies, for the most part, provided services to promote exports from their own countries.  If these services were not ba sed on commercial terms or internationally-agreed 
terms (such as the OECD arrangement), they coul d potentially have trade-distorting effects.  A 
question was raised as to whether trade financing prov ided by national authorities at pre-crisis interest 
rate level during times of crisis would also be excluded from the disciplines of the Agreement, as 
crisis-level interest rates could ha rdly be regarded as market-based.  
12. The view was expressed that in times of crisis private banks would benefit from more secure 
guarantees provided by governments, and certain mu ltilateral initiatives would be needed in support 
of efforts by national authorities.  Some Members cons idered that the issue of the availability of trade 
financing was not only relevant in periods of crises  but also in the normal course of trade, as many 
developing countries experienced difficulties in obtaining trade financing routinely at an affordable cost;  as such, multilateral solutions to improve acc ess to trade financing more generally were also 
important. 
13. One Member suggested the relevant agencies could provide  regular updates of progress made 
in improving the availability of trade finance around the world. 
C. T
RADE AND FINANCIAL MARKETS / WTO  RULES AND FINANCIAL STABILITY  
14. At its meeting on 4 October 2004, the Working Group discussed the topic of trade and 
financial markets.  Discussion focused on two s ub-themes, namely (i) recent progress in achieving 
international financial stability, and its relationship w ith trade;  and (ii) exchange rate volatility and its 
impact on trade flows.3   
15. The Secretary-General of the Financial Stab ility Forum (FSF) informed the Working Group 
about the work of the FSF.  He considered that im provements in transparency, and the balance sheets 
of central banks, through countries' adoption of  the IMF's Special Data Dissemination Service 
(SDDS), Financial Sector Assessment Programs (F SAPs) and Reports on the Observance of Standards 
and Codes (ROSCs) had enhanced financial stability.  Risk management had been enhanced through 
both technology and improvements in risk mana gement practices, and efforts to structure 
indebtedness had reduced borrowing, thus adding resilience to financial systems.  Improvements in 
risk management had been made both through the wo rk of international organizations and at the 
national level, where more attention was now being paid to the timing and sequencing of 
liberalization, exchange rates were being mana ged more flexibly, and reliance on short-term 
borrowing had been reduced.   
16. Some Members expressed a concern about the need to provide an adequate voice to 
developing countries in the design and strengthening of  the financial architecture.  Some noted that 
the adoption of good practices and the development of  standards and codes, and their recognition in 
financial services negotiations, could enhance financ ial stability.  One Member suggested that the 
theme of "WTO rules and financial stability" was relevant in this context. 
                                                      
3 For details see WT/WGTDF/M/7, 7 June 2004. WT/WGTDF/W/34 
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17. The IMF presented a study on exchange rate vola tility and trade flows, an update to one that 
had been done in 1984 for the GATT Contracting Parties.  The updated study
4 had found that while 
there was a negative relationship between exchange ra te volatility and trade, the effect was small and 
the relationship not robust.  The study also found th at maintaining a pegged ex change rate regime did 
not reduce susceptibility to exchange rate vola tility.  Members noted that domestic policy and 
structural changes were often a cause of exchange rate volatility. 
D. BETTER COHERENCE IN THE DESIGN AND IMPLEMENTATION OF TRADE -RELATED REFORMS 
AND MONITORING  
18. At the meeting of the Working Group in Oc tober 2004, it was agreed that the Director-
General, in his remarks to the General Council on Coherence on 22 October 2004, should be invited 
to make reference to the technical work of the Wo rking Group, much of which was relevant to the 
Coherence mandate.  The Director-General's call for work in the WGTDF at a more technical level on 
coherence was well-received by the General Council.5   
19. Coherence was the main topic of the age nda for the meeting of the Working Group on 
10 December 2004.6  At the request of some Members, who felt that the theme had not been 
exhausted, the theme remained on the ag enda for the next two meetings as well.7  In response to a 
request from Members, a representative of UNCTAD was invited to present the Trade and 
Development Report (TDR) 2004  on "Policy coherence, developmen t strategies and integration into 
the world economy".  A representative of the World Bank was also invited to brief the Group on the Bank's work on supply-side constraints.   
20. The representative of UNCTAD based his presentation on a background document 
"Economic Policy Challenges in an Open Econom y:  Coherence Between Trade and Finance".
8  He 
remarked that the reason the TDR had addressed the issue of coherence was because fundamental 
changes in the global financial system had an im pact on the trading system.  He began with the 
premise that the exchange rate was fundamental for determining competitiveness, but was influenced 
by financial flows, which he saw as an incoheren ce between trade and finance.  While there was an 
international trading system, there was no multilateral financial system.  Furthermore, he considered 
that it was the level of exchange rates, much more  than volatility, which impacted trade flows, an 
issue central to the WTO.  He stated that moneta ry union had a positive effect on trade and developing 
countries were trying to exploit that option.  In his view, it was not enough to reform or to reduce 
protection or to improve supply side capacity.  A countr y also needed the right exchange rate system.   
21. Some Members welcomed the contribution as it stimulated a lively discussion and they 
appreciated its alternative approach to coherence.   Some Members questioned the details, viability or 
value of a global financial system based on fixe d exchange rates, which would require capital 
controls.  One view was that international adju stment should not replace individual balance of 
payments adjustment; another questioned the contri bution that could be made by the WTO.  Some 
Members pointed out that the choice of an exchange rate regime was a sovereign issue; others noted 
that exchange rate adjustment was importa nt for enhancing export competitiveness in many 
developing countries.   
22. The representative of the World Bank briefed the Group on the efforts underway on the part 
of the Bank to address trade reform, including the a lleviation of supply-side constraints.  Members 
                                                      
4 WT/WGTDF/W/24, and IMF Occasional Paper No. 235. 
5 WT/WGTDF/M/10, para. 3. 
6 WTO/AIR/2456;  The topic of coherence had been discussed before the Fifth Session of the 
Ministerial Conference (see WT/WGTDF/W/8 and WT/WGTDF/W/17).   
7 WT/WGTDF/M/9;  M/10, para. 3;  and M/11.   
8 WT/WGTDF/W/27.    WT/WGTDF/W/34 
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welcomed the Bank's increasing involvement in trad e issues, especially as concerned the Integrated 
Framework.  There was a general recognition that count ries needed to integrate trade issues into their 
poverty reduction and development strategies;  as such  Trade Ministries should influence this agenda 
or the Bretton Woods institutions would be limited w ith respect to their ability to respond to country 
needs.  The view was expressed that trade stra tegies had to complement general programmes of 
economic reform, related to inter alia , regulatory environment, investment climate, transport and 
customs.  Some Members highlighted the potential for huge gains in revenues from improving customs efficiency.  It was noted that policy coor dination at the national level, in particular the 
inclusion of trade reforms, supported by techni cal assistance and capacity building, in countries' 
development strategies had worked well in the Po verty Reduction Strategy Process.  One Member 
pointed to the need for an institutional structure to  ensure coherence for development in relation to 
Part IV of the GATT.   
E. T
HE INTER LINKAGES BETWEEN EXTERNAL LIBERALIZATION AND INTERNAL REFORMS  
23. This theme was examined at the meetings of the Working Group on 18 April and 4 July 
2005.9  Several Members agreed with observations made in the Secretariat's background document10, 
inter alia , trade liberalization stimulates growth if accompanied by policies designed to improve the 
investment climate, external liberalization can act as a catalyst for internal reform, and the importance 
of efficient infrastructure and lower transport costs.   One Member suggested that the kind and pace of 
liberalization should take into account the different  realities of developing and developed countries. 
Another Member pointed out that in order for deve loping countries to benefit from the trading system, 
supply-side constraints including structural adju stment should be tackled holistically. The Doha 
Round Initiative of the World Bank and the Trade Integration Mechanism (TIM) of the IMF were 
important new mechanisms for providing temporary adjustment assistance.   
F. TRADE LIBERALIZATION AS A SOURCE OF GROWTH ;  THE IMPORTANCE OF MARKET ACCESS 
AND THE REDUCTION OF OTHER TRADE BARRIERS IN THE DOHA DEVELOPMENT AGENDA 'S 
NEGOTIATIONS ; EXTERNAL FINANCING , COMMODITY MARKETS AND EXPORT 
DIVERSIFICATION  
24. The three remaining themes were taken up at  the meeting of the Working Group on 4 July 
2005.11  Under the theme of trade liberalization as a source of growth, Members echoed similar points 
made with regard to coherence;  e.g., in order for trade policies to boost economic growth over the 
long term they must be accompanied by domestic policy reforms.  Trade liberalization did not translate automatically into growth, but needed  to be accompanied by appropriate policies to 
guarantee a supportive investment climate so that fo reign investment could occur, a form of finance 
less costly than debt.  Some Members expressed a wish for more in-depth discussion on the  issue of 
sequencing and timing of reform, if so agreed. 
25. Under the theme the importance of market access and the reduction of ot her trade barriers in 
the DDA negotiations,  it was mentioned that the subject of market access  brought up an important 
point under coherence: if markets abroad were closed then liberalizing at home or ensuring 
infrastructure capabilities was only one side of the equa tion.  It was noted that the lowering of tariffs 
on higher value added products woul d help to alleviate the debt problems of commodity exporters. 
Some Members considered more information on Sout h-South trade would be valuable as would more 
discussion on services trade, especially with regard to mode 4.   
26. Under the theme external financing, commodity markets and export diversification, while it 
was understood that many poor countries depended on commodities and that a resolution to the 
                                                     
 
9 WT/WGTDF/M/10 and WT/WGTDF/M/11. 
10 WT/WGTDF/W/29.   
11 WT/WGTDF/M/11 and WT/WGTDF/W/31.   WT/WGTDF/W/34 
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commodity problem could aid in poverty reduction, it was also pointed out that the topic of declining terms of trade for commodities was being addressed  in the Committee on Trade and Development as 
well as at UNCTAD.   
III. REPORT ON PROGRESS SINCE THE FI FTH SESSION OF THE MINISTERIAL 
CONFERENCE 
27. The Working Group has continued to pursue its mandate set out in Paragraph 36 of the Doha 
Ministerial Declaration, and has been examining sp ecific themes that were agreed on as the work 
programme in its report to the General Council for the Fifth Session of the Ministerial Conference.  Members, noting the linkage between this manda te and the Coherence Declaration adopted in 
Marrakesh, suggest that further work should proceed on the basis of the Group's mandate.  
  WT/WGTDF/W/34 
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ANNEX 
 
Summary of contributions received in the Working Group  
on Trade, Debt and Finance  
(July 2003 – July 2005)  
Symbol 
(WT/WGTDF/W/-) Member / Other 
source Where introduced 
(Reference in Minutes) Title or Topic 
W/21 Secretariat M/5, Para. 42 Draft Report to the General Council 
W/21/Rev.1 Secretariat M/5, Para. 42 Draft Report to the General Council – 
Revision 
W/22 Secretariat M/7, Para. 3 Expert Group Meeting on Trade 
Financing 
W/23 Secretariat M/7, Para. 3 Improving the Availability of Trade 
Financing:  Report of Preliminary Work 
W/24 IMF M/7, Para. 39 Exchange Rate Volatility and Trade 
Flows – Some New Evidence 
W/25 Secretariat M/7, Para. 39 Draft Work Programme for Meetings 
in 2004 
W/26 Secretariat M/8, Para. 3 Financial Stability Forum:  Fact Sheet 
W/27 UNCTAD M/9, Para. 3 Communication from UNCTAD – 
Economic Policy Challenges in an 
Open Economy:  Coherence Between Trade and Finance 
W/28 Secretariat [M/9, Para. 45] Draf t – Report (2004) of the Working 
Group on Trade, Debt and Finance to 
the General Council 
W/29 Secretariat M/10, Para. 6 Inter-linkages Between External 
Liberalization and Internal Reform 
 
W/30 and Corr.1 ACP M/10, Para. 13 
M/11, Para. 27 
 ACP Submission to the WGTDF 
W/31 Secretariat M/11, Para. 8 Tr ade Liberalization as a Source of 
Growth;  The Importance of Market 
Access and the Reduction of Other Trade Barriers in the DDA 
Negotiations;  External Financing, 
Commodity Markets and Export 
Diversification 
W/32 ACP  M/11, Para. 11 ACP Submission to the WGTDF:  
Specific Actions to Address Key Issues of Concern for Developing Countries 
W/33 Argentina M/11, Para. 30 Relationship between Trade, Debt and 
Finance – Statement made at the 
Group's meeting on 4 July 2005 
__________