WORLD TRADE  
ORGANIZATION  WT/WGTDF/W/50 
9 November 2010 
 
 (10-5985) 
Working Group on Trade, Debt and Finance  
 
 
THE ROLE OF THE INTERNATIONAL CHAMBER OF COMMERCE IN  
TIMES OF TURBULENCES 
 
Presentation by Mr Thierry Sénéchal, International Chamber of Commerce1 
 
 
1. The International Chamber of  Commerce (ICC) was founded in 1919 to promote trade and 
investment world wide. It operates in 130 countri es and has 92 offices on all continents. It has three 
main activities: rules-setting, dispute resolution ( under ICC arbitration rules) and policy advocacy. 
Policy advocacy takes place in the context of fourteen commissions, ranging from the Banking 
Commission to the Anti-Corruption, Intellect ual Property and Energy Commissions. The ICC 
Banking Commission was created eighty years ago and has become the number one forum in Trade finance. It has today more than six hundred institutional members in eighty five countries. The Banking Commission is known for producing rules governing business in the banking sector. Some 95% of documentary credits worldwide are traded under ICC rules.  
2. The ICC Banking Commission has been maki ng the following points regarding recent 
developments affecting trade finance:  
3. Trade finance was recovering from the financial crisis.
 This was confirmed by the September 
2010 meeting of ICC Banking Commission held in the USA, and by the WTO Expert Group meeting on 22 October. Most experts agreed that business h as been picking up since the last quarter of 2009. 
There was currently a broad return to normalcy with  respect to liquidity, risk assessment and pricing 
of trade finance. The recovery was driven mainly by increased trade within North America, Europe, 
Asia, and between Asia and the rest of the Wo rld. However, exporters, especially in emerging 
markets, were faced with costly credit. Indeed, diff erences in pricing of trade still prevailed today.  
The ICC experts believed that low-income countries w ould continue to suffer in the future from the 
lack of access to trade finance at afford able cost, particularly import finance.  
4. It was important for the ICC to keep playing a key role in bridging the information gap on 
trade finance : when the crisis broke up in 2007, the ICC was asked by the WTO Expert Group on 
Trade Finance to develop global surveys among its me mbers that would provide an accurate picture of 
market trends, in the absence of a comprehensive set  of available statistics. Hence, the ICC Banking 
Commission had been able to produce three surveys in  the past three years, based on the replies by 
more than 120 banks. The surveys provided not only in formation on the global trends of trade finance, 
by instruments and by regions but also on more  detailed variables as the terms of settlement for 
international trade flows and the historical brea kdown of SWIFT messaging. The surveys benefited 
from the support of ICC Members and a long list of partners such as the  World Bank, the 
International Financial Corporation (IFC), the Eu ropean Bank for Reconstr uction and Development 
(EBRD), the Asian Development Bank (ADB), the Inter-American Development Bank (IaDB), 
SWIFT, and the Berne Union (the association of Export Credit Agencies). ICC Surveys have been 
particularly useful to policy-makers in developi ng their understanding of the problems affecting trade 
finance during the recent crisis.  
                                                      
1Mr Sénéchal and the Working Group on Trade, Debt and Finance agreed that this summarized 
presentation be turned into a WTO document. Mr Sénéchal is a Senior Policy Manager at the International 
Chamber of Commerce (ICC) and has overall responsibility for the ICC Banking Commission.   WT/WGTDF/W/50 
Page 2  
 
5. The ICC also set up a trade finance loss defa ult Register, in collaboration with the ADB. 
The 
Register has been delivering key data proving that tr ade finance was one of the safest form of finance. 
The register data has been compiled in the course of  2009, in the context of a pilot project aimed at 
measuring the risk performance of trade finance products. Part of the objective was to verify 
empirically the short-term, safe liquidating and safe character of trade finance. The data has been 
recently presented to banking regulators. Pilot banks have reported 5, 223,357 trade finance 
transactions, valued totally at USD2.5 trillion,  between 2005 and 2009. The data showed the 
following results: trade finance transactions have an average tenor of 115 days; they have a low 
incidence of default, with less than 1,400 defaults  reported in all 5.2 million transactions (a loss 
default rate of less than 0.02%); off-balance sheet tr ade transactions have an even lower default rate, 
with only 110 defaults reporting for 2.4 million transactions. For wr itten-off products, the recovery 
rate was 60% on all products considered in the regi stry (letters of credit, import and export loans). 
With such low default rates, the question arose as  how trade finance instruments ended up being re-
regulated with higher-risk instruments, such as term loans, project finance, and derivatives?  
6. The Basel III framework certainly aims at creating a stable and sustainable global financial 
system, but trade finance seems to have b een "caught in the net" of re-regulation.  One of the main 
features of re-regulation is the imposition of a leverage ratio on off-balance sheet commitments, 
which includes letters of credit and similar trade fi nance instruments. If implemented, the leverage 
ratio would have a de trimental impact on global trade, in partic ular on poor countries' trade. While the 
objective of the new, 100% leverage ratio proposal was to develop a simple, non-risk based measure 
intended to work as a back-stop against excessive ri sk-taking, for trade finance instruments, which 
were never leveraged, this meant that that banks would need to fu lly capitalize short term exposures at 
100% of their face value, again 20% previously . Mechanically, bank capital costs would increase, 
thereby raising the cost of trade finance. The ICC supports the argument that this is not justified by 
the default history on trade finance transactions, as re vealed the results from the Registry. Hence, it 
did not make sense to put "toxic" assets and trade finance on the same footing in the application of the 
leverage ratio, not the least because both types of assets  were neither of the same maturity nor of the 
same level of risk. The ICC had also comments on new Basel proposals with respect to liquidity. 
7. The ICC intended to continue to work in order to reflect the true nature of trade finance . The 
ICC argued that the new proposed Basel III rules c ould have unintended con sequences on this kind of 
finance. Some impact studies had already show n, according to ICC Members, that the proposed 
framework (if approved drafted) would reduce trade finance lending by as much as 6% a year, that is 
$270 billion in international trade. Banks would be induced to move away fro m trade finance because 
of the higher cost of capital, in particular sma ll and medium-sized banks. The withdrawal of such 
banks from the market would disproportionately impa ct small and medium-sized enterprises, relied on 
which intermediaries for financing their trade. The bigger banks might simply find trade finance less 
attractive compared to riskier but more remunera tive products. Moreover, those banks remaining in 
trade finance may naturally raise their prices to trad ers – as seen during the recent crisis when letters 
of credit to South Korea and India faced a hike in pricing from 0.2% to 6.5% per annum. In a 
forthcoming study for the World Bank, Standard Ch artered Bank estimated that  as a result of the 
Basel III proposals the cost of trade finance coul d rise by 20-40% and overall supply could shrink by 
6% per annum under such a scenario. Adverse effect s would also be felt in low-income countries, 
which would suffer from the reduced liquidity in the market. The regulation would also have the 
unintended consequences of discour aging banks to engage in high -quality assets, such as securitized 
lending, and leave the trade finance market to non- banking institutions such as hedge funds, which are 
currently showing interest in this business. Instea d of remaining within the framework of existing, 
well-know and securitized instruments, trade a ssets could hence be pushed into higher-risk, 
unregulated markets. This would clearly defeat the purpose of Basel III. 
8. In conclusion, the ICC was calling for trade fi nance to receive an appropriate, favourable 
treatment within the new capital and liquidity frameworks . In support of this, the business community 
aimed at continuing to build collective knowle dge and understanding on how trade and finance  WT/WGTDF/W/50 
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worked in parallel to support global growth, not ably, by expanding the scope and number of 
participants to the ICC Register. The ICC was hopi ng that the private sector and regulators could 
work together in developing common understanding in  that would serve the purposes of the respective 
institutions.   
 
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