WORLD TRADE  
ORGANIZATION   
WT/COMTD/AFT/W/33 
8 May 2012 
 (12-2444) 
Committee on Trade and Development 
Aid for Trade  
 
 
WORKSHOP ON AID FOR TRADE AND TRADE FINANCE 
 
Background Note by the Secretariat1 
  
I. SUMMARY 
1. This note is intended as a background note to inform discussion at the workshop on Aid for 
Trade and Trade Finance to be held on 15 May 2012;  it is not an exhaustive analysis of this issue.  
2. Access to affordable financing is essential to f acilitate trade.  Between 80 to 90 per cent of 
global trade involves some form of financing, norma lly of a short-term nature.  Trade financing is 
normally provided on commercial terms by  both private and public institutions. 
3. Some countries face "structural" problems in accessing financing, for reasons such as poorly 
developed banking sectors, perceived credit risk a nd limited penetration of global markets, in 
particular through supply chains.  Particular comp anies may also face speci fic challenges in access, 
notably micro-, small- and medium-sized enterprises  (MSMEs).  The financial crisis of 2008 brought 
these issues into sharp focus.  Th e accompanying credit crunch dried up liquidity in the trade finance 
market and raised funding costs so threatening to further amplify the downturn in global trade.  
4. The WTO is closely involved in efforts to m onitor and address market failures in the trade 
finance market.  Since the Doha Ministerial Meeting, the WTO Working Group on Trade Debt and Finance (WGTDF) has overseen and encouraged WT O initiatives on trade finance - a mandate which 
was reiterated at the Eighth Ministerial Conference.   Since 2007, the Director-General has convened 
an Expert Group on Trade Finance to report on mark et developments and possible steps to address 
market gaps and failures. These reports have  informed advocacy activities, led by the 
Director-General, such as with the G-20 and th e Basel Committee on Banking Supervision.  Notable 
outcomes of these advocacy activities include:  th e London G-20 Summit trade finance initiative and 
the treatment of trade finance in the Basel III rules.   Another important element of WTO trade finance 
advocacy concerns Aid for Trade to address stru ctural problems encountered by developing and 
transition economies, and in particular  Least Developed Countries (LDCs).   
5. Aid for Trade has an important role to play in helping develop the necessary local financial 
infrastructure to access trade fi nance.  This document focuses  on ongoing initiatives taken by 
international financial institutions (IFIs) to improve  access to trade finance.  Such initiatives have 
been informed by the pioneering Trade Fac ilitation Programme of the European Bank for 
Reconstruction and Development (EBRD).  In response to the 2008 financial crisis, IFI's trade finance 
programmes were scaled-up and new mechanisms created, notably the Global Trade Liquidity Programme (GTLP).  IFIs are cooperating closely on this issue, as evidenced by ongoing collaboration between the Asian and African Development Banks. 
                                                      
1 This document has been prepared under the re sponsibility of the WTO Secretariat and without 
prejudice to the positions of Members and to their rights and obligations under the WTO. WT/COMTD/AFT/W/33 
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  6. WGTDF work continues on better coordination of public-backed institutions supporting trade 
finance, improved data collection for better policy decisions, and advocacy for prudent regulation of 
trade finance commensurate with its risk profile.  Advocacy on Aid-for-Trade actions to address the 
structural access issues faced in accessing trade finance,  notably by LDCs, are an integral part of this 
ongoing work.  
7. The workshop on Aid for Trade and Tr ade Finance will take place alongside a  meeting of the 
WTO's Expert Group on Trade Finance on 15 May 2012. 
II. TRADE FINANCE AND INTERNATIONAL TRADE 
8. Between 80 to 90 per cent of world trade reli es on commercial financing, mostly of a short-
term nature. Accessible and affordable trade finance is  integral to global trad e.  Financing is needed 
not only during the import-export process itself, but also for the production of the goods and services 
to be exported, which often includes imports of raw material or intermediate goods.  Lack of 
financing at any time during the production and/or the export process can stop a transaction.  To understand the significance of trade finance, it is important to view it in the context of an overall trade development strategy whose purpose is to develop and expand sustainable trade flows to support the 
country's economic development.
2   
9. Trade finance follows the patterns of global tr ade. The vast majority of trade finance 
operations finance trade in inputs and parts in the context of international value chains.  Buyers and 
suppliers ask their respective banks  to finance on 90 or 120 days maturities the enormous flow of 
orders and deliveries generated by value chains. Th e heavy volume of transactions financed leads 
banks to operate in open account, whereby they provide liquidity to their customers against proof of 
order, contracts or bills of exchange.3  In cases where exporters or importers are looking for greater 
security of payment, such as in bilateral trade, trade between a developed and a developing country 
firm or commodity trade, structured forms of cred it are used. These structured forms of credit include: 
 Letters of credit, which are exchanged/endor sed/confirmed by banks on behalf of their 
customers, and which reflect a commitment to pay an export or import based on the presentation of stipulated documents such as shipping and insurance documents or 
commercial invoices - so-called documentary credits; 
 
 Buyer's credit and supplier's credit, bills of exchange or promissory notes which do not 
necessarily involve a banking intermediary;  trad e and/or bankers may seek to share the risk 
involved in trade credit operating by contrac ting credit insurance, generally provided by 
export credit agencies and/or priv ate sector insurance companies. 
 
III. TRADE FINANCE ACCESS ISSUES - STRUCTURAL AND SYSTEMIC 
10. Limited access to financing, high costs, and lack of insurance or guarantees can hinder trade 
and export potential.  Such problems tend to fall disproportionately heavily on micro-, small- and 
medium-sized enterprises.  Such access issues can ofte n be "structural" in nature and linked to more 
fundamental constraints, such as poorly developed banking sectors, perceived credit risk and limited 
penetration of global markets, in particular through supply chains.  
11. Common problems faced by banks in devel oping and transition economies include low 
capital and foreign exchange reserves, lack of know-how in the process of extending documentary 
                                                      
2 For more information, see "Trade Finance: An Essential Contribution to Aid for Trade ", International 
Finance Corporation, WT/WGTDF/W/54, 28 April 2011. 
3 For more information on supply chain financing see: WT/WGTDF/W/55, 2 May 2011.  WT/COMTD/AFT/W/33 
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  credits, and a lack of international ratings.  Expor ters requiring guarantees from local banks find that 
either a bank may be unwilling to assume the associated  risk or may do so only with high collateral 
requirements against trade loans.  The net result is that trade finance becomes costly and inaccessible, 
particularly for firms with limited cash flow or liquidity.  The absence of well-defined and recognized collateral is a major impediment to access trade finance.   
12. The 2008 financial crisis brought these issues to the fore as part of a more "systemic" failing 
in the global financial system.  As the crisis a dvanced, so liquidity and credit in global financial 
markets dried up for a short period of time.  This in turn risked aggravating the economic slowdown 
by triggering a general reassessment of credit risk  with a knock-on effect on developing and transition 
economies' access to trade finance.  Accessing finan ce became more difficult and the costs of credit 
for financing trade transactions rose, particul arly for MSMEs and new exporters who were 
disproportionately affected by the crisis. 
IV. WTO AND TRADE FINANCE  
13. WTO's activities in the trade fi nance area can be grouped under two headings:  (i) monitoring 
of the situation in trade finance markets;  and ( ii) advocacy actions on trade finance led by the WTO 
Director-General - advocacy actions which also include Aid for Trade.  
14. Since the Doha Ministerial Meeting, the WTO Working Group on Trade Debt and Finance 
has been the main body overseeing and encouraging WT O initiatives in favour of trade finance.  As 
early as 2002, the WGTDF identified trade finance as a prime topic of interest. Since then, Ministerial 
Conferences have requested the WGTDF to continue its work towards increasi ng the availability and 
affordability of trade finance for WTO Members.  Through the WGTDF, Members have been able to 
dialogue directly with representatives of IFIs activ e in trade finance, the Basel Committee on Banking 
Supervision and private sector organizations such  as the International Chamber of Commerce. WTO 
Members and the Secretariat have produced more than 30 documents contributing to WTO involvement and advocacy actions in this area.  
15. Secretariat initiatives are approved in the context of the WGTDF or by the General Council.  
Since 2007, the Director-General has convened an Expert Group on Trade Finance to track market 
developments - a particularly useful function in the absence of comprehensive data on trade finance 
markets.  The information gathered in the Expert  Group on Trade Finance has been reported back to 
Members through the WGTDF and conveyed to external  bodies.  In March 2011, the Expert Group on 
Trade Finance submitted a report to the G-20 De velopment Working Group on Trade Finance.   
16. On the basis of the monitoring reports from the Expert Group on Trade Finance, the 
Director-General has been actively engaged in advo cacy actions.  Noteworthy in this regard is the 
decision by G-20 leaders at the London Summit in 2009 to "… ensure availability of at least 
US$250 billion over the next two years to suppor t trade finance through our export credit and 
investment agencies and through the multilateral development banks".  
17. The WTO is also actively involved in advocacy actions to ensure fair treatment for trade 
finance under the regulatory architecture promoted by the Basel Committee on Banking Supervision.
4  
In a joint letter sent to the G-20 Leaders in Seoul, the President of the World Bank Group, 
Robert Zoellick, and Director-General of the WT O, Pascal Lamy, raised the issue of the potential 
unintended consequences of the Basel II and III framewo rks on the availability of trade finance in low 
income 
                                                      
4 For more information go to: http://www.bis.org/bcbs/  WT/COMTD/AFT/W/33 
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  countries.
5  In response to advocacy actions by the WTO, the World Bank and the International 
Chamber of Commerce, the Basel Committee on Banking Supervision agreed in October 2011 to permit specific flexibilities on existing prudential re gulation to ease the supply of trade finance for 
low-income countries.   
18. The Director-General is also active in advocacy  actions on Aid for Trade and trade finance.  
At the last Expert Group on Trade Finance, held in October 2011, the Director-General committed to 
support advocacy actions for multilateral developmen t banks willing to extend their trade finance 
programmes.
 6   
V. AID FOR TRADE AND TRADE FINANCE  
19. For trade finance markets to operate effici ently, sound monetary and banking policies, 
transparent fiscal and financial regimes, and functio ning capital and insurance markets need to be in 
place - as well as the necessary legal and regulatory frameworks to encourage domestic and foreign 
investment.  Aid for Trade can play a catalytic role  in this regard by helping address trade finance 
access and architecture issues.  
20. This section examines the programmes establishe d by IFIs to address trade finance issues.7  
Such programmes include concessional and commercial  components.  Technical  assistance activities 
focus on the development of trade finance infrastru cture: notably institutions, laws, regulations, 
payment mechanisms and other systems related to  the provision of capital and support services to 
firms engaged in international trade.  Commercia l activities relate to the provision of guarantees to 
participating banks so as to underwrite trade transactions.   
21.  Noteworthy is the pioneering Trade Facilitati on Programme (TFP) established by the EBRD 
in 1999.  The TFP established a model for othe r multilateral developmen t banks to follow in 
addressing trade finance access issues.  Through th e TFP, the EBRD provides technical assistance to 
local banks and policymakers and guarantees to international commercial banks, so underwriting 
payment risk for transactions undertaken by partic ipating banks.  In this way, the programme 
strengthens the ability of local banks to provide trade financing.  The TFP has proved to be an 
effective facilitator of trade for entrepreneurs in Eastern Europe, the Commonwealth of Independent 
States, and the Southern and Eastern Mediterranean  region.  The Programme's participants include 
over 100 issuing banks in more than 20 countries of operations with limits exceeding €1 billion in 
total, as well as over 800 confirming banks.  Since 1999, the TFP has facilitated over 11,500 cross-
border trade transactions to the amount of €7. 2 billion and, in 2011, supported a record 1,616 
transactions totalling over €1 billion. 
                                                      
5 While trade finance received preferential regulator y treatment under the Basel I framework, Basel II 
and III rules applied risk weightings and introduced potential confusion between country and counterparty risks - both out of step with the safe, mostly short-term char acter of trade finance.  Basel III, in particular, posed 
difficulties due to requirements on letters of credit - an instrument used primarily by developing countries.   
6 See WT/WGTDF/W/59, 25 October 2011.   
7 The Asian Development Bank, European Bank for Reconstruction and Development and the 
Inter-American Development Bank submitted case stories on their trade finance programmes for the Third 
Global Review of Aid for Trade.  The Islamic Development Bank Group submitted a report to the Review which outlines its activities on trade finance.  Both the African Development Bank and World Bank Group also 
made references to their trade finance activities at the Third Global Review.  One further case story was 
submitted by PricewaterhouseCoopers on trade finance for the Third Global Review which discusses its 
cooperation with Euler Hermes in establishing export credit agencies. See PwC : Creating an Engine for Growth 
and Development Export Credit Agency http://www.oecd.org/dataoecd/58/44/47779832.pdf   WT/COMTD/AFT/W/33 
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  22. The EBRD's TFP programme has informed si milar efforts by other IFIs, including inter alia :  
 the Inter-American Development Bank's (IaDB) Trade Finance Reactivation Programme, 
started in 2003; 
 the Asian Development Bank's (AsDB) trad e finance programme, started in 2004;  
 the World Bank Group's International Finance Corporation which launched the Global Trade 
Finance Program in September 2005; 
 the Islamic International Trade Finance Cor poration which was established in 2008 by the 
Islamic Development Bank Group and which cons olidated the Bank’s shariah-compliant trade 
financing for OIC member countries under a single umbrella. 
23. In response to the financial crisis, exis ting facilities were expa nded and new facilities 
created.8  The AsDB, EBRD, IaDB and World Bank inj ected more capital into their trade finance 
programmes.  The IFC, together with government s, development finance institutions and private 
sector banks, also initiated the Global Trade Liquidity  Program - the official launch of which took 
place at the Second Global Review of Aid for Trade in 2009.   
24. The African Development Bank (AfDB) estab lished a multiphase Trade Finance Initiative 
(TFI) in March 2009.  In June 2010, the Asian De velopment Bank and the African Development Bank 
agreed to cooperate to help AfDB  set up a trade finance programme. 9  
VI. CONCLUSIONS 
25. The report by the WTO Expert Group on Trade Fi nance to the G-20 highlights the scale of the 
structural problem which still needs to be addressed with regard to access to trade finance: only a third 
of the 60 poorest countries benefit regularly from the services offered by trade finance programmes 
(WT/WGTDF/W/59).  Given the strong demand for tr ade finance programmes and their development 
orientation, it is clear that ongoing work to he lp developing and transition economies, and in 
particular LDCs to overcome structural trade finance access issues, is required. 
26. The role played by the WGTDF is central in this regard.  The WGTDF provides the locus for 
monitoring and advocacy activities on trade finance which the WTO and other institutions need to 
perform, notably with regard to: 
 better coordination of public-backed institu tions supporting trade finance (export credit 
agencies, multilateral development banks, WTO and trade ministries); 
 improved data collection for better policy decisions; 
 advocacy for  prudential regulation of trade finance commensurate with risk profile; and 
 Aid-for-Trade action to support access to trade finance, notably for LDCs.  
                                                      
8 For more information, see: "Regional Development Banks' Response to the Crisis: Scaling Up the 
Trade Finance Facilities", Rudolf Putz, Ghazi Ben Ahmed, Steven Beck and Daniela Carrera in "Trade Finance 
during the Great Trade Collapse" 
http://siteresources.worldbank .org/INTRANETTRADE/Resour ces/TradeFinancech19.pdf  
9 For more information see: " http://www.afdb.org/en/news-and-even ts/article/asian-development-bank-
and-african-development-bank-to-cooperate-to- set-up-trade-finance-program-for-africa-8209/ " WT/COMTD/AFT/W/33 
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  27. Aid for Trade has a catalytic role in suppor ting the ability of developing and transition 
economies, and in particular LDCs, to put in place the necessary financial infrastructure to access 
trade finance.  The role of IFIs is instrumental in this regard, as  is the support offered by bilateral 
donors, South-South partners and ot her development institutions.  Tr aining provided to MSMEs, for 
example by the International Trade Centre, and innov ative solutions, such as the use of postal systems 
and micro-credit institutions, can also play an important role.   
FURTHER READING 
African Development Bank Trade Finance Initiative: " http://www.afdb.org/en/topics-and-
sectors/initiatives-partnerships/trade-finance-initiative/ " 
Asian Development Bank and the African Deve lopment Bank co-operation on trade finance:  
"http://www.afdb.org/en/news-and-events/article/a sian-development-bank-and-african-development-
bank-to-cooperate-to-set-up-trad e-finance-program-for-africa-8209/  " 
Asian Development Bank Trade Finance Facilitation Program: 
http://www.oecd.org/dataoecd/19/36/47077513.pdf 
European Bank of Reconstruction and De velopment Trade Facilitation Programme: 
http://www.oecd.org/dataoecd/34/22/47050190.pdf  
Inter-American Development Bank Trad e Finance Reactivation Programme: 
http://www.oecd.org/datao ecd/0/34/47750509.pdf   
International Chamber of Commerce: "Global Risks ‒ Trade Finance 2011 An initiative of the ICC 
Banking Commission": " http://www.iccwbo.org/uploadedFiles/ICC-
Register_Report_26_October_2011.pdf"  and Global Survey on Trade and Finance 2011, 
"http://www.iiblp.org/files/uploads/pdf/Res ources/Updates%20__%20ICC% 20Global%20Survey%20
2011%20presentation.pdf" 
International Monetary Fund: "Trade and Trad e Finance in the 2008-09 Financial Crisis", IMF 
Working Paper January 2011 http://www.imf.org/extern al/pubs/ft/wp/2011/wp1116.pdf  
International Finance Corporation, "Trade Finan ce: An Essential Contribution to Aid for Trade", 
WT/WGTDF/W/54, 28 April 2011, IFC's Global Trade Finance Program:  http://www.ifc.org/ifcext/gfm.nsf/content/tradefinance  and Global Trade Liquidity Programme 
"http://www1.ifc.org/wps/wcm/connect/Industry_EXT_ Content/IFC_External_Corporate_Site/Industr
ies/Financial+Markets/Trad e+and+Supply+Chain/GTLP/ " 
International Trade Centre: " http://www.intracen.org/ITC---Enab ling-Small-Businesses-Access-
Finance-for-Trade/  " 
World Bank: "Trade Finance during the 2008–9 Trade Collapse: Key Takeaways", Jean-Pierre 
Chauffour and Mariem Malouche , World Bank, September 2011: 
http://siteresources.worldbank.or g/INTPREMNET/Resources/EP66.pdf  
WTO: Restoring Trade Finance During a Period of Fi nancial Crisis: Stocktaking of Recent Initiatives, 
Marc Auboin, WTO Staff Working Paper ERSD-2009-16 http://www.wto.org/english/res_e/reser_e/ersd200916_e.pdf   Working Group on Trade Debt and 
Finance documents can be accessed through documents online: 
http://docsonline.wto.org/ gen_home.asp?language=1&_=1   
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