. /.  WORLD TRADE  
ORGANIZATION  WT/WGTDF/W/48 
19 May 2010 
 
 (10-2807) 
  
 
 
 
EXPERT GROUP MEETING ON TRADE FINANCE – 18 MAY 2010 
 
Informal Report by the WTO Secretariat  
  1. The meeting on 18 May 2010 of the Expert Group on Trade Finance focused on three issues: 
(i) current conditions in the market for trade fi nance, with a focus on liquidity, risks and price 
patterns, as well as regional trends; (ii) experience so  far with the implementation of the G20 package, 
the possible timing of an exit strategy and the potenti al need for more targeted intervention; and (iii) 
regulatory and data collection matters that have a bearing on the longer-term cost of, and access to, trade finance.  
2. Most participants agreed that the trade fina nce environment had continued to improve since 
the last meeting. The Group agreed that recovery patterns have been mixed across regions and that 
emerging markets had been leading the improvement. C onsistent with the rapid recovery of trade in 
the Asian region, on the high end of the market there was a large appetite for risk and ample liquidity to finance trade from China, India and Korea, with a lowering of spreads.  In Latin America, Brazilian 
authorities has been playing a signifi cant role in the stabilization of th e local market for trade finance, 
and hence with the recovery of trade and bank liqui dity, spreads had been returning to pre-crisis 
levels. The situation in other Latin American c ountries was more mixed, with demand and supply 
ranging from good to weak. The same applied in the Middle-East, where the situation had eased in 
some countries but remained a source of concern in  others. In Europe, the emergence of sovereign 
debt default risk has had a chilling effect on tr ade lending in countries surrounding Greece, as well as 
on other large European countries that faced the pr ospect of reduced credit ratings.  The Eastern 
European market remained difficult.  At the lowe r end of the market, there seemed to be continuing 
strong constraints in Africa, particularly Sub-Sa haran Africa, where financ ing capacity seemed to 
have been lost.  It was difficult to determine wh ether this phenomenon was pe rmanent or temporary. 
Global commercial banks explained that the high co st of collection of information on counterparty 
risk and the low profitability of small operations in the region made financing trade unattractive to 
them.  
3. Global suppliers of trade credit considered th at they had recovered a sufficient level of 
liquidity, but that the problem remained essentiall y one of risk. Banks had therefore been more 
selective and stringent in their assessment of counterpa rty risk, which led to a pattern of concentration 
of business towards the big emerging markets of Chin a, India, Korea, Brazil, Chile and to a lesser 
extent Mexico. In turn, risk weights for counter party banks in European countries facing sovereign 
solvency issues and for US market s when it involved regional banks had been revised upwards. Small 
and medium sized enterprises in these countries, op erating through smaller banks, could face much 
higher costs at the moment than same-sized traders in  Asia (300 basis points for a US trader against 
an average of 50-70 basis points for its Asian count erpart). The issue, therefore, was that small 
countries, counterparty banks and trading companies seemed to be hit hard er trade credit markets 
worldwide, and this was a concern given that wo rld trade relied upon a large number of small and 
medium sized enterprises. WT/WGTDF/W/48 
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4. With respect to the implementation of the G20 package, the general view of participants 
(banks, export credit agencies and regional developmen t banks) was that markets were still fragile and 
therefore it would be premature to wind down official  support, at least immediately.  Liquidity being 
less of an issue, unused limits under existing faciliti es could be reconsidered. However, credit risk 
support was still much needed, and the G-20 packag e had to a large extent been succesful in 
mitigating such risk. When small and medium-sized  enterprises still faced liquidity constraints, 
perhaps alternative ways of suppor ting them could be considered. The IFC made a written proposal to 
standardize some of the "know-your customer (KYC) requirements" as a way to ease counterparty 
assessment, and hence provide more abundant and affo rdable liquidity to healthy but small trading 
companies that are currently not on the "map" of financial institutions.  
5. The Director-General concluded on this item th at there was no need to activate some of the 
liquidity contingency that had been considered by the G-20 on top of the targeted $250 billion of 
support to short-term trade finance.  He also reported that the sense of the meeting seemed to be that it 
was premature to reduce significantly public support to  trade finance for the time being – in particular 
on the risk mitigation side – and that when this we re to be considered, provi sion should be made in 
favour of the weak end of the mark ets.  It was al so suggested during the meeting that consideration 
could be given to enhancing capacity building in th is sphere under the Aid-fo r-Trade umbrella, and to 
the possible creation of a trade finance facilitatio n programme at the African Development Bank. 
Members of the BAFT agreed to deliver a short not e about ways and means to "re-hook" the "small 
players" (small countries, small banks and sm all enterprises) to mainstream markets.  
6. With respect to regulatory issues, it was confirme d by participants in the meeting that a phase 
of inter-institutional dial ogue had started in a constructive ma nner. The Basel Committee Secretariat 
indicated that it was ready to engage the discussi on with representatives of the industry based on hard 
facts and data. The objective of the Committee was to finalize its proposals on capital and liquidity 
requirements by the end of 2010. On its side, the indu stry raised some of its traditional concerns with 
respect to the non-recognition of the safe character of trade finance under the Basel II framework, the 
imposition by most national regulators of a very capit al intensive one-year maturity floor for what was 
a 60 to 90 days, self-liquidating and roll-over financ e business. With respect to new proposals, an 
exchange also took place on the rationale for the in clusion of a leverage ratio on off-balance sheet 
letters of credit and similar classes of assets. The representative on the industry acknowledged, 
though, the need to provide appr opriate data for making a good case regarding the low risk character 
of short term trade finance. Meetings had alread y been scheduled by the Asian Development Bank 
and the International Chamber of Commerce, the tw o co-sponsors of the newly established pilot trade 
credit default register, to analyze this data with the Basel Committee. The Director-General concluded 
that the discussion had proved useful, and that the collection of 5-year data provided a useful time 
perspective, reflective of both the highs and lows of the recent credit cycle. He reiterated the need for 
a fact-based direct dialogue, not necessarily in th e WTO, although he was as always available to 
support dialogue.  
7. In summarizing the discussion at the meeting, th e Director-General concluded that we could 
see an improving, although varied picture of the trad e finance market situation, which required special 
attention for Africa, small countries in other regi ons and small and medium enterprises, for which 
liquidity was still an issue. The G-20 needed to ta ke this into account in considering a gradual exit 
strategy from its support package, and consid eration was to be given by both the African 
Development Bank and by the BAFT on the risk of marginalization of the above-mentioned smaller 
players in world trade. The WTO would play its pa rt by encouraging possible actions through the Aid-
for-Trade Initiative. The WTO would also continue  to act by way of persuasion and awareness-
building to address the challenges of trade finance, particularly on regulator y issues and exchange of 
information. 
 
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