WORLD TRADE  
ORGANIZATION  WT/WGTDF/W/44 
23 March 2009 
 (09-1432) 
Working Group on Trade, Debt and Finance  
  
 
EXPERT GROUP MEETING ON T RADE FINANCE – 18 MARCH 2009 
 
Note by the Secretariat
 
 
 
1. The WTO hosted an expert meeting on trad e financing on 18 March 2009. The previous 
meeting on 12 November 2008 had confirmed a tighteni ng of the trade finance market in the course of 
the year due to a combination of liquidity shortag es and a general re-assessment of counterparty risk 
that resulted in a mis-match between supply and de mand. Market participants  gave a broad estimate 
of the gap in the trade finance market of $25 billion,  which was the amount of trade finance that banks 
kept on their books but could not off-load on the secondary market.  In general, trade finance 
providers foresaw a further deterioration of market conditions in the first quarter of 2009.  Although 
the slowdown in world trade was expected to reduce both the supply and demand for finance, still the 
need for risk mitigation was expect ed to increase and with the increas e in the perception of risk the 
appetite for investing liquidity in trade finance markets was expected to shrink further.   
2. The objective of the March meeting was threefol d: (i) to take stock of current market 
conditions, in particular relative to the tight situatio n described in November;  (ii) to try to fill the 
information gaps among participants on what is be ing done by way of collecting data and building 
contingencies to handle the crisis; and (iii) to brainstorm on ideas and initiatives that could further 
mitigate the current situation and prevent further deterioration. 
3. In his introduction, the Director-General said th at immediately after the last meeting, he met 
WTO Members and encouraged them to take up tr ade finance matters through their Ministers and 
representatives on the Boards of Directors of regi onal development banks, multilateral institutions, 
and with their export credit agencies. He also met personally with several heads of regional 
development banks and several trade ministers (mos t recently from China, Japan, Korea, Australia 
and New Zealand, and of course others at  Davos at the end of January).   Trade finance also received 
attention from the last G-20 summit and would do so again at the upcoming G-20 meeting in London.  
The Director-General also wrote to Governor Dra ghi, the Chairman of the Financial Stability Forum, 
to call for an examination of the Basle II framework  for trade finance in the light of the various 
positions expressed – bearing in mind that the WTO had no jurisdiction in this domain.  On their side, 
WTO Members had a chance to exchange views w ith the Deputy Secretary-General of the Basle 
Committee on Banking Supervision in the context of  the WTO Working Group on Trade, Debt and 
Finance.  The WTO was seeking to mobilize public-sect or backed actors to shoulder some of the risk 
from the private sector, and to do more by way of encouraging co-financing between the various 
providers of trade finance. It was also doing its utmost to remove technical obstacles to risk co-
sharing and co-financing among various institutions, in order to enhance the supply of trade finance.   
4. While the WTO did not finance trade, it worked hard to promote policies for open trade and 
orderly trading relations.  The scarcity of trade fi nance was a systemic issue for the world economy, 
and unless constraints were relaxed it could slow do wn the growth of world trade and output. This 
being said, the Director-General reported that so far, the response of public-backed institutions had 
been positive.  Efforts since last November had focused on three major elements: first, regional 
development banks and the IFC had roughly doubl ed existing capacity, which now approached $7 WT/WGTDF/W/44 
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  billion on a roll-over basis, thereby financing potentially some $30 billion or so of trade involving 
small countries and small amounts ($250,000 on aver age by transaction). Second, export credit 
agencies had also stepped in, essentially with programmes for increased guarantees, short-term 
lending of working capital, and credit guarantees ai med at small and medium enterprises. Third, 
central banks in countries with large foreign exch ange reserves – and/or which for one reason or 
another faced a shortage of liquidity in dollars – had been supplying foreign currency to local banks 
and importers. Unfortunately, such facilities were unavailable to developing countries with lower 
foreign exchange reserves. 
5. On the current market situation, most partic ipants agreed that although trade flows were 
decreasing sharply, constraints to trade finance s till existed – in part due to the general liquidity 
shortage and increasing risk aversion in the banking sector, as well as the concentration of the banking 
industry, which was leaving individual institutions  with bigger trade finance portfolios, but not 
necessarily commensurate increased capital and liquidi ty to back them up. The partial shut-down of 
the secondary market had been detrimental to the w hole industry, and it needed to be revived. While 
by and large trade financing volumes seemed to be  holding up to support north-north trade (albeit 
with some "re-intermediation" of trade finan ce away from open account operations to traditional 
letters of credit), there was a specific deteriorati on in the supply of finance to developing countries' 
markets, affecting north-south and south-south trade.  Africa was most affected. In Latin America, a 
difference had to be made between large countries,  which continue to benefit from financing, and 
smaller ones, which experienced downgrading of sove reign risk and shortages in liquidity. In Asia, 
some large emerging countries were doing better than others, but the overall situation was one of great 
concern for both international and local banks. In short, developing countries were affected by a 
deterioration of confidence, credit risk, capital and liquidity.  
6. With respect to information gathering, the gr oup heard reports from: i) the International 
Chamber of Commerce (ICC) on the trade credit and trade flow situation; ii) the Berne Union of 
Export Credit Agencies and insurance on the mobiliza tion of such institutions (with a detailed account 
of current interventions); iii) the International Mo netary Fund along with the Bankers Association on 
Finance and Trade on the volumes of trade finance and situation in emerging economies; and iv) the 
ICC and the Asian Development Bank on the possibl e creation of a Trade Credit Bureau. The IFC 
provided an update on its "know your customer st andard" project to pool information with 
commercial banks. Finally, the World Bank discussed its efforts to provide an estimate of the "current 
market gap" – based on the above-mentioned ins titutions' work and collaboration with the WTO 
Secretariat. According to the World Bank's Research  Group, roughly 90 per cent in the reduction in 
trade finance would result from a reduction in trad e volume, while 10 per cent would come from the 
contraction in the supply of trade finance due to th e current financial crisis. The market gap could be 
in the order of $100 to $300 billion, keeping in mind that this accounted for a 1 per cent to 3 per cent 
reduction of supply in a market estimated in 2008 to be around $10 trillion. This being roll-over 
finance, the gap would nevertheless  need to be divided in terms of net flows by the average maturity 
of letters of credit, which could vary widely across areas of operation. The group recommended that 
the coordination of institutions be improved in the ar ea of information gathering, including in respect 
of  the good credit record of trade finance as a fina ncial instrument.  This would help trade finance 
bankers to make their case internally, and externally when speaking with regulators. 
7. With respect to recent developments and pro posed programmes developed by international 
financial institutions and export credit agencies, ther e had been a significant increase in the supply of 
risk mitigation instruments – a welcome developm ent for banks in the current re-appraisal of 
counterparty risk, in particular vis-à-vis  developing country counterparties. The liquidity issue was 
increasingly being addressed by such institutions, through the creation of liquidity (co-lending) 
windows under trade finance facilitation programmes and short-term pre- a nd post-shipment lending 
(and in some cases including working capital).  Some export credit agencies were seeking to favour 
small and medium-sized enterprises in particular. The World Bank was also taking country initiatives  WT/WGTDF/W/44 
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  in support of trade finance, in particular throug h the strengthening of export credit agencies in some 
developing countries.  
8. One of the most significant developments in  the recent weeks was the initiative of the 
International Finance Corporation to create a Global Trade Finance Liquidity Fund, with funds from the IFC and donors accounting for 40 per cent of th e Fund, and topped up by funds from commercial 
banks for the remaining 60 per cent.  This additiona l liquidity would be used on a priority basis to 
finance trade operations involving developing countr ies, in particular the poorest. The Bankers 
Association on Finance and Trade committed to do its utmost to disseminate information to members 
on such new programmes. There were indications th at some large countries were ready to share the 
current approach towards a coordinated response to  the trade finance problem, and would soon unveil 
support programmes to this end.  In general, th e commercial banks expressed satisfaction with the 
growing sense of private-public partnership (a lthough most operations were carried out on a 
commercial basis).  There was a view that the mark et situation would have been worse without the 
relatively quick intervention of international fina ncial institutions and export credit agencies. They 
nonetheless insisted that obstacles s till remained in the area of regulation (implementation of Basle II 
rules). 
9. The Director-General concluded that a number of positive steps had been taken recently and 
that this was due to the collective efforts of all implicated institutions and their willingness to adopt a 
common cooperative strategy to shouldering risk .  The WTO would continue to act by way of 
persuasion and awareness-building, and eventually by  trying to leverage politi cal energy to address 
the challenges of trade finance. The Director-General  had also been working with the President of the 
World Bank and the Managing Director of the IMF to address the liquidity issue, not only in the 
context of developed country banks , but also on the developing count ry side. Mobilizing capacity and 
funding in trade finance was an integral part of  the Aid-for-Trade Initiative, and certainly was a good 
way to proceed in mobilizing meaningful resources for the hard and soft trade infrastructure in 
developing countries.  In conclusion, it was necessary to look at the next G-20 meeting but also 
beyond, and to try and anticipate de velopments throughout 2009.  In  current market conditions, the 
group should continue to meet and network on an on-going basis a nd reconvene at a later stage, 
possibly towards the end of 2009.   
 
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