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In total, 30 people representing 19 international and regional financing
institutions, private banks, credit insurance agencies and the WTO
Secretariat participated at the meeting.
Participants first made a rapid stock-taking on current market conditions;
then they focused on the measures that are being taken, and finally they
shared proposals, initiatives and ideas that can contribute to mitigate the
deterioration of the current situation.
Among the problems identified are the following:
The main one is the shortage of liquidity to finance trade credits. The
market currently estimates the liquidity gap in trade finance at about $25
billion.
The second is a general re-assessment of the risks caused by the financial
crisis and by the slowing down of the world economy.
These problems are being felt most acutely by traders and banks in the
emerging market economies.
Among the measures that are being taken or considered are the following:
The World Bank/IFC is actively studying a tripling of the ceiling, to $3 billion, of the trade finance guarantees available under the IFC's trade
finance facilitation programme.
Export credit agencies have increased their business activities by more
than 30 percent in the last twelve months.
National governments, for example Germany, Hong Kong (China) and Japan,
have actively being backing this increase.
Among the solutions on a medium term basis are:
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Fill the gap of liquidity by increasing the opportunity for commercial
banks to co-share risks with international financial institutions and export
credit agencies.
-
Improve mechanisms of information sharing, risk assessment and data
collection on trade and finance.
-
Develop mechanisms to allow for more co-financing trade between private
banks, export credit agencies and international financial institutions.
The overall objective is to keep trade flowing as an important contribution
to address the current economic crisis
Background
More than 90% of trade transactions involve some form of credit (in
particular short-term), insurance or guarantee. Trade-financing is the
lifeline of trade. Trade finance is in theory one of the most secure modes
of finance due to its short maturity. But now there is some tightening of
trade finance around the world.
The rapid expansion of world trade in the past few years could not have
taken place without the traditional sources of financing, both long and
short-term. While short-term finance, like any form of credit, involves a
commercial risk — for example the exporter being unable to secure payment
for his merchandise in case of insolvency of the importer, or the importer
bearing risks of alteration of goods or delayed delivery — and other risks
(transportation, exchange rate, political risk), trade financing is still
considered as relatively routine and secure given the short maturity and the
supporting documentation involved. Trade finance is providing fluidity and
security to the movement of goods and services worldwide.
The supply of trade finance used to be more resilient in periods of
financial instabilities until the Asian crisis. But trade finance has now
become extremely sensitive to liquidity squeezes, as shown in the
Argentinean crisis (2002) and most recently in the context of the sub-prime
mortgage crisis. Trade credits are no longer distinguished from other loans
by creditors — and hence are subject to the same restrictions in case of
risks.
When did the problem surfaced in the WTO.
It surfaced in the wake of the Asian financial crisis (in 1997) when credit
lines for the financing of imports and exports from and to crisis-stricken
countries had been interrupted abruptly, leading to a collapse of trade for
a certain period of time at the height of the crisis. At that time, and also
during the following crises (Russia 1989-99, Brazil 1999, Turkey 2001,
Argentina 2002), there was real concern among many developing countries that
their trade opportunities and policies were being undercut by a variety of
international financial problems, most importantly unstable capital flows
and the threat of recurring financial crises and unsustainable foreign
indebtedness.
What's the role of the WTO:
The WTO does not provide trade finance nor is an international financial
institution. But members want the WTO to play a role in alerting about the
problems, facilitating discussion among members and encouraging
international cooperation in this field.
Work on Trade and Finance at the WTO.
The creation of the Working Group on Debt, Trade and Finance was initially
proposed at the WTO Ministerial Conference in Seattle in 1999 but it did not
come into existence until the Doha Ministerial Conference in 2001. The
mandate for the Working Group is to examine the relationship between trade,
debt and finance and also to examine any possible recommendations on steps
that might be taken with the purpose of enhancing the capacity of the
multilateral trading system to contribute to a durable solution to the
problem of external indebtedness of developing and least-developed
countries; and strengthening the coherence of international trade and
financial policies, with a view to safeguarding the multilateral trading
system from the effects of financial and monetary instability.
The Aid for Trade initiative, which has been a prominent feature in the WTO
agenda for the last few years, also has studied the problem of Trade Finance
and its possible solutions. Aid for Trade is a complement to the current
Doha Development Agenda negotiations aiming at reducing and eliminating
trade barriers, and helping developing countries, in particular the least
developed, to build the trade capacity and infrastructure they need. The
final goal is to use trade opening as an engine of economic growth to fight
unemployment and poverty.
WTO's Director-General recent statements on the problem:
In his letter of 10 October 2008,
“The purpose of the meeting (of November 12, 2008) will be to review how the
international market for trade-financing is faring in view of the current
very difficult conditions on international financial markets, and to examine
how to maintain and improve the availability and accessibility of trade
finance facilities at affordable rates for developing countries, especially
low-income countries”.
In his report to the Informal TNC Heads of Delegations of 10 October 2008,
“The financial crisis may also be having an impact on developing country
access to financing of imports and exports. As you know we have held a
number of meetings on this issue at the WTO with both multilateral
institutions and private banks, the last one in April 2008, to check
availability of trade financing at affordable rates. Up until then, the
situation seemed to be stable with volumes and rates at normal levels. But
just this week Brazil brought this issue to the forefront. Given the
deterioration of the financial landscape, and despite the welcomed
announcement yesterday by the World Bank IFC of an increase in its trade
financing programme by $500 million, I have today convened major providers
of trade finance to a meeting on 12 November to examine this issue and find
ways to alleviate the situation if it was to deteriorate”.
In April 2008,
He wrote to the President of the World Bank and of the regional development
banks to highlight the difficulties faced by some private institutions to
maintain and increase their trade financing role and by some countries to
receive such finance at affordable terms.
Participants at the November 12 meeting:
WTO
Mr. Pascal Lamy, Director-General, WTO
Mrs. Valentine Rugwabiza, Deputy Director-General, WTO
RDBs and IFI
Trade Finance Facilitation Program, EBRD
Trade Facilitation Program, Inter-American Development Bank (IaDB)
Trade Finance Facilitation Program, ADB
Global Trade Finance Program, IFC (WB Group)
Trade Finance Program, Islamic Development Bank (IsDB)
Regional Integration and Trade Department, African Development Bank (AfDB)
African Trade Insurance Agency
Trade Division, International Monetary Fund, Washington
World Bank (Representative Office in Geneva)
Berne Union
Secretariat of Berne Union
Private Banks
Global Trade Department, ING
Global Trade Transactions, HSBC
Global Trade Services, JP Morgan Chase
Global Trade and Chain Supply Financing, Citigroup
Global Trade Services, Commercerzbank, Frankfurt
Global Trade Department, Royal Bank of Scotland
Senior Management, Banco Nacional do Desenvolvimento Econômico e Social, (BNDES),
Brazil
Eximbank
Secretariat, ICC Banking Commission
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