DEPUTY DIRECTOR-GENERAL ALAN WM. WOLFF
I am pleased to welcome you to the WTO as representatives of the trade finance community. I recognize representatives from multilateral development banks involved in trade finance, from the Financial Stability Board Secretariat, from leading private sector financial institutions and companies, and from professional associations such as the Bankers Association on Finance and Trade, the International Chamber of Commerce, the Berne Union, Factoring International and G-NEXID.
These meetings should offer useful ideas that can become a basis for cooperation between all institutions present today. The short report we produce provides a useful input for the discussions of our Members. It supports institutional momentum for trade finance.
To start our meeting, I will offer a few comments on trade developments and recent progress made in the past year.
Estimates of trade flows in 2018 are still preliminary, but it appears that the growth of trade volumes has been close to 4%, a bit short of the 4.5% recorded in 2017. Despite the effect of trade tensions, trade flows have been sustained by relatively healthy economic activity especially in the world's largest economy. Again in 2018, trade has grown faster in developing countries than in developed ones. In the past decade, the share of intra-developing countries' trade has increased from one quarter to one third of global trade flows.
This means that a bigger share of the trade finance market supports transactions in developing countries and between developing countries. Still, as we know from the Asian Development Bank's Trade Finance Gap survey, this is where the trade finance gaps are the largest. By reducing these gaps, we could increase the trade opportunities of developing countries, which, in turn, drive world trade growth.
As this group has discussed in recent years, there is set of reasons explaining trade finance gaps. Some of these reasons are of developmental nature, for example low levels of financial inclusion and lack of workforce capabilities. Other reasons are related to high perceptions of risk, including that of regulatory risk.
In the past year, the Director-General of the WTO Roberto Azevêdo has been reflecting with WTO Members and heads of partners institutions on progress made since he had launched in 2016 the Trade Finance and SME's initiative, and has been discussing next steps.
The proposals made by the Director-General in 2016 were fourfold: support multilateral development banks' trade finance facilitation programs by way of advocacy; help increase capacity- building support; maintain an open dialogue with trade finance regulators; and continue to track trade finance gaps.
Thanks to the mobilisation of all development institutions around the table today, the amount of trade supported annually since the beginning of the initiative has increased by about 50%, to some $30 billion in 2018. The objective of trade finance programs of multilateral development banks is not to fill the entire gap, which is beyond their capacity, but rather to support trade in challenging markets, thus facilitating learning-by-doing by local financial institutions involved in the program. In this respect, the foot-print of multilateral institutions is very important. It has increased significantly in recent years, thanks to the accumulated and sometimes combined efforts of the highly competent teams of the IFC, the African Development Bank, the African Import Export Bank, the European Bank for Reconstruction and Development, and Islamic Trade Finance Corporation. Direct funding of transactions is also directly supporting traders, notably SMEs. This SME focus is very prominent in trade finance facilitation programmes.
The Asian Development Bank alone had supported trade transactions of 3,500 SMEs in 2018. Progress had also been made in addressing knowledge gaps in local financial institutions. Multilateral development banks have boosted their capacity building work on trade finance, in collaboration with the ICC and the WTO. Together they have trained a record of 2,600 individuals in 2017 – across 85 countries, and, according to a first estimate, about 2,000 in 2018. This is well above the objective of training 1,000 trade finance specialists per annum.
In addition, the Director-General worked with the Chief Executive Officer of the International Financial Corporation (IFC) and the Chair of the Financial Stability Board (FSB) to address some of the regulatory challenges experienced by trade finance providers, notably in developing countries.
The Director-General has talked several times to Governor Carney in the past years. Both leaders agreed to their incremental steps strategy. This pays off.
The WTO and IFC participated in a workshop, at the Bundesbank, on the promotion of KYC utilities.
The WTO invited Gerhard Hartsink, Chairman of the Global Legal Entity Identifier's Foundation, to present the LEI to a full room of WTO Ambassadors and other diplomats. He was received with great interest and received many questions.
The WTO participated with the FSB in a workshop organized with the World Customs Organization to examine the possible synergies between the Legal Entity Identifier and the WCO's Trade Identification Number.
The WTO has been a tireless advocate of Multilateral Development Banks' own repositories for customers.
Joint missions in the field have gathered experts from the FSB, IFC, WTO and multilateral development banks to deliver knowledge on trade finance and on compliance requirements. More is expected in 2019.
At the Annual Meetings of the IMF and World Bank in October, the Director-General and Philippe Le Houérou, CEO of the IFC, co-hosted a session on Financial Inclusion in Trade, aimed at discussing future inter-institutional steps that would be necessary to reduce the $1.5 trillion global trade finance gap. Heads or senior officials of the IMF, EBRD, Islamic Development Bank, African Import Export Bank (subsidiary of the African Development Bank), and FSB also participated in this public session. DG Azevêdo stated: “We need to make global trade more inclusive. But trade inclusion needs financial inclusion. So we need to continue developing concrete ideas and solutions that make a real difference. Working with a range of partners — including the private sector — can help provide momentum to this work,”
It was decided that more inter-institutional cooperation was needed to address the shortages of trade finance hindering the trade opportunities of many developing countries; focus had to be placed on compiling country experiences, positive and negative, regarding the compliance challenges of trade finance providers in developing countries, and in finding the appropriate tools allowing local providers to keep their correspondent banking relationships with the rest of the world.
DG Azevedo and Philippe Le Houérou decided to have a short booklet produced concerning sharing best practices (a collection of country cases) on regulatory compliance (Anti-money laundering (AML) - know-your-customer (KYC) - countering financing of terrorism (CFT)) in trade finance. This would be a joint publication, but the WTO and the IFC are eager to open it to partner institutions – so that they can add country case studies of their own.
I also understand that the WTO informal Working Group on MSMEs has decided to collect information on national MSME trade finance programs to better understand national efforts.
Let me now come to the organization of today's meeting.
While, I cannot stay for the entire duration of today's meeting, I am interested in the progress that you make but Marc Auboin will take over the chair.
The conversation will start with the Group's traditional review of the market situation and how it should be characterized when it is reported to the Director-General.
Marc will call on the commercial banks and firms to speak first. Then he will call on the multilateral development banks. The International Chamber of Commerce may brief participants on what to expect from its 2018 annual survey. Then Marc will ask the representatives of the professional associations present today for their views.
Turning to policy areas for discussion, I suggest that you may want to discuss trade finance facilitation programs, capacity-building, regulation and gap detection, taking advantage of the presence of our FSB colleague.
Marc Auboin will circulate shortly the usual short report after the meetings.
Thank you, I look forward to a report on the progress that you make today.