Excellencies, ladies and gentlemen,

It is a pleasure for the WTO be here today so that together we may analyse a major driver of foreign trade that we often underestimate: trade finance.

I would like to express my thanks to Fernando Serrano Guadarrama, advisor to the Deputy Secretary of the Economy, for honouring us with his presence, and for his inspiring introductory remarks.

I would also like to thank ITAM for having volunteered to host and co-organize this launch event. Finally, let me acknowledge the role of the International Finance Corporation (IFC) in supporting today's event. I am always delighted to team up with the IFC, the World Bank's private sector arm. Since 2021, the WTO and the IFC have stepped up their collaborative work to better understand trade finance gaps and how to fill them, and today we are launching a joint report on trade finance focused on Guatemala, Honduras and Mexico. We presented similar studies focused on West Africa at the annual meetings of the World Bank and the International Monetary Fund (IMF) in 2022; and in 2023 at the WTO on the Mekong region.

As I mentioned, we have disseminated these reports both at the head offices of international organizations and in capitals. Allow me to share an interesting fact with you all. When disseminating those regional reports, we realized that the interest in capitals was quite significant, perhaps greater than in the head offices of international institutions. In capitals, we were able to gather the interested stakeholders, such as the financial sector, export credit agencies, trade officials and academics. For this third edition, the Director-General therefore rightly suggested that we launch the report directly in Mexico City, today, combined with a presentation in Guatemala City tomorrow.

Without revealing the details of the report, which will be presented by our WTO and IFC experts soon, allow me to make three remarks about the topic at hand.

The WTO and the IFC cooperate on trade finance because it is a key enabler of foreign trade.

Our developing country members regularly identify the lack of trade finance as a major obstacle to their participation in global trade. The Asian Development Bank (ADB) estimated that the global trade finance gap, mainly in developing countries, has reached 2.5 trillion dollars. Micro, small and medium-sized enterprises (MSMEs) and women-owned businesses find it particularly hard to access trade finance. According to the ADB, 40% of trade finance requests from MSMEs, and up to 70% from women-owned businesses, get turned down. Many of them give up trying.

Inadequate access to trade finance functions, in effect, as a prohibitive trade cost, holding back trade and closing off economic opportunities for businesses and individuals.

The local specifics of trade finance gaps vary considerably.

This is why, in November 2021, the WTO and the IFC decided to undertake a series of “deep dives” into the trade finance markets of certain regions. The idea was to use country surveys and improved analytics to reach a better understanding of where the trade finance gaps were and how they came about.

This, in turn, would help all stakeholders to better direct existing resources to fill these gaps. For us, this means, for example, increased IFC financing, as well as joint WTO-IFC technical assistance for capacity-building for banks, exporters and importers in emerging markets.

We are proud to see that the IFC is currently investing in value chain finance in Mexico. Value chain finance unlocks the scarce resources of companies such as SMEs to enable them to participate more in value chains, and helps companies to save their cash-flows for investing and moving up the value chain.

What are we learning from these three reports?

In the countries that we studied in West Africa, the Mekong region and now in the western hemisphere, only a limited share of trade is supported by trade and value chain finance. In advanced economies, this share is at least 60%.

For example, we noted that, in the markets studied, the limited available trade finance goes firstly, if not solely, to already well-established companies.

Surveys also show that larger companies make greater use of trade finance than SMEs.

In Mexico and neighbouring countries, the low level of use of trade and value chain finance is a function of companies' low level of general access to finance. Only a quarter of importers and exporters have access to credit.

In each of the regions that we examined, trade finance was heavily concentrated: too few banks directing too little finance towards a small group of well-established and large traders.

While, in some value chains, trade finance can flow from large traders to smaller suppliers, this is not always the case — it depends on companies and sectors. Smaller companies suffer from a lack of access to trade finance.

Indeed, if suppliers pay for their imported inputs “cash-in-advance” and are then paid late for their exports, their scarce cash-flow resources are locked into the trade process, instead of being used for investment and other productive purposes. We have noted in some countries that more trade and value chain finance, at a lower cost, could allow companies to free up resources for investing and moving up the value chain.

We calculate that, for Mexico and the other countries in the region that we examined, doubling the trade finance coverage would increase trade flows significantly and contribute to the geographic diversification of trade.

Important gains would accrue to local SMEs and second-tier local suppliers of international value chains. More trade finance means not only increased trade integration, but also greater socioeconomic inclusion through trade.

The analysis also shows cases where we have identified forward-looking public policies. For example, Mexico has shown foresight in promoting an active market for value chain finance.

According to the 2023 WTO-ADB Global Value Chain Development Report, the share of value chain trade in total goods trade has increased globally from 41% in 2018 to 46% in 2023.

The international value chain finance market is estimated to support at least 2 trillion dollars of value chain trade annually.

Mexico is an example of successful integration into value chain production. The systematic adoption of electronic invoicing and the support of NAFIN have together created an active factoring market in Mexico, one of the most active in Latin America. The potential for further development, in cooperation with institutions such as the IFC and the Inter-American Development Bank, is considerable.

Looking ahead

Trade transactions in developing countries should continue to be supported by trade finance programmes implemented by the IFC and other multilateral development banks. These programmes support imports and exports of food, medicines and other critical goods when international banks withdraw in periods of financial stress.

They also provide learning-by-doing experience for participating banks in emerging markets, allowing them to eventually reach a point where the private sector can provide trade finance without support from multilaterals. In this way, they are very useful.

We must increase our efforts to integrate local producers into global value chains. At the autumn meetings of the IMF and the World Bank, the Director-General and the heads of multilateral development banks announced an action plan to:

1. increase financial support through their existing programmes;
2. work to strengthen the legal infrastructure;
3. build market awareness and stakeholder capacities; and
4. work with financial institutions and financial technology companies to increase product diversity and availability.

In general, the WTO Secretariat continues its work, whether in the trade finance field, through its investment facilitation efforts or by supporting implementation of the Trade Facilitation Agreement, to reduce international trade costs. In many emerging countries, reducing shipping and financing costs and border clearance times is key to being competitive internationally. The adoption of digital technologies is paramount in this regard.

In trade finance, we remain at our Members' disposal to promote solutions and engage in expert discussions, such as today's, with the support of multilateral development banks and development finance institutions.