WORLD TRADE  
ORGANIZATION  RESTRICTED 
WT/WGTDF/M/7 
7 June 2004 
 (04-2391) 
Working Group on Trade, Debt  
and Finance  
 
 
 
REPORT OF THE MEETING OF 13 MAY 2004 
 
1. The Working Group held its seventh meeting on 13 May 2004 under the Chairmanship of 
Ambassador Péter Balás (Hungary).  The Work ing Group adopted the Agenda contained in 
WTO/AIR/2304. 
Agenda Item I:A  Trade-Financing 
 
2. The Chairman  noted that, in affected countri es, the drying up of traditional sources of trade-
financing in periods of financia l crisis could take dramatic pr oportions, causing the stoppage of 
imports and exports. In response to concerns raised in the Group about  this issue, the International 
Monetary Fund (IMF) had held a seminar in May 2003 with the involvement of the principal stake-
holders, including international fi nancial institutions, other multila teral organizations such as the 
WTO, regional development banks, export credit ag encies and private sector banks. This seminar 
served as a basis for a paper by the staff of the IM F laying out proposals to ensure more secure and 
predictable sources of trade-finance.1  
3. The Director-General, Dr. Supachai, had followe d up earlier this year by inviting the same 
group of experts to discuss the contribution that the WTO could make to the process. The Director-
General's initiative was based on analytical work done  by the Secretariat, circulated in document 
WT/WGTDF/W/23. The report on the expert group meeting chaired by the Director-General was 
circulated in document WT/WGTDF/W/22. Dr . Supachai briefed the General Council on 
12 February 2004 on his initiative, and suggested th at the issue be brought back to the Working 
Group. The Chairman indicated that, in his view , the broad lines of a framework providing for a 
solution to the problem of short-term trade finance seemed to be emerging from IMF and WTO documents, and it was timely for Members to express th eir views on the work done to date. He invited 
the representatives of the IMF and the WTO Secretar iat to present their documents as referred to  
above.  
4. The representative of the IMF recalled that during recent financial crises, trade financing to 
crisis countries, in particularly bank-financed tr ade credit, fell dramatically, by as much as 30-50 per 
cent in Brazil and Argentina in 2002, about 50 per cent in Korea in 1997-99, and by over 80 per cent in Indonesia during the Asian crisis. The scale of th e collapse seemed to be disproportionate to the 
level of risk. A concern to the IMF had been that a collapse in trade finan ce meant that a country's 
ability to export – and therefore to increase export earnings to help it out of a crisis – could be 
seriously compromised. Another concern was whether,  in retrospect, something could have been done 
to limit the extent of the collapse or mitigate its impact. 
5. Looking at the causes of the problem, he indicat ed that supply-side factors, such as the 
response by banks as leveraged institutions, the l ack of insurance when it was needed, and herd 
behaviour among financial institutio ns, were primarily responsible for the sharp decline in trade 
finance. In recent crises, banks had raised interest  rates sharply, shortened credit line maturities, and 
had charged higher fees for confirming letters of credit. Also, insurance, when it was needed, had 
                                                      
1 IMF (2004), Trade Finance in Financial Crises: An Assessment of Key Issues, Washington DC. 
Available on the IMF website at www.imf.org. WT/WGTDF/M/7 
Page 2  
 
become more difficult to obtain as trade insurers tig htened their coverage policies. Trade credit lines 
were among the first to be cut despite the fact th at they were usually the least risky assets. Under 
pressure from shareholders, the non-renewal of tr ade credit was the easiest, quickest, and cheapest 
way of reducing country exposure. Another observati on was that declines in trade finance were often 
associated with weak domestic banking systems. 
6. As a result, the loss of financing to the trade sector disrupted countries' trade and growth 
performance, possibly exacerbating the crisis. Firms in volved in foreign trade and faced with a sudden 
loss of liquidity found it hard to maintain trade a nd production activities. Furthermore, the decline in 
trade credit reduced the supply of spot foreign exchange – as trade ac tivity declined, foreign exchange 
earnings from exports also dropped. The resulti ng pressure on the exchange rate compounded the 
country's external debt and payment difficulties and increased country risk, leading to further cutbacks 
in all funding, including trade finance. 
7. The IMF representative indicated that various schemes to support trade finance during crises 
have involved the private sector, the government, multilateral financial institutions, and official 
bilateral credit agencies. Some countries provided funds directly or through the domestic banking 
system to exporters and importers, in order to alleviate the shortage in trade finance when 
international banks reduced their trade credit lin es. Multilateral development banks intervened by 
providing financing to government agencies for on-lendi ng to their corporate clients. In some cases, 
they provided guarantees as a means of reducing risk perceptions. Targeted tem porary financing, and, 
in some cases, agreements with international banks , were helpful in addressing liquidity shortages, 
risk perceptions and collective action problems. 
8. As to the lessons to be learned from past cris es, it appeared that improving the resilience of 
emerging market economies was the key objective to ach ieve in order to avoid future crises of this 
kind. The focus needed to be on implementing the right economic policies and institutional reforms to 
strengthen the legal and regulatory framework for international transactions, foster competition in 
foreign trade sectors, and deepen local capital mark ets. Better banking supervision could also help 
mitigate the decline in credit during a crisis.  He gave a number of examples by which perceived risk 
could be reduced, in particular through risk-sha ring arrangements among private and public creditors, 
and intervention by central banks. Recent experience  suggested that an effective approach could be 
built around multilateral development bank trade-finance facilities in support of actions by the country 
authorities to facilitate a resumption of private sector financing, complemented by a more coordinated approach by export credit agencies. The extent of the IMF's involvement in activating and 
coordinating these steps would likely depend on the circumstances of each crisis.  
9. The representative of the WTO Secretariat recalle d that the first discussion on trade-financing 
had taken place in the Working Group in July 2002, when Martin Endelman, Head of trade-finance at 
the Asian Development Bank, had presented his inst itution's involvement during the Asian crisis and 
the schemes developed by the Bank ever since. At the time, the presentation had drawn significant 
interest from emerging market economies, in partic ular from those countries which had been affected 
by the abrupt interruption of trade credit lines duri ng recent financial crises. In the past, short-term 
trade financing used to involve routine financing op erations, mainly in the form of documentary credit 
or open accounts, carrying little risk and low interest  rates.  During the July 2002 meeting, Members 
such as Brazil, Indonesia, Malaysia, and Turkey had i ndicated that this issue was at the heart of the 
matters that the Working Group should be addres sing. Some low-income countries expressed longer-
term concerns with respect to on-going difficulties to  attract this type of finance, due to low credit 
ratings, debt overhang, and limited access to international lending markets.  
10. The expressions of interest and concern by th e international trading community had been 
echoed in international financial institutions. The IM F had undertaken to take a closer look at the 
problem, as proposed by the Managing Director of the Fund to WTO Ambassadors at the dedicated 
Session of the General Council on Coherence in May 2003. The work undertaken by a group of high- WT/WGTDF/M/7 
 Page 3 
 
 
level practitioners had subsequently led to considerable clarification of new types of behaviour during 
recent financial crises by banks and other private actors; on this basis, it was possible to lay down 
steps that could be taken by the different institutions  involved to address the greater sense of risk felt 
by banks and insurers during, and possibly after, episodes of financial crisis.  One proposal was to 
develop improved coordination betw een the various institutions, private banks, export credit agencies 
and regional development banks, to  develop risk-sharing arrangements, co-financing schemes, and 
guarantee programmes that alleviate this sense of greater  risk in international banks about operating in 
developing countries. The IMF's paper had been insp ired by papers that were made available by 
bankers and regional development banks, by co-financing programs made available since the Asian 
financial crisis by nearly all re gional development banks in the worl d to guarantee short-term credit, 
as well as by other ad hoc solutions found by centr al banks, regional develo pment banks and export 
credit agencies during recent crises.  
11. The Secretariat of the WTO brought its own analytical contribution through the publication of 
WTO Discussion Paper No.2 in December. In additi on, after the publication of the IMF report, the 
Director-General of the WTO proposed to convene  the same group of high-level practitioners in 
Geneva to examine how the WTO could contribute to the framework of action and solutions that 
emerged from the Fund. Most of the points raised in the WTO Discussion Paper could be found in document WT/WGTDF/W/22; the report by the Director-General on his consultations with practitioners was available in WT/WGTDF/W/23.  Of particular interest in this paper was the link 
made between the trade-financing problem and the role of the WTO in financial services with its 
Agreement on Trade in Financial Services, and the link to the Agreement on Subsidies and 
Countervailing Measures. The Director-General had br iefly reported on this expert meeting to the 
General Council on 12 February, 2004.  Pending a d ecision by the Chairman of the General Council 
on whether Members wished to take this up again at the General Council level, it was essential that 
the Working Group reflect on it first. 
12. Beyond the progress accomplished in understandi ng the problem and developing a possible 
framework to increase the av ailability of trade finance in periods of crisis, it was interesting to note 
that the efforts by the IMF and WTO in the past months had provided a true dynamic to those that have the most important role in the markets (the  banks, RDBs and ECAs) to design original risk-
sharing arrangements, co-financing programmes and ot her arrangements that have spread out in the 
past one or two years among financial institutions. Heads of trade-financing programmes had told the 
IMF and WTO representatives that the work engage d under their auspices had been very useful to 
obtain support of Board members in their respective institutions. This was already a tangible result of 
the work done in the past few months, as co-fina ncing programmes developed by regional institutions 
were being implemented hand-in-hand with the pr ivate sector and the governments of developing 
countries that were interest ed in these initiatives.  
13. The Chairman invited delegations to comment on the proposed framework of possible steps 
that had emerged from the Expert Group, both in the IMF and WTO.  
14. The representative of Brazil made a number of preliminary remarks, while reserving his right 
to come back to the issue at a late r stage. He paid tribute to the work  of the previous Chairman of the 
Working Group, Ambassador Gómez of Colombia. He thanked the Secretariat for the descriptive 
elements contained in the papers circulated for th e meeting, in particular in WT/WGTDF/W/23. With 
respect to paragraph 35 of that docum ent, he considered that more atte ntion should have been given to 
the need for reform and crisis prev ention at the international level, and not only at the national level. 
This was particularly true since most crisis-str icken countries during the As ian crisis were pursuing 
sound economic policies and benefite d from high levels of investor confidence immediately before 
the crisis occurred. Macroeconomic  imbalances were not the main cause of the crisis. Therefore, 
pursuing sound macroeconomic policies and generati ng investor confidence were not sufficient to 
avoid such crises, and, to be of help, early-warning indicators had to be read correctly. He agreed that 
hedging and other modern financia l instruments had limitations a nd could not be regarded as an WT/WGTDF/M/7 
Page 4  
 
insurance against the shortage of trade-financing,  the reason being high costs and limited availability 
in low income countries, and for small enterpri ses. While acknowledging the existence of various 
programmes from public institutions for "surgical" inte rvention purposes, he indicated that there was 
no "one-size-fits-all" solution.  
15. With respect to the role of the WTO, and in pa rticular the value of commitments in financial 
services to help solve the trade-financing problem, the representative of Brazil made the point that, 
although further competition in financial markets coul d contribute to increased financial stability, and 
hence the availability of trade-financing, ther e were other important considerations for the 
Membership to take into account before making GATS commitments. GATS commitments per se  
were not the main determinant for increased trade -financing. He made a number of points in support 
of this idea: First, the level of GATS commitm ents did not truly represent the level of local 
competition in countries. Second, the link between liberalizing the cross-border supply of financial 
services under the GATS and the liberalization of th e capital account was unclear, thereby calling for 
prudence before taking new commitments. Finall y, the positive and negative experience with 
liberalization confirmed the importance of the right sequencing of measures. In this regard, strong 
regulatory frameworks, including regarding prudential rules and an ti-competitive practices, were pre-
conditions for successful liberalization of financia l services. As regards the Agreement on Subsidies 
and Countervailing Measures, he was open to cons idering the notion of "exceptional circumstances" 
in periods of crisis, but cautioned that this s hould not be an open-door to any trade-distorting 
measures by export credit agencies (particularly in agriculture) in the WTO.   
16. The representative of Japan recognized the importanc e of trade-financing in periods of crisis, 
for both developing countries and the international trade and financial communities at large. Japan 
welcomed the recent encouraging movements by the IMF, regional develo pment banks and other 
relevant international financial organizations, to provide elements  of a "safety-net" for market 
participants by supplementing the trade-financing from the private sector in financial crisis. Japan had 
been, and still was, providing its own contribution to the general effort by supplying short-term trade-
financing, as well as long-term suppor t, to neighbouring countries in Asia  since the financial crisis in 
1997. Under the framework of the "New Miyaza wa Initiative", Japan committed to providing a 
package of support measures totalling US$30 bil lion, of which US$15 billion had been made 
available for short-term financial needs, including trade financing facilities in Asian countries. Japan 
was also of the view that regional swap arrangeme nts among central banks coul d be useful to finance 
short-term liquidity needs.  Japan had been activel y participating in the ne twork of bilateral swap 
arrangements under the "Chiang Mai Initiative" with ASEAN countries, China and Korea.  Finally, he 
referred to the "Asian Bond Market s Initiative", which had also contributed to stimulating long-term 
trade financing. The representative emphasized the importance of other players at regional and multilateral levels, but pleaded for increased harmonization and coordi nation of the various 
emergency schemes in order to create greater security  of trade financing during periods of crisis. This 
was an important element of cohere nce among the relevant organizations. 
17. With respect to the liberalization of financia l markets, he indicated that commitments in 
GATS schedules could facilitate trade-financing, sin ce they would encourage financial institutions to 
remain engaged in local markets, thereby fosteri ng stronger markets with enhanced liquidity. He took 
note that the main contributing f actor to the Asian financial cris is had been inadequate banking 
supervision and a lack of prudential control over high ly leveraged financial in stitutions. However, this 
did not contradict the principle of financial libera lization. Instead, financial liberalization should be 
viewed as compatible with prudential regulation, although in principle, there are limits under the 
GATS as to what was acceptable under prudential m easures. He viewed the securitization of lending 
and hedging of exchange rates as good market-oriente d solutions.  However, to be put in place in 
some developing countries these instruments needed the creation of modern market infrastructures, 
which in turn required the commercial presence of  foreign financial institutions which possess the 
know-how for such transactions.  Therefore, Jap an urged all Members to make commitments in 
GATS schedules that could bring about  benefits for trade-financing.  WT/WGTDF/M/7 
 Page 5 
 
 
18. While it was not entirely clear whether financ ial crises involved market failure, public 
intervention through the relevant international financial institutions  was justifiable when private 
sources could not provide adequate amounts of finan ce at an affordable pr ice, insofar as such  
intervention did not cause moral hazard problems. Japan appreciated the formulas put in place by 
relevant organizations such as risk sharing arrangements, co-financing schemes and guarantee 
programmes, but also wished to point out the r esponsibilities of credit rating agencies in influencing 
financial markets.  Japan therefore calle d for greater accountability of these agencies. 
19. The representative of the United States said th at the papers for the meeting were well done, 
rich in substance and detailed for discussion, alt hough many of the issues raised lay outside the 
competence of the WTO. The most direct linkage of trade-finance issues (during times of economic 
crisis) to WTO disciplines was with regard to c ountry commitments on trade in financial services in 
the GATS, although this fell into the remit of the Committee on Trade in Financial Services.  It was 
nevertheless a positive development that this linkage had been identified as an issue in the context of 
improving GATS offers or other trade finance issues.  She noted that the papers placed the trade 
finance issue in the most appropriate general cont ext possible which was that of pursuing policies to 
avoid crisis in the first place. She highlig hted paragraphs of the Secretariat paper 
(WT/WGTDF/W/23) where the importance of crisis prevention was emphasized, including the stability of macroeconomic conditions , reforms in the local financial system and in general micro-
economic policies that were conducive to competiti on, transparency and openness. The Secretariat 
paper had also noted the role of inappropriate govern ment policies in contributing to financial crisis 
and trade finance problems in the 1990s.  
20. As a general matter, her delegation considered that the WTO and trade liberalizing 
commitments made by Members under its aegis f undamentally contributed to the avoidance of 
balance-of-payments crises and trade finance pr oblems.  Such liberalizing commitments opened 
markets at the border, by implication strengthened the role of competitive market mechanisms within 
borders, increased transparency, improved national resource allocation, and thereby strengthened 
economic stability and growth.  In addition, GA TS commitments by Members to open financial 
services represented a step towards the avoidance of cr isis and reduction of risk. She insisted that, like 
other large importing countries, during the Asian fi nancial crisis the United States had refrained from 
closing its markets and had joined hands with intern ational financial institutions  to help raise finance 
for crisis-stricken countries. 
21. She summarized the points made by the United States at the 27 January 2004 Expert Group 
Meeting on Trade Finance.  These comments were b ased on U.S. experience in organizing first G-7, 
and later OECD, export credit agencies to keep tr ade finance available during the Asian financial 
crisis in the late 1990s: 
- Export credit agencies (ECAs) can only finance demand for exports originating in the 
country in which the particular ECA is located. 
- Large lines of official export financing can be put in place to encourage crisis-country 
demand for imports, but without effective demand by crisis country importers, these 
lines can go unused. 
- Demand, to be effective, requires that ECAs  set up lines of credit, identify local banks 
whose risk they are willing to accept, and that local companies have a demand for 
imports in the face of economic crisis;  it  also requires that these local banks be 
willing to intermediate the risk of local comp anies in import transactions to be able to 
utilize ECA financing.  ECAs are not in a position to reach into the local economy and to evaluate the creditworthiness of any but the very largest buyers for purposes of 
directly extending official export financing. WT/WGTDF/M/7 
Page 6  
 
- Therefore, SMEs, in particular, depend on locally-based banking intermediaries for 
external trade finance to be utilized during crises. 
- Therefore a sound, well functioning, banking system, and the presence of banks 
willing and able to evaluate local compan y risk, and intermediate that risk, are 
prerequisites for trade financing schemes to be successful in crises. 
- Foreign banks that have a long-term market presence are more likely to have 
experience in assessing local risks and to maintain trade-financing activities during 
such crises than those that do not have longer-term business interests. 
- Developing countries bear a major responsib ility to have banking systems in place 
that can withstand economic crises, generally , and help assure trade finance in times 
of crisis, specifically.  This may require  improving their GATS offers to open their 
markets to foreign financial institutions. 
- The IMF has an important role to play in designing programs that recognize the 
importance of trade financing in economic r ecovery, and room needs to be made in 
IMF programmes to accommodate this category of commercial financing. 
- While the IMF can play an important role in facilitating the availability of trade 
financing, the U.S. does not believe it useful for the IMF to play any central role in organizing such financing.  (ECAs are not structured to respond to such IMF initiatives.) 
- ECAs that attempt to keep trade credits flowing in times of crisis run the risk of 
providing prohibited subsidies by right of the higher risk of such transactions and 
providing a benefit compared to the market rates.  The Secretariat recognizes in its 
Note that the narrow application of the an ti-subsidy rules, in times of crisis, could 
undermine the flow of trade finance and ther efore the recovery of developing country 
economies.  Similarly the Secretariat's highli ghting of the responsibility of developing 
countries to provide banking systems that are open, competitive and well regulated is 
welcome. 
22. In the end, ECAs were only part of the picture in providing trade financing during an 
economic crisis.  The representative referred to the Secretariat paper (page 16) as providing a fair 
summation of an integrated approach to handlin g trade finance problems in time of crisis: 
 
" ... The solution to the trade finance problem does not rely on a single programme or 
institution.  It involves a wide circle of participants, public and private, at local, 
regional and international level.  The partic ipants need to work together and create a 
process, by which each institution responsib le would intervene and bring an element 
of the confidence and support that the priv ate sector needs to continue providing the 
bulk necessary financing ... At the same  time, IFIs providing support for 
macroeconomic reforms need to take into  account the trade finance issue as it is a 
basis for the recovery of trade in a crisis country.  From a regulatory point of view, a good balance should be struck between the n eed not to discourage he expansion of 
short-term financing and at the same time avoid uncompetitive behaviour [e.g. 
subsidies] or excessive exposure to market risk."  
23. The representative of the European Communities supported on-going efforts at the 
international level, in the WTO and elsewhere, to improve the availability of short-term trade 
financing in situations of crisis. As regards the role of the WTO, he concurred with the idea that short- WT/WGTDF/M/7 
 Page 7 
 
 
term financing for export transactions were not fu lly covered by private markets in periods of 
financial instability. He also concurred with  the analysis made by the Secretariat in 
WT/WGTDF/W/23 (paragraph 48) on the covera ge of the Agreement on Subsidies and 
Countervailing Measures. Schemes dealing with the fi nancing of essential imports of inputs would be 
compatible with the Agreement, in that they wo uld not be explicitly export subsidies He also 
indicated that the Subsidies Agreement did not appl y where the subsidizing entity was not located in 
the same territory of the Member  whose goods were receiving the be nefits of the subsidy, although 
this general principle could not be used as a cove r to circumvent the disciplines of the Agreement. 
24. As regards the financial services side of the issu e, he indicated that the liberalization of the 
sector was highly relevant to improving the availa bility of trade financing, and in the long run 
financial services liberalization contributed to stronger financial stability and improved access to 
credit. At the same time, it was also important that countries had in place sound prudential regulatory 
systems operating in a non-discriminatory manner,  in order to support market access for foreign 
suppliers. He did not share concerns that th e presence of foreign banks in markets would 
automatically reduce access to credit for small- and medium-sized enterprises, as this did not seem to 
be supported by general evidence, although he was pr epared to look at the situation on a case-by-case 
basis. He reiterated the Community's view that the rules of the GATS allowed ample flexibility for 
progressive liberalization, taking account the situ ation of individual countries.  Whereas the 
Secretariat had identified cases of specific commitmen ts in the area of trade-financing, he said that 
wider commitments not directly linked to this partic ular area of finance would also help to attract 
operators that would be susceptible to be active in  that field. Broader commitments in financial 
services, such as in banking and insurance, partic ularly under mode 3, possibly backed up by more 
focused commitments under mode 1, would help support improved access in foreign markets of new providers of trade finance and trade insurance. As  a conclusion, he indicated that the Community 
shared the main elements of the documentation prov ided by the Secretariat and the IMF in support of 
the discussion. 
25. The representative of Malaysia noted that the issue of trade financing was not only important 
in periods of crisis, but even during normal tim es, since a large number of countries faced on-going 
difficulties to access trade-financing. However, during times of crisis, the problem became particularly challenging for exporters , not only in terms of the availability of finance but also in terms 
of conditions of access (the high interest rates char ged to exporters and the existence of high volatility 
of exchange rates). She noted that trade-financi ng had been a prime casualty during crises, although 
this form of finance was normally the one of l east risk for banks. While Members and international 
organizations could put in place systems to mitigat e the risk among private banks and export credit 
agencies, multilateral initiatives were needed, particul arly at the level of regional development banks 
and international financial institu tions.  She wondered whether there was any possibility of setting up 
a facility which would act as a "lender or guarantor of last resort" in cases of shortages of trade 
financing, instead of using "ad hoc" programmes put in place by in ternational public institutions. 
26. Regarding the role of the WTO in trade-finan ce, she had noted the comments made by Brazil 
on financial services. Commenting on the possibl e increase of competition in local markets by 
allowing more foreign suppliers through GATS liber alization, she wondered whether the number of 
players was really an issue in times of crisis, as th e attitude of many foreign banks during such crises 
could be characterized as herd behaviour. Considera tion should be given to the state of local financial 
systems, their capacity to absorb a larger number of operators in relation to their prudential and 
supervisory ability. She wondered whether there wa s any statistical evidence to the assumption that 
foreign banks having an establishment in a foreign country would be more "reliable" than other banks 
in periods of crisis. She agreed that in times of  crisis private banks would benefit from more secure 
guarantees provided by governments. If governments were not in a position to do so, certainly 
multilateral initiatives would be needed in supp ort of efforts by national authorities.  WT/WGTDF/M/7 
Page 8  
 
27. Regarding the issue of subsidies, her de legation noted in the Secretariat paper 
(WT/WGTDF/W/22) that trade-financing for impor ts, as long as it was not contingent on export 
performance, would not normally be subject to the disciplines of the Agreement, which she 
welcomed. She wondered whether such an exclusi on applied to local exports, when a developing 
country wanted to provide trade financing for exporters. She also welcomed the view that 
development financing, provided by  multilateral development instituti ons, would be outside the scope 
of the Agreement on subsidies and Countervailing M easures. She hoped that trade financing provided 
by national authorities at pre-crisis interest rate level during times of crisis could also be excluded 
from the disciplines of the Agreement, as crisis-level  interest rates could hardly be regarded as 
market-based. In conclusion, she said that multilatera l solutions for trade-financing should also extend 
to normal times, given the large number of WTO Members experiencing difficulties in accessing such 
finance. As development and exports were clos ely connected, she hoped that the agenda of the 
Working Group could be extended to study this prob lem, and also hoped that relevant agencies would 
provide for regular updates of progress made in improving the availability of trade finance around the world. 
28. The representative of Pakistan agreed with so me of the statements made by Brazil on the 
resolution of the problem of trade finance in periods of crisis, particularly on  its financial part. He 
agreed that the negotiations in the GATS were of a broader nature, and, although financial services 
were important, there were other dimensions to it. He  did not fully agree with the idea that the larger 
the number of operators in the market, the more li quid that market would be, resulting in lower costs 
and hence less likelihood of collapse by financial inte rmediaries; this seemed to be in contradiction to 
the notion of herd behaviour. As each crisis had been unique, there was no one-size-fits-all solution, 
and any particular scheme had to be innovative, as the one proposed by the Asian Development Bank 
to Pakistan (a political risk facility).  He agreed with  Malaysia that the issue of the availability of trade 
financing was not only relevant in periods of crises  but also in the normal course of trade, as many 
developing countries experienced difficulties in obtaining trade financing routinely at an affordable 
cost. This issue should therefore be kept under review  in the Working Group. Finally, he agreed that 
the solution to the trade financing problem did not re ly on a single programme or institution, and that, 
therefore, this particular issue of trade financing should be further discussed not only in the Committee on Trade in Financial Services but also in this Working Group, as delegations had already 
learnt a lot from the documentation produced to da te. He looked forward to further discussion on this, 
in particular on the issue of availability of trade finance in normal times. 
29. The Chairman commented on the notion of herd  behaviour, which seeme d to be equated by 
some delegations with the issue of the number of op erators in the local markets. His reading of the 
various documents was that herd behaviour app lied more to financing coming from outside the 
country (cross-border lending), and seemed to apply less to foreign institutions having an 
establishment within the country. 
30. The representative of Switzerland found it useful to  be able to count on such a large body of 
documentation on the topic of trade finance. Trade financing was particularly important for world 
trade, in particular for developing countries. He concentrated his intervention on earlier comments 
made by other delegations. He shared the view  that commitments made under the GATS did not 
always reflect the real degree of competition in an y particular country, and recognized that Members 
should not take commitments without having carefu lly assessed their conseque nces. In reality, there 
was always a time lag between a change in domest ic legislation and its binding under the GATS by a 
particular country, reflecting the fact that countries took the necessary time to evaluate the impact of eventual commitments under the new domestic regime . This being said, he believed that making 
GATS commitments was important for services in general, and financial services in particular, because such commitments helped generate a climat e of predictability and le gal certainty, which was 
so important in that industry. As a result, mo re GATS commitments could only benefit the trade-
financing market.  Commitments was not the only f actor driving foreign suppliers into a particular 
market, but it was an important one. It helped  WTO Members build more modern and efficient  WT/WGTDF/M/7 
 Page 9 
 
 
financial services markets, with higher standards of management and regulation, which would be 
more resilient in times of crisis. This would he lp the financial system and the authorities bring a 
stronger response during crises, which, in turn, wo uld allow foreign banks to remain engaged and 
continue operations in local markets even at the height of instability. 
31. The representative of Canada considered that th e lack of trade financing was symptomatic of 
another problem.  While solutions offered by expor t credit agencies (ECAs) and regional development 
banks were important in times of crisis, he believed that a sound financial system operating in the 
country in crisis was the real answer. He noted the statement made by the IMF representative suggesting that the decline in trade financing wa s more likely to occur in weak banking sectors. 
Building on this, getting the "financial house in orde r" was key; the fragility of the financial sector 
and inadequate banking supe rvision had been some of the main contributing factors during the Asian 
financial crisis. All of the hos t governments had a key role to play in improving confidence and 
fostering crisis prevention. Host governments, especia lly those that were undergoing a financial crisis 
should have policies in place that fostered a sound fi nancial system which would in turn ensure the 
continued engagement of foreign banks during the times of crisis. 
32. The role of central banks in countries in crisis w as also important, to the extent that they had a 
primary role in maintaining liquidity in the financ ial system. To help the central banks fulfil their 
functions, the international community had a role in offering general balance-of-payments support. A 
key function of the IMF was to provide loans to  these countries experiencing balance-of-payments 
problems, so that they could then restore the c onditions for sustainable economic growth. Canada, in 
response to major financial crises, provided on a few occasions additional balance-of-payments loans 
as part of overall IMF assistance strategies. Also , he believed that trade finance should not be 
considered in isolation and should be factored into  national development strategies. He had noted the 
comments by Malaysia and Pakistan that trade finance was a concern, not just in times of crisis.  
33. He emphasized the role of Canada in assisti ng developing countries in building capacity in 
the financial sector, through the FIRST (Financial  Sector Reform and Strengthening Initiative) 
Programme, a multi-donor programme that provides grants  in the areas of financial sector regulation, 
supervision and development.  Ca nada was a founding sponsor of the Toronto centre, and through 
support to the International Office of the Superintendent of Financia l Institutions, to provide capacity 
building in the area of prudential supervision. Finally, with respect to the role of ECAs, he noted that 
these institutions, for the most part, provided servic es to promote exports from their own countries. If 
these services were not based on commercial terms or  internationally agreed terms (such as the OECD 
arrangement), they could potentially have trade- distorting effects. With respect to regional 
development banks, he felt that they had a clear ro le in assisting developing countries to achieve their 
long-term development goals. As such they had a ro le in providing trade finance as part of their 
broader development mandate, in th e context of national development strategies, but there was a risk 
that they be tempted to "pick winners". On a pos itive note, they were multilateral in nature, which 
meant that they had a more balanced approach than domestic ECAs, for example. Regarding herd 
behaviour, there was a benefit of having a larger number of players in domestic markets, precisely to mitigate such behaviour. The repres entative asked the IMF if an update could be provided regarding 
any new developments since December 2003, wh en the paper by IMF staff was released. 
34. The representative of Argentina shared some of  the concerns expressed by Brazil, Malaysia 
and Pakistan. He asked the IMF about its own implic ation in the area of trade-financing during recent 
financial crises, and how it had assessed the concept of special circumstances in each of them. With 
respect to the role of the WTO and of the Committee on Trade in  Financial Services, he believed that 
financial commitments in normal circumstances c ould help develop a solid  and resilient banking 
system.  However, he wondered about the impact of GATS commitments in times of crises, in particular whether this was sufficient to maintain adequate lines of credit for trade. He agreed that 
although commitments could not prevent the interrupti on of international lines of credit in times of 
crisis, it was certainly a useful "crisis prevention"  tool as it was contributing to the stability of the WT/WGTDF/M/7 
Page 10  
 
financial system. He was interested by the differe ntiation between the behaviour of banks having an 
establishment in the crisis-stricken country and that  of banks providing cross-border financing, and 
asked whether there was any empirical study about it. Finally, he noted the comment by Malaysia 
about the need for a "lender or an insurer of last r esort", an issue that deserved further consideration. 
35. The representative of the Secretariat indicated th at there were no statistics available on the 
relative behaviour of banks providing cross-border trade credit and banking having an establishment. 
However, the group of experts (including several bank ers) had noted that the massive withdrawal of 
foreign banks operating on a cross-border basis was partly due to a confusion between the country 
risk and the credit risk of individual borrowers, en couraged by international credit rating agencies, 
which had abruptly revised their risk ratings upwards  at the start of the exchange rate crisis. By 
contrast, foreign-owned banks having an establishm ent in the country were in a better position to 
assess the credit risk of their customers, even in th e middle of the crisis, because they could check on 
a daily-basis movements on their "open accounts" or any other short-term credit operations. This did 
not mean that foreign banks having an establishment in some countries could not also cut credit lines 
to defaulting customers, but at least they we re in the best possible position to assess who was 
creditworthy and who was not. 
36. The representative of the IMF said that, in terms of future steps, the IMF would be working 
on two tracks.  To continue to help financial ins titutions to coordinate, a lthough the IMF paper drew 
clear limitations as to the role of the Fund in this  regard. The Fund was ess entially intervening when 
the authorities of a crisis-stricken country called on th e IMF to assume such a coordinating role, or if 
asked by the financial institutions themselves. Anot her track of action was to take account of trade-
finance in programme design. Normally, the IMF intervened in countries to provide balance-of-
payment support, managed by central banks. The central  banks could potentially have a role to play in 
order to preserve the existing trade-credit lines in terms of crisis. The Fund paper proposes in a limited number of cases to use some of these external resources in support of "well-designed trade-finance schemes". The logic is that preserving the trad itional lines of trade credit allows the country to 
generate the export earnings that are needed to over come the crisis. The next concrete step by the IMF 
was to publish a volume containing all the presentati ons and papers made by the stakeholders during 
the expert group's discussions, including those of the Fund itself, the WTO, and other stake-holders. 
37. The Chairman thanked all participants for thei r comments and contributions. He felt that the 
discussion had been substantive and useful, and at  the forefront of the nexus between trade and 
finance. It had shown the great interest by WTO Members on the work that had been done at the 
technical level by experts under the auspices of the IMF and the WTO. Of particular interest were the 
efforts to encourage incr eased availability of trade financi ng for developing countries from private 
banks. In addition, the interest of the Members of the IMF and of the WTO on this issue had provided a valuable boost to regional development banks a nd other public institutions to press ahead with (and 
expand) their programmes in this area. It could be sai d that there was also an interest within the WTO 
to follow-up on this issue though the Committee on Tr ade in Financial Services. The Chairman said 
that he intended to report briefly to the General Council, in response to the statement made by the 
Director-General in February asking the Group to cons ider this matter.  Finally, as a sub-theme to the 
general effort of information on the trade-financi ng market, he invited the representative of the World 
Bank, Mr. H. Kalsi, to make a brief presentation of the World Bank's Chapter 5 of its new edition 
(2004) of the Global Development Finance, dedicated to the issue of "Financing Developing 
Countries' Trade".  Although the presentation was rele vant to the Working Group's work, the chapter 
nevertheless dealt with a wider market and different  instruments than the ones discussed specifically 
in the Group. 
38. The representative of the World Bank made a presentation which summarized Chapter 5 of 
the 2004 edition of the Global Development Finance,  dealing with short-term and long-term trade 
financing in developing countries. The chapter cont ained three sub-sections, dealing successively with 
"the evolution in the sources, magnitude and me thods of trade finance", "the access of less  WT/WGTDF/M/7 
 Page 11 
 
 
creditworthy borrowers to trade-finance, and "trade fi nance in periods of crisis". The relevant chapter 
had been made available to delegations and the document itself could be downloaded from the World 
Bank's website (www.worldbank.org/publications/20 04 global development finance).  He responded 
to delegations' requests for clarification on his presentation. 
 
Agenda Item I:B  Further discussion on the Work Programme for 2004  
39. The Chairman reminded that he had circ ulated a draft proposal in WTO document 
WT/WGTDF/W/25 that reflected comments made at  an earlier open-ended informal meeting and 
subsequent contacts with Members of the Working Group. It proposed in particular that the next 
meeting of the Group be held on 4-5 October, and focus, inter alia , on the new IMF study on "The 
Impact of Exchange Rate Volatility on Trade Flows" that had recently been circulated to delegations 
in document WT/WGTDF/W/24. Other themes were al so proposed to be on the agenda of that second 
meeting. The agenda of the third meeting of the y ear had been left open for the time being, pending 
further comments by the Group. By way of backgr ound, the Chairman recalled that the Group had a 
"built-in" agenda of eight themes that had been approved by the General C ouncil before Cancún, and 
that it would be logical to give proper considera tion to each theme. However, it would probably be 
difficult to cover all of the eight themes in the two remaining meetings in 2004, so it would be helpful 
to identify as early as possible which themes ought to be taken up in the autumn meetings, so as to provide advance notice to delegations, and eventu ally the Secretariat and other international 
organizations to prepare written submissions and documentation. 
40. In the ensuing discussion, the representative of Canada said that his delegation felt that the 
proposed agenda for the Group's second meeting seemed quite full.  He suggested that Item II.B 
("inter-linkages between internal re forms and external liberalization") be moved to the third meeting, 
to allow more time to be dedicated to the othe r three proposed items for the October meeting. The 
representative of Nicaragua was comfortable with the Chairman's proposal, and emphasized the 
importance of Item II.B. The representative of India emphasized the importance of market access-
related themes for her delegation, to  which the Chairman replied that it could be the focus of the third 
meeting of the year. The representative of Jap an proposed prioritizing the topics for the second 
meeting, agreeing with Canada that the schedule seemed to be rather heavy. He suggested moving 
Item II.B to the third meeting. The representative of Brazil proposed to have two full meetings in 
October so as to keep the proposed agenda intact, bu t to give enough time to cover it all. He agreed 
with India that market access issues should be the prio rity of the third meeting. In this context, he was 
consulting with other Members on the possibility to submit a study on commodities prepared by UNCTAD. The representative of the United States i ndicated her delegation's flexibility on dealing 
with the themes but cautioned that the date for th e third meeting should not clash with the Services 
cluster meetings at the end of the year. The repr esentative of the European Communities saw the logic 
of taking up in October the issue of exchange rate and trade flows given the availability of the study, 
and that of coherence, just before a possible de dicated session of the Gene ral Council on Coherence. 
Therefore he joined Canada and Japan in prop osing to shifting Item II.B. to a later date. 
41. Following this short discussion, the Chairman proposed to change the order of existing II.B 
and II.C on the proposed agenda (WT/WGTDF/W/25), and to consult further with delegations on 
whether a flexible arrangement c ould be found with respect to the treatment on the theme on "the 
linkages between internal reform and external liber alization".  This was so agreed by the Group. 
42. The Chairman, speaking under "Other Business" , made a statement on technical assistance. 
He understood that the Working Group had to help the Committee on Trade and Development 
conduct its "needs assessment" of technical assistan ce activities under the different topics identified in 
the Doha Ministerial Declaration, in order to use it as input for the 2005 Technical Assistance 
Programme. He drew the attention of Members to the fact that any delegations wishing to have 
technical assistance on issues covere d by the work of the Group should make a request in writing to WT/WGTDF/M/7 
Page 12  
 
the Secretariat by mid-year. He noted that trade, debt and finance was generating an increasing stream 
of such activities.  The topic had become a regular feature of WTO training courses, and one national seminar dedicated simply to this topic had already been held by the Secretariat. 
43. The representative of Nicaragua briefly described  the recently-held national seminar on trade, 
debt and finance, focusing on, and reflecting his de legation's interest as a HIPC country. The seminar 
touched on issues such as the fiscal impact of trade liberalization, and the linkages between high 
indebtedness and trade liberalization. His country w as interested in greater coherence of fiscal and 
trade policies at national and inte rnational levels, and how this c ould impact development. A better 
understanding of these linkages in the Ministries of Finance and Commerce would help improve the design of the PRSP strategy of Nicaragua. Give n the positive experience during this seminar, 
Nicaragua indicated its intention to host a re gional or sub-regional seminar on these topics.  
44. The Chairman concluded the meeting by indica ting to Members that they had another month 
and a half to make technical assistance requests to  the Secretariat, and confirmed to Members his 
intention to hold informal consulta tions with delegations before th e next meeting to fine-tune the 
outline for further work.  
45. The meeting was adjourned. 
 
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