  
  
WT/WGTDF/W/93  
 
28 February 2020  
(20-1538) Page: 1/2 
Working Group on Trade, Debt and Finance    
 
EXPERT GROUP MEETING  ON TRADE FINANCE – 21 FEBRUARY 2020  
INFORMAL REPORT BY T HE WTO SECRETARIAT  
1.1.  The objective of the February 2020 meeting was twofold: (i) to take stock of the current market 
situation; and (ii) discuss areas of cooperation between institutions present around the table.  
1.2.  In his opening remarks delivered on behalf of the Director -General, the Deputy 
Director -General said that the Group had been involved in several successful initiatives which had 
benefited from this  Group's input: the dialogue with the Basel Committee on Banking Supervision 
on the Basel III (three) framework; the inclusion of trade finance as part of the Sustainable 
Development; the trade finance and SME initiative; the dialogue with the Financial St ability Board. 
Regarding the latter, much has been achieved in the past two years, since WTO DG Roberto Azev êdo 
and IFC Chief Executive Officer Philippe Le Houérou first wrote to Financial Stability Board Chairman 
Mark Carney. The trade finance community h ad been a part in the development of "utilities" aimed 
at an easier implementation of financial transparency regulations in the trade finance field. An 
exceptional effort of all actors had been done in favour of capacity building and technical cooperation,  
as show -cased in the recent WTO -IFC publication "Trade Finance and the Compliance Challenge" 
(2019). In the past year, the WTO Secretariat participated in capacity -building activities organized 
by the IFC in Rwanda, Madagascar, Malawi, Zimbabwe, Zambia, L iberia and Mauritania; it also 
participated in capacity -building activities implemented by Afreximbank and the EBRD.  
1.3.  Looking forward, the WTO Secretariat would follow -up on some of these topics, with limited 
means. It is willing to continue providing analy tical support on trade and trade finance trends, and, 
as available, will support capacity -building efforts provided by partner institutions. The WTO 
Secretariat will also do, on an ad hoc basis, diagnostic studies of trade finance infrastructures in 
Least Developed Countries' Members that make such request, as it did for Myanmar and Cambodia.  
1.4.  The review of the current market situation brought a mixed picture. The demand for trade 
finance reflected the demand for trade in the past year, rather dynamic in the  first part and 
disappointing in the second. The first quarter of 2020 was expected to be difficult as a result of the 
virus situation in China, which had caused uncertainty and disrupted supply chains. A rebound was 
expected later in the year. In line wit h the resurgence of political and commercial risk, claims on 
private credit insurance (corporate risk) and on sovereigns were at an all -time high. Certain sectors 
suffered more than others, such as retail and the automotive sectors, which faced a combinati on of 
both cyclical downturns and structural transformation. Price competition continued to be strong. 
Several participants considered that South -South trade had boosted trade finance markets in recent 
years. Bright spots included central and South -East As ia, the middle east, large African countries, 
and Brazil.  
1.5.  With pressures on prices and profitability, digitalization was at the top of the agenda of large 
institutions to reduce the cost of processing trade finance transactions. This process was 
accelerati ng, with the commercialization of blockchain and the full digitization of trade finance 
instruments (e -letters of credit, supply chain finance) and of compliance (anti -money laundering and 
know your customer checks) in very large banks. The industry was in  the process of addressing the 
"digital island" problem. The digital divide was nevertheless a reality, as banks in developing 
countries still faced paper -based processes, while their competitors in developed countries could rely 
on fin -techs to tailor the  risk profiles of their customers in an optimal way.  
1.6.  The expansion of non -bank finance continued, with factoring flows growing faster than the 
average growth of trade flows. Such an expansion reflected the continuous reduction of WT/WGTDF/W/93  
 
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  correspondent banking rela tionships, which has been uninterrupted since 2011, according to the 
Financial Stability Board representative. A consequence had also been the expansion of "nesting", 
i.e. the practice among financial institutions of allowing one foreign bank to process th e cross -border 
bank transactions of other "de -risked" banks through their U.S. correspondent account. While some 
participants considered the reduction of correspondent banking relationships could be viewed as a 
healthy sign of consolidation in the banking market, other participants considered that less banks 
meant less alternatives for small traders, and a concentration of banks on larger customers.  
1.7.  The demand for multilateral development banks' facilities reflected market trends. While some 
multilateral de velopment banks saw demand for their facilities to fall, other recorded a strong 
increase, particularly in Asia. Bangladesh, Pakistan and Vietnam were particularly dynamic markets. 
In certain regions, the perception of anti -money laundering and know -your-customer (AML -KYC) 
regulatory risk was the highest. All multilateral development banks had propped up capacity -building 
and the expansion of regional utilities to address the compliance challenge. The ITFC shared similar 
concerns regarding the poorest count ries of the Organization of Islamic Co -operation (OIC). Support 
by the ITFC to trade finance had reached US$5.9 billion in 2019, with a cumulated amount of 
US$50 billion in the past 10 years. The EBRD also attributed part of the trade finance gap in its 
countries of operations to the lack of correspondent banking relations. The EBRD could not find 
counterparty banks for several countries because the transaction amounts were too small (Belarus, 
Republic of Moldova, K yrgyz Republic ). The problem had become ci rcular: the cost of compliance for 
these countries was on the rise because of the small amount of transactions. As the number and 
value of transactions was further falling, thus the cost of compliance per transaction was further 
increasing.  
1.8.  With respect to  policy -related issues, a significant part of the discussion focused on AML -KYC 
compliance. A representative of the FSB Secretariat updated the group on the FSB action plan on 
assessing and addressing the decline in correspondent banking, in the context of  trade finance. 
Regarding capacity -building, the FSB was interested in further coordination of capacity -building 
activities, and feedback through the Asian Development Bank's scorecard project. The FSB informed 
the group that the Financial Action Task Forc e (FATF) would soon release a guidance note regarding 
the functioning of a risk -based compliance system in developing countries. The representative of the 
Asian Development Bank presented progress under the scorecard project. The discussion on 
AML-KYC comp liance revealed that there was no short -term solution to the problem, despite 
significant involvement by multilateral development banks and private sector institutions and 
representative associations.  
1.9.  The Bankers Association on Finance and Trade (BAFT) wis hed to discuss issues regarding 
payable finance programs. Several ratings agencies and press articles had reflected negatively on 
reverse factoring. International accounting standards bodies and national regulators considered 
issuing enhanced disclosure re quirements. The lack of transparency and extension of terms of 
payments under certain schemes had led some observers to criticize the role of payable finance 
programs in high -profile corporate failures. One issue was the blurring boundary between liquidity  
management and debt obligations under such programmes. The sense of the discussion was that 
the market for payables finance was generally safe, but this had to be further established by clear 
statistics, strong applicable professional standards, and good regulation, notably regarding 
transparency. From this standpoint, the market for letters of credit could be mentioned as a positive 
example. It was recommended that more financial institutions contribute data on supply chain 
finance to the International Ch amber of Commerce's trade finance register.  
1.10.   While there was not enough time to discuss other policy issues, such as sustainable trade 
finance and the capital treatment of trade finance, it was suggested that further discussions could 
be held at the upcomin g meeting of the banking commission of the International Chamber of 
Commerce.  
 
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