The World Trade Organisation (WTO) has announced it will hold a meeting on 12 November to discuss access to trade finance in the developing world.
Banks, development banks and insurers will be attending the meeting to discuss ways of keeping open access to financing of imports and exports in light of the rising cost of trade finance facilities.
Director-general Pascal Lamy told an informal meeting of the WTO’s trade negotiations committee on Friday 10 October of his plans to convene the trade finance meeting to discuss why trade costs are rising, and what role banks and development institutions can do to alleviate the problems.
He spoke of concerns on the impact of the current credit crisis on developing world trade, and the potential that financial uncertainty can be a precursor to rising protectionist tendencies. “Raising barriers at the frontier, starting with barriers to trade in goods or services, is often a tempting political option under such circumstances. The role of the WTO as a firewall against protectionist responses is thus vital. It is not so much about any direct effect on markets as for sustaining confidence in global co-operation and institutions,” Lamy explained to the committee meeting.
Most banks are reporting high volumes of trade finance business, but some are concerned they might lack the capacity to meet the demand. Cost of trade finance is also rapidly rising, as banks struggle to cope with limited liquidity and rising cost of funding.
The WTO has held a number of meetings with both multilaterals and private banks, the last one held in April, to keep a check on the availability of trade financing at affordable rates. However, recent market turmoil has made issues surrounding trade costs more urgent, and prompted Lamy’s call for the November meeting.
The WTO announcement follows two key developments this week, with the Brazilian government revealing it would use foreign reserves to increase credit lines for exporters struggling to secure financing.
The IFC had also increased its capacity for supporting trade finance by increasing its ceiling by US$500mn to US$1.5bn on its global trade finance programme which provides guarantees to banks.
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