WTO Creates Financial Crisis Taskforce

The World Trade Organisation (WTO) is creating a taskforce to monitor the effects of the financial crisis, following its call for a meeting next month to examine its impact on trade finance, its head said on Tuesday.

WTO Director-General Pascal Lamy told the body’s policy-making General Council that the Nov. 12 meeting would look for ways to alleviate the situation if it turned out the crisis was choking off trade finance. “One third of the world economy, mainly in emerging countries, still has a big growth potential and we must try and make sure that this engine can work through trade,” Lamy said, according to a text of his remarks made available by the WTO.

Around 90 percent of the $14 trillion of world trade is financed by trade credits, which according to Lamy are the origin of banking.
Because trade finance is relatively unsophisticated, and deals are clearly and concretely collateralised with the cargoes that they fund, the sector has seen strong business this year, despite the meltdown in other parts of the credit markets.

Some trade finance bankers have even had to turn away deals for lack of capacity.

But recently rates for trade credit have shot up, with spreads rising to 300 basis points above Libor interbank refinancing rates, three times their level a year ago.

Last week Brazil’s government said it would use its foreign reserves to increase credit lines for exporters who have been finding it hard to get trade finance.

While Brazil is well-known for its booming agricultural exports, it also sells some big-ticket items like aeroplanes which are particularly dependent on trade finance.

Lamy told reporters that next month’s meeting would look at affordability and accessibility of trade finance.

But, while acknowledging that he had only a broad overview of the situation, he said he was not aware of any shipments being stopped as a result of the crisis. “No member has come to me saying we got strangled in this harbour because of the credit crunch,” he said late on Monday.

Lamy noted that the latest figures from the Berne Union of export credit and investment insurance agencies, who will attend next month’s meeting, showed that trade finance was holding up late last year and in the first part of 2008.

Berne Union members account for some 15-20 percent of trade finance. (For a complete text of Lamy’s remarks to the WTO General Council, click on:: http://www.wto.org/english/news_e/news08_e/tnc_chair_report_oct08_e.htm )

(Reporting by Jonathan Lynn; Editing by Mark Trevelyan)