Date: 09/06/2010
Source: World Trade Organisation
Title: WTO: Lamy: Keynote address by the WTO DG at the Global Commodities Finance Conference, Geneva

Good morning ladies and gentlemen,

Let me start by thanking the organisers of this conference for inviting me.
I am also pleased to see Mr Jean-Francois Lambert as the Chair for this
session. He is an active member of the WTO Expert Group on Trade Finance
which monitors global trade finance developments and we benefit from his
insights, as well as from other prominent players of the trade finance
community.

This conference is timely for us in the WTO, for two reasons: first because
we are in the process of finalising our annual flagship publication, the
World Trade Report 2010, whose theme will be "Trade in Natural Resources:
Challenges in Global Governance". We will therefore keenly follow your
discussions here. Second, trade finance will be on the menu of the G-20
summit in Toronto later this month. This would be a good moment to review
progress on the support package on trade finance that the G-20 London summit
set up last year and try to further focus it on trade finance providers and
traders that need it the most.

While the majority of you here engage in the financial trading of
commodities, at the WTO, our members engage in setting and implementing the
rules that govern global trade; that includes indeed trade in commodities.
So I guess, one can say we are serving a similar purpose, which is to make
trade possible, to ensure that the transmission belt between demand and
supply works smoothly.

The global commodity trade is an important component of WTO members'
exports, particularly the developing and emerging economies among them.

Trade in natural resources represents an important and growing share of
world trade. In 2008, at the height of commodity prices, this share was
around 24 per cent of total global merchandise trade in dollar terms. This
includes of course trade in oil and fuels, minerals and food commodities.

It is also worth noting that in the global financial markets, commodities
are now recognised as a major asset class, making up approximately 15 per
cent of banks' fixed income revenues. According to recent research by
Citigroup analysts, bank revenues from trading are expected to be 15 per
cent to 20 per cent down from 2009, with commodities being the only sector
with expected growth.

For developing countries, commodities, including cotton cocoa, minerals and
so forth represent a significant share of their exports and in some
economies in Africa and the Caribbean this share is as high as 80 per cent.

The question therefore should not be whether trade in commodities is
important to global recovery efforts, but how do we ensure that commodities
play their expected role in these efforts. Part of the answer lies in the
availability and affordability of commodities trade finance, in all regions
of the world, particularly those which are more commodity trade dependent.
The other part of the answer has to do with the multilateral trade rules
that regulate global commodities trade.

Trade finance is the oil that keeps the wheels of global trade running;
hence our active interest and ongoing participation in global initiatives
to address the impact of the global financial crisis on the availability and
cost of trade finance. The fact is that around 80 per cent of world trade is
financed by some form of credit.

You all know that in the midst of the financial crisis the supply of trade
finance had fallen short of demand, both in volume and value, in a context
of liquidity shortage and re-assessment of counterparty risk, hence raising
fears that this would deepen the collapse of trade and hence the recession.
We have received reports that the financing of some important commodity
trade deals in developing countries, in particular in Africa, had been
difficult to syndicate, such as, for example, in 2009 the pre-export
financing of Ghana's cocoa crop.

Since the second half of 2009, though, the global trade finance market
situation has eased up. According to trade finance experts which last met on
18 May 2010 at the WTO, liquidity has returned to the bulk of trade markets.
Despite this overall positive assessment, experience differs widely across
regions, with emerging markets leading the recovery. And although liquidity
is less of an issue, the problem remains one of aversion to risk,
particularly in smaller players in smaller markets

While our experts tell us that there is a large appetite for risk and ample
liquidity to finance trade from China, India, Brazil and Korea, at the lower
end of the market, there continues to be strong constraints. This is
particularly true for Sub Saharan Africa where some financing capacity
seems to have been lost. At this stage it is not possible to determine
whether this is permanent or temporary. The explanation given by global
commercial banks is that the cost of collecting information on counterparty
risk is high and that coupled with the low profitability of small operations
in the region, trade financing remains unattractive, particularly on the
import side.

Given the commodity dependence of these countries, this remains a serious
matter for concern: financing commodity exports and not imports would be a
short-sighted strategy. Import financing is also allowing for essential
inputs to make future exports, be it commodity-based, competitive. Should
you wish to be regarded as long-term partners for their development, you
might wish to remain involved in the financing of substantially all trade of
low-income countries, and keep your lines of credit open, not just for the
most profitable commodity deals, where I guess competition for offering
financing will tighten when commodity prices start to go back up again.

On the side of public backed institutions, which have done a good job at
supporting trade finance during the recent period, particularly in regions
that had suffered from the retreat of global commercial financial
institutions, we should avoid to wind down the G-20 trade support package
too rapidly. Clearly, credit risk support will still be needed for some
time to go but official support and emergency financing will not remain
forever. It will therefore be up to you to allow for greater exposure to
places such as Africa, Central America, Central Asia, and other areas where
access to trade finance remains a problem where prices have not returned to
affordable levels.

While trade finance for commodities trade is crucial for ensuring that trade
flows, the environment within which this takes place is equally critical.
This is why for the past nine years, WTO members have been working hard to
revamp the rules that regulate multilateral trade and to better level the
playing field. As you know, commodities trade suffers from distortions that
can be traced back to the colonial times and as such are structured in
favour of rich countries at the cost of developing ones. A good example is
the fact that there is still an imbalance in the WTO rules between the
stringency of the rules for imports, and their laxity for exports. Or that
tariffs escalate as products undergo a transformation and value added, an
old feature of the colonial rule which would at last disappear if we were
to conclude the Doha Round.

Concluding the Doha Round would address not only tariffs, but also
subsidies and non-tariff barriers, thus significantly reducing the current
distortions in global commodities markets, particularly those that impact on
developing countries' trade performance, including in sectors like cotton or
fisheries to name a few.

Whether the WTO, in the future, should step further in commodities trade
rules than the already mandated negotiations is for WTO members to decide.
We will provide them, and you all, with food for thought on this issue at
the end of July, when we will be launching in Shanghai our 2010 World Trade
Report which we have devoted to trade in natural resources.

At this stage, let me conclude in saying that the timely conclusion of the
Doha Round, coupled with improved conditions in the trade finance market,
will go a long way in ensuring a timely exit from the current crisis. And as
we are already seeing, the recovery we are witnessing is to a large extent
commodity driven. You therefore have a stake in making this a sustained
recovery.

Thank you for your attention.