To: Organizations addressing Trade-Finance Linkages

1) UNCTAD addresses trade implications of the crisis

2) US FTAs: blocking the exit from debt crises at a time of global downturn?

3) Financial Crisis and Trade: Consultation with African Finance Ministers

4) Industrializing amidst a financial crisis: Report and video now available

5) Citi and IFC in Global Trade Funding Alliance- FT article

6) The IFC: Opportunist Expansion? - Bretton Woods Project article

1) UNCTAD addresses trade implications of the crisis

Last May, UNCTAD released "Global Economic Crisis: Implications for Trade and
Development," a report for the Trade and Development Commission.

Please find below a summary of the report.

Full report available at http://www.unctad.org/en/docs/cicrp1_en.pdf

Summary

The purpose of the reportis to provide an early assessment of the economic crisis
and its impact on world trade in goods, services, commodities, and investment, and
development.

Chapter I discusses the effect of the crisis on merchandise trade flows. According
to the report, trade integration has been one of the main pillars of development
strategies for many developing countries so, the extent to which developing
countries' trade performance is affected by the current economic crisis depends on
their dependence on international markets, their export compositions, and
exchange rate fluctuations. The degree of dependence of developing countries on
international trade, and thus their exposure to external markets, as measured by
the exports-to-GDP ratio, has greatly increased in recent years, such that
developing countries are more vulnerable to international markets than developed
countries. Merchandise trade flows have been rapidly contracting since October
2008. Moreover, South-South trade, which has been the most dynamic component
of world trade for over a decade, also appears to have declined, especially intra-
Asian trade.

While the decline in international trade appears to affect all types of goods, trade in
manufacturing (including non-agricultural commodities) has contracted at a much
sharper rate than trade in agricultural products. The economic crisis has
repercussions not only on consumer demand, but also on intermediate and
investment goods such as machinery. Trade within regional trade agreements
(RTAs) appears to have declined at a similar pace to trade outside RTAs. It is
increasingly more difficult and costly for developing country exporters to borrow
from international financial markets or to apply for export credits and/or export
insurance, impacting the production capacity of developing countries and
jeopardizing their trade. The report recommends that the G20 commitment to make
available $250 billion in the next two years (2009-2010) to support trade finance be
rapidly brought into action.

Chapter II discusses the impact of the crisis on commodity prices. The price boom
that lasted between 2002 and 2008 did much to improve the balance of payments
situation of commodity-dependent developing countries, but at the same time
resulted in the emergence of the global food crisis. The contraction of orders for
internationally traded commodities from the demand side and the deterioration of
suppliers' financial positions (both inflicted by the banks' credit squeeze) strongly
contributed to the dramatic falls in commodity prices and to the downturn in
commodity production and demand beginning in 2008. Many commodity exporters
that benefited from the commodity price boom with considerable terms-of-trade
gains, are now facing the downside of their commodity dependence, manifested in
a substantial shrinking of export revenues. This in spite of the fact that commodity
prices are in many cases still above the pre-boom levels.

Chapter III discusses the impact of the crisis on services trade and services
sectors. Coming into the economic crisis, global year-on-year services exports
were rising by 11 per cent in 2008 with an 8.5 per cent and 15 per cent rise
achieved by developed and developing countries respectively. Notwithstanding an
overall increase in services exports relative to 2007, a turning point for services
exports growth occurred in the third quarter of 2008, with a precipitous decline in
the fourth quarter of that year. Services workers face rising global unemployment,
which will lead to a significant drop in remittances to developing countries. Maritime
transport, of particular importance for some developing countries, is in a sharp
decline. Activity in financial, transportation, telecommunications, and energy
services has declined, while output and trade are decreasing for tourism,
construction, distribution, and information and communications technology
services.

Chapter IV deals with the effects of the crisis on foreign direct investment (FDI).
Global FDI flows declined by 15 per cent in 2008, and a further decline is expected
at least in the short-to-medium term. Since cross-border mergers and acquisitions
account for the bulk of FDI in most developed countries, these countries are
particularly vulnerable to the credit crunch. In developing countries, the figures still
do not reflect how critical their situation is, as the decline only started in the fourth
quarter of 2008. In particular, the report makes the connection between expected
FDI declines in exports. For countries reliant on external demand, plunging exports
will lead to an apparent setback in efficiency- and market-seeking FDI inflows, due
to collapsed growth prospects in both local and international markets. Countries
reliant natural resources will see FDI lose momentum because during the past few
years, FDI growth in some low-income countries in Africa and Latin America has
been driven by resources-seeking investment. Sharp declines in prices of these
resources is affecting not only the export earnings and growth potential of
producing countries, but also their prospects of attracting FDI. Also among the
LDCs, it is those countries with a high degree of dependency on mineral exports
that are likely to be the most negatively affected, as mines get closed or suspended
by foreign investors.

Still, the picture of South-South investment is less bleak and investment

opportunities triggered by cheap asset prices and industry restructuring, large
amounts of financial resources available in some dynamically growing countries
such as sovereign wealth funds, and quick expansion of new activities such as
renewable energy and material/resource/energy efficiency may have a positive
impact on flows.

Chapter V discusses the threat of protectionism, and suggests policy responses to

the crisis. While there is no clear trend indicating that overall tariffs are becoming
more restrictive, data indicate a recurrence of the use of non-tariff protectionist
measures. Some governments have announced plans to expand the use of
subsidies, often as a part of national economic stimulus packages. This chapter
also contains assessment of impacts due to currencies that have devalued vis-à-
vis the USD and euro.

Addressing the global economic crisis and its impact on international trade and
investment, as well as a review of development policy, must happen on a
multilateral and individual country basis. First, the report states countries must
resist and arrest protectionism. It will be important to start implementation of the
"duty-free, quota-free" treatment for the exports of LDCs in 2009, for developed
countries to pledge to keep their GSP schemes free of new restrictions and
conditions, and for competition law to be well-enforced. Next, stepped-up efforts at
all levels are required to increase funding for trade finance and improve lending
terms. For developing countries, regional and interregional cooperation and South-
South cooperation in trade finance could help address the challenge. In addition,
developing countries may need to use sovereign wealth funds, BOP support
finance from IMF, structural adjustment loans from the World Bank, and national
policy measures to bolster development and enhance commodity production.

The recommendations also include reference to the opportunities the crisis offers
for strengthening South-South trade linkages, via reshaping existing production
supply chains; policy instruments such as GSTP; and better regional trade and
investment agreements. Resilience in trade performance can be developed
through diversification, particularly into more dynamic products. Finally, the report
calls for a re-examination of export-oriented development strategies, review and
rebalance the roles of the State and the market within development strategies, in
certain cases refocusing on building more domestic-demand-creating and demand-
driven strategies while, in other cases, measures for more effective and qualitative
participation in international trade need to be strengthened. Environmental
measures should be treated as part of the solution to the crisis.

2) US FTAs: blocking the exit from debt crises at a time of global downturn?

A recently published study focuses on the obstacles that a number of trade and
investment treaties could present for governments trying to achieve orderly and
timely workouts of their debt.

The study, called "Risks Associated with Trends in the Treatment of Sovereign
Debt in Bilateral Trade and Investment Treaties," and authored by Aldo Caliari,
appeared on a book "Compendium on Debt Sustainability, published by UNCTAD.

The global economic crisis has led to renewed worries about the debt situation in
developing countries, which will reportedly have to roll over more than USD 3
trillion in this year. This happens in an environment of scarce and expensive credit
and while trade, the main source of foreign exchange that these countries rely
upon to service their external debt, is seeing its worst contraction in more than 60
years.

Compared to the magnitude of the solution that will be needed, the timid
mechanisms implemented in the last several decades such as the HIPC/MDRI
initiative, or the recent Debt Sustainability Framework do clearly not offer an
applicable model. It is unavoidable to discuss other remedies and, in this context,
the need for debt standstills and a bankruptcy court, has been a key demand of
developing countries in the recent conference on the financial and economic crisis
and development, held at the UN.

But, as explained in this article, in the most recent wave of bilateral Free Trade
Agreements the US government has signed, it has insisted on clauses that would
restrict the policy autonomy that countries need to implement such solutions.

Find below a summary of the study

To download the full study visit

http://www.coc.org/system/files/SovereigndebtinFTAs.pdf

For the full UNCTAD's "Compendium on Debt Sustainability and Development" visit
http://www.unctad.org/en/docs/gdsddf20081_en.pdf

Summary

Risk associated with trends in the treatment of sovereign debt in bilateral trade and
investment treaties

Free Trade Agreements (FTAs) increasingly include provisions that subject

financial policy to specific legal disciplines and their associated dispute-settlement
mechanisms. This trend places limits on the use by developing countries of several
tools designed to build and preserve stable and healthy financial sectors
responsive to national development priorities and supportive of trade. As a result,
developing countries may face a growing vulnerability to financial and debt crises.

A review of recent FTAs negotiated by the US reveals at least two different

approaches to the treatment of sovereign debt issued by the parties' principles. In
the first approach, sovereign debt is explicitly excluded from application of the
principles. For example, the Financial Services section of NAFTA specifies that a
debt security issued by a party or state enterprise is not an investment. In the
second approach, sovereign debt is explicitly included within the scope of
application of investment principles.
For example, in the US-Chile FTA, as well as CAFTA, "debt instruments" are listed
as one form of investment; thus FTA provisions such as National Treatment and
Most-Favored-Nation (MFN) Treatment are applicable to sovereign debts issued by
the governments of the involved countries. However, the US-Uruguay FTA, while
containing some language that mirrors the NAFTA language, then in an annex
states that current or future negotiated restructuring of debt instruments can, in
certain conditions, be considered a breach of obligation. Thus, sovereign debt in
this case seems to be considered a type of investment even absent an explicit
mention in the definition of investment, perhaps setting a precedent that, absent an
explicit exclusion, this will always be the case.

National Treatment and MFN Treatment were included in the GATT as principles
applying to trade in goods. The extension of these Treatments to sovereign debt is
certainly controversial and unclear but its application to sovereign debt could be
even more harmful.

First, there are several reasons why a country restructuring its sovereign debt after
a financial crisis might need to resort to offering preferential conditions to domestic
creditors. National Treatment in this context means that foreign creditors are
offered treatment in debt restructurings no less favorable than that offered to
domestic creditors. The application of National Treatment to sovereign debt would
restrict the ability of the debtor government to take some policy measures aimed at
the recovery of the local economy in the aftermath of financial crises.

Second, the application of National Treatment to sovereign debt means that the
Government will be unable to prioritize domestic debt associated with meeting
wages, salaries and pension obligations. The government is bound to treat these
debts in the same way as foreign debts held by transnational banks and
institutional investors, and as a result, may be unable to fulfill human rights
obligations and social responsibilities.

Third, the offer of preferential conditions to domestic creditors is crucial to

enhancing a government's leverage in negotiations over debt restructuring with
other creditors. If the principle of National Treatment is applied to sovereign debt,
this avenue is effectively foreclosed.
Fourth, application of National and MFN Treatment only to creditors of countries
that are parties to bilateral investment treaties would have the discriminatory result
of granting seniority to creditors from such countries over those from other
countries.

As a result of applying the principles of investment treaties to sovereign debt,

governments that violate investor protections can face expensive lawsuits. CAFTA,
like NAFTA and numerous bilateral investment treaties, grants private foreign
investors the right to bypass domestic courts and sue governments in international
tribunals. Such "investor-state lawsuits" are highly controversial, as arbitration
tribunals are not required to pay regard to legal precedents or to appoint
independent arbiters, and may lack transparency. The main rationale for a more
systematic handling of sovereign debt defaults has been the need to provide
greater predictability for debtors and creditors alike, and the arbitration tribunals
would be a poor instrument for addressing those concerns.

The lack of a rule-based multilateral regime in dealing with sovereign debt crises
leaves debtors vulnerable to power asymmetries. These asymmetries are only
reinforced by the inclusion of debt instruments, particularly those for sovereign
debt, as a type of investment. In view of these dangers, an approach that explicitly
excludes sovereign debt from the definition of investment, is a superior model.

3) Financial Crisis and Trade: Consultation with African Finance Ministers

On April 25, 2009, the Center of Concern and the Commonwealth Foundation co-
organized "The Financial Crisis and Trade: Towards an Integrated Response-a
Consultation with Commonwealth Finance Ministers." The meeting was chaired by
the Honourable Pierre Titti, Minister Delegate, Ministry of Finance, Cameroon, and
Chair of the Commonwealth Ministerial Debt Sustainability Forum.

Opening the meeting, the Chair noted the significance for the Commonwealth of
the meeting between civil society representatives and Commonwealth Finance
Ministers as an important step towards the strengthening of ties between the
official and unofficial Commonwealth.

The event, held on the eve of the 2009 Spring meetings of the World Bank and the
International Monetary Fund, relied also on the generous support of the Ford
Foundation and the Swedish Ministry for Foreign Affairs.

The consultation brought together about forty participants from civil society,
academia, and government, including African Finance Ministers and senior
officials.

Nowhere are the impacts of the financial crisis felt more, and with more dramatic
consequences, than in Africa, where the crisis threatens to undo the modest
progress achieved after long years of efforts to reduce entrenched levels of poverty
and achieve the Millennium Development Goals.

Commenting on the linkages between the global crisis, finance and trade, Dr
Ransom Lekunze, from South Centre, noted that the global economy faced an
unprecedented downturn, with major financial institutions and countries in
recession. He added initially the belief had been that Africa would be protected
against the crisis because of its low integration into the global financial system.
Today, the analysis is very different. According to figures released by the African
Development Bank, growth rates for the continent estimated at 4.8% in 2008 were
set to fall to about 2,8% by the end of 2009 (AfDB, 2009), clear evidence that Africa
is more integrated into the global economy through trade, foreign direct investment,
and remistances.

The financial crisis offered an opportunity to re-examine the potential that an

integrated approach to trade and finance may have to improve the design of
development policies. Indeed, trade factors are central to the effects that the
ongoing financial crisis is having on a large number of developing countries. This is
in evidence through a number of trade-related channels such as commodity prices,
export-driven investment, infrastructure and debt sustainability, macroeconomic
imbalances, exchange rate fluctuation, trade finance, and credit for export-oriented
production.

In November 2008, leaders of the G20 countries gathered at an economic summit

in Washington DC to launch a process to implement reforms of the international
financial system. The meeting pledged co-ordinated action to tackle the downturn.
The UK government, which currently holds the rotating presidency of the G20,
convened a follow-up meeting on 2 April 2009, in London. A similar process is
taking place in the context of the UN system where a high level conference held
last June has launched a global consensus on responses to the crisis and a
process to follow up on it.

With so much attention focused on the response of the financial crisis, it would be
easy to assume trade issues will take a backseat to financial ones. "For African
countries, this would be a tragedy," noted Aldo Caliari, from Center of Concern. "It
is their trade structure that is heightening their vulnerability in the downturn. How to
overhaul a trade structure that is the result of years of trade liberalization, that
should be the key concern if we want to support these countries' efforts to
overcome the crisis."

A note on the issues addressed at the meeting is available here

http://www.coc.org/node/6416
An agenda of the meeting is available here
http://www.coc.org/system/files/Agenda.pdf
A press release on the meeting is available here
http://www.commonwealthfoundation.com/news/news/detail.cfm?id=520
As a result of the consultation, the Commonwealth Foundation and the Center of
Concern were invited to present the report and recommendations of the meeting to
the Commonwealth Finance Ministers upcoming meeting, to take place in Cyprus,
late September.

4) Industrializing amidst a financial crisis: Report and video now available

The financial crisis will subject developing countries to great challenges. In many of
their economies, shaped to strongly rely on exports, a high degree of commodity
dependence and lack of diversification will magnify the impact of trade trends on
their revenue. Escalating to products with higher industrial content might, in the
light of global recession and lower revenue, become even more difficult, while at
the same time more necessary than ever before to secure developing countries'
future.

On March 12, 2009, the Center of Concern, the Center for Economic and Policy
Research and Heinrich Boll Foundation convened a panel of distinguished
speakers to address these issues:

· Prof. Ha-Joon Chang, Faculty of Economics, University of Cambridge

· Mr. Rogerio Studart, Alternate Executive Director for Brazil, World Bank
· Mr. Mark Weisbrot, Center for Economic and Policy Research

To watch videos of the main presentations and for a brief report on the event,
please visit http://www.coc.org/node/6384

5) Citi and IFC in Global Trade Funding Alliance -FT article

Below find reproduction of news clip reporting on developments regarding the

recently-launched "Global Trade Liquidity Program" at the World Bank.

Citi and IFC in global trade funding alliance

By Saskia Scholtes and Francesco Guerrera in New York
Published: June 14 2009 22:37 | Last updated: June 14 2009 22:37

Moves to unblock world trade flows still jammed by the credit crunch havebeen
backed by Citigroup, which on Monday unveils a $1.25bn funding tie-upwith the
International Finance Corporation, the private sector arm of theWorld Bank.
Citi and the IFC are launching the partnership as part of a $50bn globaltrade
finance initiative announced by the World Bank in April.

The tie-up the second the IFC has entered into with a bank since April marks a
new willingness by banks to finance trade in emerging markets.

The US bank hopes to steal a march on its competitors by tapping intoopportunities

arising from the scarcity of credit, which has driven up theprice of trade finance.

Citi¹s deal with the IFC comes as the financial crisis has caused banksaround the
world to cut credit lines to conserve resources.

Trade financing in Brazil, for example, costs about 400 basis points overinterbank
lending rates, while in South Korea, trade financing costs300-350bps over
interbank rates.

John Ahearn, head of trade finance at Citi, told the Financial Times: ³Whilethis is a
lucrative business for Citi, our goal is, hopefully, that priceswill go down [as more
funds are made available]².

Under the deal, Citi will provide $750m to banks in Asia, the Middle East,Africa and
Latin America over a three-year period.

IFC and other participating development organisations will invest up to$500m in

these transactions. The local banks will in turn, extend tradefinancing to their
importer and exporter clients.

Citi estimates the $1.25bn will support up to $7.5bn in trade flows over thethree
years as the loans will be short term and the funds will be reinvestedonce
borrowers repay.

Georgina Baker, IFC¹s director of global financial markets, said thesefunding

partnerships should ease banks¹ concerns over the risk of fundingtrade in
emerging markets by reducing the amount of loans they keep on theirbooks.

Trade credit, one of the simplest and longest-established forms of finance,in effect
ensures that exporters will get paid by insuring receipts whilegoods are in transit.

The drying-up of trade finance is one of the most direct ways in which theglobal
credit crunch can directly affect the real economy.

The World Bank estimates that the fall in the supply of trade finance hascontributed
some 10-15 per cent of the decrease in world trade since thesecond half of 2008.

Mr Ahearn said: ²The issue has been: has global trade weakened because oflack
of credit or lack of demand? This IFC programme helps to answer thefirst
question.²

³We don¹t see this simply as a way to put good assets to work becausespreads
have widened, ² Francesco Vanni d¹Archirafi, head of Citi¹s GlobalTransaction
Services Division, told the FT: ³This is a lot of money, it isvery specific and it is
going to be funded very quickly. The multipliereffects are going to be very very
strong.²

Copyright The Financial Times Limited 2009

6) The IFC: Opportunist Expansion?- Bretton Woods Project article

See below link to a Bretton Woods Project article, "The IFC: Opportunist
Expansion?" also reporting on, among other programs, the Global Trade Liquidity
Facility of the IFC.

http://www.brettonwoodsproject.org/art-564833

Aldo Caliari
Director
Rethinking Bretton Woods Project
Center of Concern