To: Organizations addressing Trade-Finance Linkages 1) Debt and Trade: Making Linkages for the Promotion of DevelopmentNew Book

2) Trade revenue losses from trade mispricing: GFI study 3) New consensus on capital controls should permeate US treaties 4) World Bank Trade Strategy: Consultation Process started 5) Aid, Trade and Agribusinesses in Africa: OECD study 6) Not much protectionism, but unemployment poses risks, report finds 7) ICC advocates rethinking of regulatory rules for trade finance


1) Debt and Trade: Making Linkages for the Promotion of DevelopmentNew Book Debt and Trade: Making Linkages for the Promotion of Development, a book co-published by Center of Concern and South Centre, is now available. After a few years of improvement the debt situation in the developing world has, under the global economic crisis 2008-09, again taken a turn for the worse. Rather than an anomaly, this is consistent with the pattern of structural interdependence between debt and trade that has historically constrained the economic prospects of developing countries. As the crisis exposes the fault lines throughout the current model that links international trading and public debt, nationally and internationally, the material in this book represents a useful roadmap to the issues that need to be addressed. Indeed, only crisis recovery measures that dare to reshape the paradigm linking trade and debt on the basis of the lessons learned can lead to a more resilient and development-oriented global economy. Like the previous volume in this series, this one jumps off from the premise that a holistic approach to policy -making in trade and finance can bring substantial improvements in ensuring systemic coherence and providing better development outcomes than an approach that would take such areas in isolation. This volume singles out debt as an area of finance and lays out the key areas of concern in linking debt and trade from a development perspective. It addresses the political and the technical dimensions of linking debt and trade, the potential and limitation of market access, the problems related to the export growth-debt repayment link, the effects on debt of foreign investment rules, the impacts of domestic monetary policy on debt and trade, and issues in the

definition of debt sustainability and factoring trade performance into debt sustainability assessments. Featured contributors include: Andreas Antoniou, Luiz Carlos Bresser-Pereira, Alfredo Calcagno, Heiner Flassbeck, Barry Herman, Richard Kozul-Wright, Jan Kregel, Jorg Mayer, Manuel Montes, Machiko Nissanke, Lida Nunez, Matthew Odedokun, Damian Ondo Mane, Matthias Rau, Arslan Razmi, Umesh Sookmani, Yash Tandon, Cecile Valadier, Christina Weller. The publication and the event that it documents were made possible thanks to the generous contributions of (in alphabetical order) the Agence Francaise de Developpement (AFD), the Ford Foundation, the Forum for Environment and Development (Norway), Oxfam Novib, the United Nations Conference on Trade and Development, the United Nations Foundation and the Swedish Ministry of Foreign Affairs. This publication was edited by Aldo Caliari. For the full book, table of contents, as well as information on how to order your own copy, visit Check out also the preceding book in the series: Trade-Finance Linkage for the Promotion of Development, at

2) Trade revenue losses from trade mispricing: GFI study A recent study, "The Implied Trade Revenue Losses from Trade Mispricing", published by Global Financial Integrity, estimates that average tax revenue losses to developing countries from trade mispricing that occurs through reinvoicing was between US$98 billion and US$106 billion annually over the years 2002 to 2006 (that represented an average loss of about 4.4% of the entire developing worlds' total tax revenue). The study, authored by Ann Hollingshead, is follow up to a previous one where GFI assessed total illicit financial flows from developing countries at between $859 billion and $1.06 trillion for year 2006. The new study focuses on losses derived from trade mispricing (deliberate overinvoicing of imports or underinvoicing of exports that is usually done for purposes of tax evasion). Such losses are one of the items that compose the total illicit financial flows figure captured in the previous study. Notably, the study's figure is likely to underestimate the losses, as explained in its methodology segment. In addition, the study's methodology only focuses on one portion of the losses due to trade mispricing, as it excluded tax revenue losses due to trade mispricing that did not include re-invoicing (in which case, trade mispricing occurs through fake invoicing usually by collusion, frequently by word of mouth).

The full study is available at %20loss%20report_final.pdf

3) New consensus on capital controls should permeate US treaties In a recent article appeared in Foreign Policy, Tufts University economist Kevin Gallagher identifies an emerging consensus on rethinking the role of capital controls in the prevention and mitigation from crises. It is time, he argues, that the US government adopts this understanding in its ongoing negotiations of trade and investment agreements, so as to ensure these treaties allow countries to keep capital controls as an available policy tool. For the full article visit Also thanks to an initiative by Tufts University,"Ask a Triple Crisis Economist," see below link to a number of questions and answers for economists that were sent in advance of the World Bank/ IMF Spring meetings. The Triple Crisis blog invited questions regarding: What arguments most need sound backing from economic analysts? Which reform proposals are you unsure about? Link:

4) World Bank Trade Strategy: Consultation Process started The World Bank is about to draft, for the first time, a Strategy to guide its engagement on trade issues. If you would like to be involved in a team effort to produce a collective civil society input into the strategy please let me know by May 15. The Strategy, as well as background documents and information on the timeline for the consultation are posted at,,me nuPK:6901408~pagePK:64168427~piPK:64168435~theSitePK:6901401, ml

5) Aid, Trade and Agribusinesses in Africa: OECD study Please find below link to "Making the most of aid: Challenges for Africa's agribusiness," a recent publication of the OECD Development Centre, POLICY BRIEF No. 36. res=1272917075&id=0000&accname=freeContent&checksum=9DEBABC6B4F AECEB761AD0BB94BD36F2 Summary Cotton and Beyond The trade-related restrictions on cotton-sector development have affected many African countries, especially those that depend on its production. If these restrictions were lifted, development assistance toward this sector would promote export growth significantly even though these receive foreign aid to develop their cotton producing capacity. However, this is far from being the only issue regarding Africa and trade. Diversification of export profiles to seize new business opportunities is on the African agenda but the countries involved haven't had great results. Even though they have considerable access to markets in OECD countries, which grants them preferential treatment in a variety of GSP, factors such as non-tariff barriers, difficulties in importing essential materials at world prices to expand exports and limited access to finance by local firms are some of the obstacles to both local and overseas business development. To eliminate these impediments, development assistance works as a way to increase participation in the global system. The experiences of several countries show the important development impact of the trade-aid link. Trade and Aid Policies: Exploring the Links Trade and aid policies connect in different points. When it comes to balance payments, aid flowing from an OECD country to an African country can either increase or decrease trade between the countries involved, which is not always probable unless aid is completely used for the purchasing of goods and services from the donor country. The meaning of this is that aid can be of positive influence when it comes to increasing saving and financing imports in the recipient country and of negative influence when it aggravates the so-called "Dutch disease" effect, which is when aid increases the recipient country`s real exchange rate and depresses the latter`s non-traditional export as well the destination of aid in the non-tradable sector, such as public service and construction. One of the reasons of the complexity between trade and aid is the nonconversion of aid into higher payments for imports in African cases, especially sub-Saharan Africa. A second reason is the causality that might run from trade to aid flows, making it difficult to form any prior assumption about the sign of correlation between bilateral aid and trade flows. However, it is important to highlight the critical role of aid in trade expansion in a recipient country. East Asia`s experience demonstrates that international assistance supports the developing economies' trade and growth through financing economic infrastructure and human resource development, as well as its positive effect on the countries` policy frameworks and institutional fundamentals (e.g. the case of China`s recent reform experience) and recently, the Vietnamese economic rise

even though their trade barriers remain higher for agricultural products. East Asian economic performance has been outstanding comparing to African economies due to the emergence of a "trade-FDI nexus`` in their trade practices. Foreign direct investment (FDI) of an export-oriented type plays an important role in the development of new export bases in investment-receiving countries as well as in the expansion of trade flows and it also serves as a longterm financial flow to finance current account deficits. Aid, Trade and Development: Lessons from Africa The experience of six African countries shows that greater and deeper participation in the global trading system can be achieved through aid-trade complementarities. On the other hand, for commodity-dependent African countries, agro-based industrialisation and diversification into higher valueadded food products would appear more promising than moving into traditional, labour-intensive manufacturing activities. Based on the analysis of the economies of Uganda and Mozambique, it can be said that the presence of responsible economic management and assistance from abroad can collaborate in the expansion of trade leading to rapid economic growth and poverty reduction. Dialogue with the donors on liberalization of cotton and coffee along with other reforms will allow a greater impact on their economic growth. Primary sector exports are the focus of Tanzania and Zambia in their efforts to promote trade capacity that is blocked by their traditional smallholder production systems. Recent developments such as the increase in tobacco, fresh vegetables and flowers exports represent good initiatives toward progress. Agro-based private sector development has been of a great impact in the economies of Senegal and Mali in the recent years. However, flow of information regarding market conditions needs improvements for greater impact in the trade expansion. Nonetheless, International aid in African countries is extremely relevant for their development and participation in the global trading system. Implications for the International Aid-for-Trade Initiative In order to improve the effectiveness and sustainability of aid-for-trade activities, African governments must help domestic suppliers respond to the opportunities for export success, along with administrative and support packages to improve farmers` capacity to produce. Greater focus is needed on technical barriers to trade, which constitute a major challenge for African countries. Frequent information exchange and dialogue is necessary among the involved stakeholders to make Aid for Trade an effective tool in increasing export capacity for goods as well as for services. Other than these recommendations, it is relevant to explicit the great challenge for the WTO and the OECD in their objective to set up cost-effective monitoring schemes for Aid for Trade at the global, regional and country levels. In this regard, ongoing international monitoring and evaluation efforts will require further political and financial support for growth stimulation, trade expansion and extra investments.

6) Not much protectionism, but unemployment poses risks, report finds The latest Report on G20 Trade and Investment Measures, jointly prepared by the WTO, the OECD and UNCTAD, was submitted last March. (The report is the second to be prepared since the Group of 20 requested it at the Pittsburgh Summit last year.) According to the report, world trade fell in a 12 percent last year. While there is evidence of a recovery in trade and output, the sustainability of a global recovery remains uncertain. In terms of the trade and investment measures taken in response to the crisis by this, it refers specifically to trade and investment restrictions of different kinds-the report registers "no significant intensification." However it warns that, on account of the job losses, which have taken the unemployment level to the highest world level ever, the potential for restrictive policy-making remains high. It quotes WTO Secretariat's research showing that new import restricting measures since September 2009 would cover around 0.4 percent of total world imports. Like in the previous report, a trend towards continued openness and facilitation of foreign investment flows, rather than the opposite, is noted, while speaking of "significant risks of discrimination against foreign and non-resident investors reside in the application of emergency measures." Trade restrictions are also concentrated in relatively labour-intensive sectors such as minerals and textiles, with the result that they harm mostly developing countries that have comparative advantages in these categories of products. In addition, "most of the fiscal and financial stimulus packages that were introduced to tackle the crisis and that favoured the restoration of economic growth globally are still in place" says the report. In spite of a rather neutral tone that keeps in line with the G20-given mandate, the report strays away from its neutrality in the recommendations, where it calls for G20 Leaders to, among other things, "make concrete their many calls to bring the Doha Round to a rapid conclusion." The full report is available at

7) ICC advocates rethinking of regulatory rules for trade finance The following article is reproduced from Reuters. Regulators must rethink trade finance: report BEIJING Wed Apr 21, 2010 12:18pm EDT

BEIJING (Reuters) - Banking regulators should rethink the rules for trade finance to prevent the market being suffocated as it recovers from the financial crisis, the International Chamber of Commerce (ICC) said on Thursday. The report said planned regulation changes could raise the cost of trade finance or cut it off for some exporters. "It is our contention that this approach is unjustified," said the report,which is based on a survey of banks active in trade finance, the traditional instruments and relatively secure instruments that keep global commerce flowing. "Moreover it is liable to lead to an overall reduction in the supply of trade finance, contrary to the G20 London Summit agenda to promote international trade as a key vector of economic recovery." The ICC urged the Basel Committee on Banking Supervision to set up a specialist working group on trade finance, and called for better data on the sector, including on how risky it is. The ICC is already working with the Asian Development Bank to build a database on trade finance default rates. Banks argue that the current rules do not reflect the short-term self-liquidating nature of most trade finance, while proposed tougher regulations would require banks to set aside 100 percent of their value as off-balance-sheet assets, compared to about 20 percent now. "It appears that low-risk trade finance instruments are being lumped together with higher risk off-balance sheet items, without an appreciation of unintended consequences," the ICC report said. REDUCED SUPPLY The report and survey, commissioned by the World Trade Organization, are aimed at the G20 summit in Toronto in June. A similar survey ahead of the G20 summit in London in April last year drew attention to strains in the sector and led to the group approving a $250 billion two-year trade finance package. Some 90 percent of the $12 trillion trade in merchandise is supported by trade finance - simple instruments sometimes centuries old, secured on the goods being sold, liquidating when the short-term transaction completes and based on the knowledge that exporter, importer and their banks have of each other. But the financial crisis made banks unwilling to lend to each other and trade finance was caught up in the panic.

As trade finance dried up, and the price of what was available spiraled, policymakers feared the drought could choke off economic recovery by intensifying the contraction in trade. Economists now believe that trade finance accounted for only a small part of the contraction in world trade last year, put at 12.2 percent by the WTO,but the fear remains. "The economic crisis has significantly reduced the supply of trade finance, both in volume and value terms, raising fears that the lack of such finance may prolong the recession," the ICC said. The survey of 161 banks in 75 countries, one third more than last year, showed trade finance contracted together with trade. In value terms, 60 percent of respondents said trade finance activity had decreased in 2009, mainly due to lower commodity prices, the weak dollar and debt restructuring. In volume terms, 43 percent of respondents reported a decrease in export letters of credit, one of the main instruments, while 26 percent saw a decrease in import letters of credit and 51 percent saw no change from 2008. Although 96 percent said losses in traditional trade finance products were the same or lower than losses for banking generally, 40 percent said they had cut trade credit lines for companies and 42 percent had cut them to financial institutions. With trade rebounding this year -- the WTO forecasts a 9.5 percent rise -- 84 percent of respondents in the survey expect an increase in demand for traditional trade finance products and 93 percent are confident they can meet any increase in demand. (Reporting by Jonathan nn& Lynn, editing by Lin Noueihed)


Aldo Caliari Director Rethinking Bretton Woods Project Center of Concern

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