FACTUAL Summary of concerns expressed by LDCs and NFIDCs in relation to the financing of food imports, notably in periods of emergencies

Note by the Secretariat[1]

1.  This note aims at summarizing some of the main concerns expressed, and proposals made to date, by least-developed and net food-importing developing countries (LDCs and NFIDCs) in relation to the financing of food imports and challenges associated in doing so during periods of food instability and emergencies, as well as discussions that took place in the Committee on Agriculture (CoA), in the context of its work programme under paragraph 8 of the Ministerial Declaration on the Emergency Response to Food Insecurity. It also takes into account a number of interventions made at the WGTDF formal meeting on 12 July 2024 and informal meeting on 2 October 2024. As any summary, it may not give full justice to all points raised. However, this being a living document, Members are welcome to modify and edit, either directly or by sending modifications to the Secretariat.

2.  In November 2022, the CoA agreed on four thematic areas for collective deliberations under the work programme and established a Working Group for the conduct of thematic discussions.[2] One of these themes was financing of food imports. In December 2022, the CoA Working Group finalized a questionnaire (_G/AG/GEN/214) to assess food security challenges by LDCs and NFIDCs. Members' responses were summarized by the Secretariat of the CoA in _RD/AG/103. In that summary, financing concerns appeared in the following way:

"Availability of finance to facilitate agricultural investment and to access inputs, as well as the provision of technical assistance and capacity building to absorb new agricultural technology, including in response to climatic challenges, were highlighted by a few respondents as necessary to sustainably enhance agricultural production and productivity. Several respondents highlighted the importance of finance and financial support to enable normal levels of commercial imports, especially during acute food instability."

"Financing in the event of price shocks figured in several responses as a target of collaboration with IOs. Respondents referred to paragraph 5 of the Marrakesh Decision concerning short-term difficulties faced by LDCs and NFIDCs in financing normal levels of commercial imports of basic foodstuffs. Respondents also advocated accommodating flexible terms and conditions of financing for LDCs and NFIDCs during crisis. One respondent proposed coordination with international or regional financial institutions to set up a special agricultural fund to improve agricultural productive capacities."

3.  Three Members or groups of Members made submissions under the CoA work programme targeting financing issues (_RD/AG/107 (Sri Lanka), _RD/AG/114 and _RD/AG/114/Add.1 (Egypt and Pakistan) and _RD/AG/115 (ACP Group)). Discussions on the financing of food imports among Members were further supported by a workshop[3] dedicated to this topic, held on 28 February 2023, and an expert session[4] on import finance on 6 June 2023. Specific discussions held by the CoA on this theme are summarized in paragraphs 2.6 to 2.11 of the CoA's final report on the work programme, adopted in April 2024 (_G/AG/38). Suggestions were subsequently made at the meeting of the WGTDF on 12 July 2024. One WGTDF room document _RD/WGTDF/1 (Egypt) has been circulated.

1  concerns and proposals

4.  Thematically, the concerns and proposals referred to in the above-mentioned documents can be organized as follows:

1.1  Export financing, food security stock financing, and the role of the WTO

5.  Regarding export credits, guarantees and insurance programmes, Egypt and Pakistan emphasized in _RD/AG/114 the need to transparently implement the Nairobi Decision on Export Competition regarding the differential and more favourable treatment afforded to LDCs and NFIDCs in terms of export financing support, as per paragraph 4 of the Marrakesh Decision and paragraph 17 of the Nairobi Decision on Export Competition. In addition, they highlighted the need to "consider the availability of financial resources, favourable conditions for accessing finance, and the provision of comprehensive capacity-building support" (_RD/AG/114). In its intervention at the WGTDF meeting on 12 July 2024, Egypt emphasized the need to further discuss export finance and assess how WTO rules in this area impacted the ability of net food-importing developing countries to finance normal levels of imports, and to investigate the role of export finance credit and guarantees from the standpoint of governments (_WT/WGTDF/M/46).

6.  As reported in _G/AG/38, discussions took place in the CoA on the suggestion made by ACP Group, in addressing their financing challenges to acquire foodstuffs, to maintain a system of "'global food security stocks' (GFSS)" which could be used to meet the food needs of vulnerable countries especially during emergencies. This suggestion was made in document _RD/AG/115. According to the proposal, "this would be subject to earmarking these extra-stocks to be made available (on a cost basis) to vulnerable countries in need of food assistance (in well-defined emergency situations and triggering rules), under the auspices of relevant existing food, financial and trade agencies (FAO, WFP, IMF and WTO)." According to proponents, relevant international organizations such as the FAO or the WFP, in collaboration with the WTO, could undertake the logistics of the GFSS. Document _G/AG/38 also reported that, in the discussions, "some other Members, however, raised doubts on the practical feasibility of the proposed GFSS."

1.2  Access by LDCs and NFIDCs to market-based import finance and related import guarantees; insufficient financial resources

7.  LDC and NFIDCs have raised challenges and constraints in securing import finance for food from markets at domestic and international levels. In _RD/AG/107, Sri Lanka explained that domestic constraints included collateralized lending and high cost of borrowing, which negatively impacted importers with few assets. In periods of crisis, the higher perception of counterparty or country risk led international banks to reduce their exposure to developing countries' clients. In _RD/AG/115, ACPs suggested that market-based instruments such as future and option contracts to hedge against world prices were generally beyond the means of ACPs and other low-income countries. Egypt, in _RD/AG/114, highlighted the lack of foreign currency and in general financial resources to finance food import bills. It wished to explore potential solutions, such as mechanisms for foreign currency availability and access to dedicated financing facilities, to ensure timely and adequate financing of food imports. In its intervention at the WGTDF meeting on 12 July 2024, Egypt wished to discuss at the WGTDF the settlement of international transactions in local currencies for countries subject to foreign currency shortage. It also asked that the WGTDF looked at how to leverage blended finance, which combined public and private sector funds.

8.  It was reported in _G/AG/38 that CoA Members had

"examined the issue of import finance and the possible role of importing governments or government-backed agencies in such financing transactions. The issue of foreign exchange shortage faced by importing developing countries and settling international trade transactions in local currencies, including through currency swaps, also came up in the discussions. Several Members sought to encourage importing governments, governmental agencies, and international and regional financial institutions to provide adequate finance or guarantees to facilitate food import financing especially in times of food instability and emergencies. Some Members also favoured the idea of acknowledging that financing or risk coverage provided by importing governments or governmental agencies to facilitate food imports may not be restricted by the WTO rules or prohibited, as long as the concerned importing governments do not impose any export contingency or local content requirements on beneficiary importers. Some others did not favour this interpretative exercise under the work programme. … Members also dwelt on how private and governmental institutions could best engage with one another on agricultural financing, and explored the issue of 'blended finance' whereby developing country governments facing financing constraints could draw on private sector finance and limit their role primarily to setting policy direction and priorities."

1.3  Availability of finance from international financial institutions

9.  Written submissions raised the issue of availability of finance from international financial institutions and asked for the creation of a dedicated food import financing facility. _RD/AG/107 raised the need for a "'revolving fund' to ensure that adequate financing is available to LDCs and NFIDCs during times of high world market prices", a proposal that had been made in the CoA in the past. It referred to the technical proposal by the FAO for a "'Global Food Import Financing Facility (FIFF)'". _RD/AG/115 also argued in favour of the "implementation of a more accessible instrument (than IMF's Compensatory Financing Facility) with more objective criteria and limited conditionalities for its use." It mentions the recent FAO analysis of how an FIFF could be implemented. In _RD/AG/114, Egypt also raised the need to establish a financial facility and emphasized the role of such a facility in supporting food imports in LDCs and NFIDCs particularly in times of food instability. At its intervention in the WGTDF meeting on 12 July 2024, Egypt further emphasized the need to create an international financing facility, that "could capitalize on work and expertise from the Food and Agricultural Organization (FAO) of the United Nations and the World Bank. Thus, International Organizations could work in collaboration with the WTO, within their own mandates, to establish a credit guarantee facility to mitigate risk for lenders" (_WT/WGTDF/M/46).

10.  _G/AG/38 reported that

"LDC and NFIDC Members … emphasized the need for international mechanisms to assure the availability of foreign currency and access to dedicated financing facilities. In this context, a reference was made to the recent technical proposal by the FAO for a 'food import financing facility (FIFF)'[5] as well as to the idea of a 'revolving fund' proposed[6] by a group of NFIDC Members some two decades ago in the CoA. A group of developing Members proposed the creation of a credit guarantee facility for LDCs and NFIDCs by regional or international financial institutions to provide the necessary credit guarantees for the public sector in financially restrained poor countries to enter into futures and options contracts for the importation of basic foodstuffs. Members in the discussions also referred to the new food shock window established by the IMF in September 2022 under its emergency financing instruments and which was also presented to the WTO Members in the margins of the November 2022 CoA meeting.[7]"

11.  _RD/AG/114 also highlighted the need for "promoting dialogue, establishing robust frameworks for cooperation, and facilitating the exchange of invaluable information and best practices" between the WTO and relevant financial institutions. _G/AG/38 notes that "[s]everal Members appreciated the challenges faced by LDCs and NFIDCs in financing imports of basic foodstuffs. Some Members suggested that the WTO should use its convening power to foster collaboration and coordination with the relevant financial institutions and share with them the report and findings of the ongoing work programme to sensitize them to the financing challenges faced by LDCs and NFIDCs in meeting food security needs."

1.4  Technical assistance and capacity building

12.  In addition to the availability and adequacy of financial resources, _RD/AG/114 underscores the importance of technical assistance and capacity building for LDCs and NFIDCs. Egypt also emphasized this point at the WGTDF meeting on 12 July 2024 and suggested that the WTO developed technical assistance and capacity building with relevant organizations, for "enhancing the capacity of local banks to offer robust trade finance … which was essential to improve access to finance, especially for banks in Africa, [in developing] new products related to financing food imports" (_WT/WGTDF/M/46).

13.  _G/AG/38 notes that "Members also emphasized the importance of providing technical assistance and building the capacity of the domestic banking system and financial institutions operating in LDCs and NFIDCs to enable these institutions to be better equipped to provide trade finance, and to better benefit from financing facilities and guarantees offered by the private sector, regional and financial institutions, and exporting countries."

2  Suggested ways forward at the WGTDF

14.  In _RD/WGTDF/1, Egypt suggested that a focused agenda on food import financing in the WGTDF should require collecting data and analysis of existing mechanisms and their limitations; and engagement with relevant WTO Bodies (CoA, Committee on Balance-of-Payments Restrictions, Committee on Trade in Financial Services (CTFS) and Committee on Trade and Development (CTD)) as well as external stakeholders such as the IMF, World Bank, FAO and regional development banks, for providing input and technical assistance.

15.  Regarding activities with international organizations, Egypt suggests developing innovative and flexible, cost-effective trade financing instruments; monitoring and evaluating trade finance strategies (including identifying instruments, ensuring access and accessing their impact on target groups); reviewing financial instruments, facilities and emergency financing tools, proposing possibly new tailored mechanisms during crises, looking at gaps in the current crisis management tools; a WTO Secretariat background note on LDC and NFIDC food import financing challenges including cost data, external debt levels, and trade financing difficulties during periods of volatility; analysing trends and impact on global value chains, in particular how financing mechanisms facilitated the movement of food imports, particularly those with higher value-added; developing guidelines for crisis-responsive measures, including mechanisms such as trade credit insurance or debt rescheduling options during several food price volatility; capacity building for domestic banking system, drawing upon expertise of relevant Bodies of the WTO. In the following informal discussions, some LDCs and NFIDCs Members stressed the need for a multi-track approach, recommending parallel efforts on trade financing gap assessments and evidence-building on identified issues.

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