The market for trade finance has severely deteriorated over the last six months, and the situation is likely to deteriorate further in the coming months, WTO chief Pascal Lamy warned yesterday.

Reporting to WTO heads of delegations, Lamy said the deteriorating market for trade finance had been confirmed by experts and representatives of private banks, international financial institutions and export credit agencies at a meeting he chaired earlier in the day.

He said two key problems were identified at the meeting: one is a shortage of liquidity to finance trade credits, the second is a general re-assessment of risks caused as much by the financial crisis as by the slowing down of the world economy.

"The world economy is slowing and we are seeing trade decrease. If trade finance is not tackled, we run the risk of further exacerbating this downward spiral," Lamy said.

According to the WTO chief, the market currently estimates the liquidity gap in trade finance at about US$25 billion, which is a sizeable sum.

He said a priority task is to enhance capacity to mitigate the effects of the increased perception of risks and to provide the market with earmarked liquidity for trade finance.

Both the international financial institutions and the export credit agencies should expand their contributions to cover risk and provide additional liquidity under existing instruments, and they should be supported by public authorities, Lamy said.

Lamy also called on WTO members to resist calls for protectionist measures and to promote "further organized, regulated and balanced trade opening" through the Doha Round of global trade talks.

"My sense is that we are not that far away from our objective of concluding the round, even if a number of tough nuts remain to be cracked, notably in the agriculture and industrial modalities, which would be a stepping stone towards a final Doha deal," Lamy said.

"My sense is that we can achieve modalities in these two areas by the year-end. I remain of the view that it is doable," he added.