Opinion

Introduction 

• International trade can prove to be extremely complicated due to its intricacies and tricky regulations 

• The situation has become even more complex after the arrival of COVID-19, as exporters are now expected to comply with even stricter guidelines 
• The time taken to ship products has also gone up, as has the cost 

• These factors are proving to be detrimental for new players who are looking to enter the export market 
• Even though exporting is quite hard, there are ways in which the entire process can be simplified 
• This blog discusses the key aspects that make exporting such a tricky task. At the same time, the blog also focuses on potential solutions that could reduce these complicacies to an extent 

The Complicacies of Exporting 

• There are several reasons why exporting is so hard. Some of these have been discussed below: 

• The first and foremost reason is that exporting requires you to deal with a counterparty that is not located near you. Exports are typically done to countries that are located thousands of miles away from you. In such a case, it can be tricky to keep track of shipments and payments 
• Secondly, there are also language and culture barriers to overcome. Since your counterparty is located in a different country, it is not always easy to understand their language and their way of thinking. This could result in misunderstandings and conflicts 
• Thirdly, each country has its own sets of rules and regulations. You must be fully compliant with all of these regulations if you are to ensure a smooth transaction. Exporters can find it hard to keep track of all these regulations  
• Further, exporters should also be aware of the different terminologies that are used in the field of trade. This is extremely important in order to make sure that both parties are on the same page 
• Despite the above complicacies, exporting can be worth it if you make smarter decisions. Here are a few pointers that could help you in doing so: 

• The most important factor is to choose the right partner. Even if you are located thousands of miles away, you must find a counterparty that is honest and transparent 
• Further, you could also make your life easier by taking the help of industry experts. Trade finance institutions could help you in minimising the risks associated with exports by providing certainty of payment under all circumstances 
• Another step that could help you in simplifying exports is to keep reading about the rules and regulations. If you remain updated about export laws of different countries, then you will be able to meet the compliance requirements without any issues 
• Thus, if you do follow the above steps, then you will be in a much better position. If executed in the right manner, then exporting is totally worth it. You just need to ensure that you are mitigating all types of risks before proceeding 

Conclusion 

• To conclude, exporting can appear to be quite hard at first glance. However, if you take the right approach, then these complicacies can certainly be overcome. In case your organisation is unclear about any aspects of business, you can always reach out to the experts. Institutions such as Euro Exim Bank offer customised support to traders in the form of financial instruments and bespoke trade advisory services. Euro Exim Bank offers financial instruments such as Bank Guarantees and Letters of Credit (LCs). Further information about Euro Exim Bank and its key product offerings is available here. 

Introduction 

The International Islamic Trade Finance Corporation (ITFC) has launched a new trade finance instrument that helps small businesses in reducing trade risks 

The new instrument is basically a letter of credit (LC) confirmation that helps businesses that are located in the Islamic Development Bank (IsDB) member countries

This new instrument ensures that the exporter of a product gets a payment guarantee from a second bank. This protects the exporter against any issuing bank risk as well as country risk

This instrument also makes sure that the supply of goods and services remains steady under all circumstances 

This blog discusses the key aspects of the new instrument and analyses how it can help smaller businesses 

ITFC launches letter of credit confirmation product 

The new product focuses on private sector entities, especially small and medium-sized businesses 

These types of businesses face major risks related to international trade due to their relatively small size and limited availability of resources 

In case of any payment dispute, these businesses can face serious challenges related to cash flow, vendor payments, and even struggle to keep their critical processes running 

ITFC wants to eliminate these issues by ensuring that these companies get paid in all circumstances

This product ensures that the payment is secured from two trade finance institutions. Such multi-dimensional security helps the exporters in minimising risks related to trade

This new instrument could prove to be extremely useful for small and medium business because they will feel more secure in their overseas transactions 

In addition, the launch of these products could also prove to be beneficial for the overall trade finance industry as it will help in building the confidence of exporters around the world 

Finally, this new launch will also help the trade industry in recovering from the jolt that has been given to it by the coronavirus crisis. This new launch shows that trade finance institutions are committed to new product development in order to grow their business despite the global crisis 

Conclusion 

To conclude, this new launch could have a positive impact on the trade finance industry. In case your organisation is unclear about any aspects of business, you can always reach out to the experts. Institutions such as Euro Exim Bank offer customised support to traders in the form of financial instruments and bespoke trade advisory services. Euro Exim Bank offers financial instruments such as Bank Guarantees and Letters of Credit (LCs). Further information about Euro Exim Bank and its key product offerings is available here. 

Introduction 

Importers and exporters around the world are expected to comply with regulations related to sanctions 

However, these are not the only parties that must be careful with their international dealings

Trade finance institutions are also supposed to meet all the criterion related to international sanctions on certain nations

The inability to meet these rules could result in massive fines for these institutions 

One such case has emerged in recent times, as Union de Banques Arabes et Françaises (UBAF), a that provides trade finance services, has been fined for breaching sanctions related to Syria 

The penalty was as high as $8.5 million, indicating the seriousness of the offence in the eyes of the regulators  

This blog discusses the key aspects of this penalty and analyses its implications for the wider trade finance industry 

Trade finance lender hit with $8.5mn penalty  

The Office of Foreign Assets Control (OFAC) investigated the transactions undertaken by UBAF over the past few years 

The investigation revealed that this bank processed as many as 127 transactions on behalf of Syrian finance companies between the years 2011 and 2013 

The total value of all these transactions was as much as $2 billion, indicating the severity of the breach

It was also found that UBAF had issued 13 letters of credit to its clients in Syria. All of these were clearly in breach of the rules laid down by OFAC

The US had placed additional sanctions on Syria in 2011 and clearly indicated that banks are not allowed to indicate with Syrian parties 

The bank was also found to be engaged in USD clearing for financial institutions in Syria, something that is prohibited under the regulations of OFAC 

The final penalty imposed on the bank was $8.5 million. This penalty was lowered by OFAC because the bank cooperated with the investigation and provided transaction details voluntarily 

This case indicates the potential dangers faced by trade finance institutions. Dealing with foreign parties is always a complicated task, and these institutions must carry out complete due diligence before proceeding 

In the absence of such due diligence, the repercussions could be severe

It is also important to note that financial institutions can be penalised by the US even if they do not have a presence in the US market 

This is because the sanctions are applicable on a global level  

Conclusion 

To conclude, this development highlights the need for lenders to be extremely careful while dealing with overseas clients. In case your organisation is unclear about any aspects of business, you can always reach out to the experts. Institutions such as Euro Exim Bank offer customised support to traders in the form of financial instruments and bespoke trade advisory services. Euro Exim Bank offers financial instruments such as Bank Guarantees and Letters of Credit (LCs). Further information about Euro Exim Bank and its key product offerings is available here.

The International Chamber of Commerce, in its 2017 Trade Register report revealed that trade finance is a low-risk asset class. The 2017 Trade Register is based on USD 10.5 trillion worth of exposures and more than 20 million trade finance transactions occurring between 2008 and 2016. The products covered included import/export letters of credit (LCs), export/import loans, and performance guarantees. Subsequent reports in 2018 and 2019 also show a similar trend, further reaffirming the low-risk nature of trade finance.

These reports reveal that potential losses for trade finance compare favorably against similar asset classes, such as large corporate and small/medium enterprise lending. From 2008 to 2016, obligor-weighted default rates are low across all products and regions. Just 0.38% for import LCs on average and 0.05% for export LCs, 0.8% for export/import loans and 0.47% for performance guarantees. In addition to the low-risk nature of the asset class, trade finance also sees very short times to recovery, which is favorable for lenders.

Overall, the reports from the ICC find that, based on the previous 10 years of data, trade finance products provide favourable conditions for banks and other lenders. These include short average maturities, low credit risk, low default rates, and low loss rates.

Of course, the 2020 report is likely to reflect the disruptions in international trade due to the global pandemic. This will likely add to trends that we have already seen emerging in the recent past when studying the ICC reports. These trends include:

Trade Slowdown – Global trade has been slowing for some years now, however, this could be exacerbated by the events of 2020.

Bank Risk Appetite Low – Banks are becoming risk-averse and this may only increase in the atmosphere of the global pandemic.

Open Account is Growing – Large companies, in particular, are moving more towards open account. It is difficult to say how the pandemic will affect this, but trade finance providers must be aware. It is possible for this trend to continue or reverse post-2020.

Regulatory Challenges – Increased regulation is a mounting challenge. While necessary, it can become a significant inhibitor for banks.

Falling Margins – With margins low, banks must drive for operational efficiency to ensure viability.

Overall, these figures are healthy and promising for trade finance, particularly post 2020, when it will play a crucial role in rebuilding and reinvigorating global trade against a backdrop of mass disruption.

In international trade transactions, financial instruments such as letters of credit (LC), demand guarantees, and performance bonds are used to limit the risk of one or more parties to the trade deal. Such instruments, LCs in particular, are often regarded as equivalent to having a security deposit in cash. This is because of national and international regulations and laws, such as those laid down by the ICC, that mandate the settlement of dues to holders of LCs and similar documents. However, here are a few tips to help ensure you can readily exercise your LC at any time. 

Have the original with you or know where it is

If your LC is not in electronic form, then you need to present the original when you make the demand for payment. If the document is lost or unavailable, there is no obligation for the issuing bank to provide a replacement, unless stipulated. Therefore, always know where your document is and make sure you can access it.

Know who the right signatory is and if/how they are available

The pandemic continues to cause disruptions. The authorized signatory for your document may not be available or may be available at an alternate location. Keep track of these things and the logistics that may be involved in getting to them if necessary. 

Is the LC in the right place to serve?

LC’s will usually specify where they are to be presented for payment and you need to comply with this. But with travel restrictions and courier delays, what used to be a simple process can quickly get out of hand. So, know where you have to serve the document and make sure that alternate arrangements for getting the document to that location, such as electronic alternatives, are in place.

Is the bank open?

If the last day for the presentation is a bank holiday, usually you can still present the document on the next working day. If the bank is closed on a working day, depending on the rules governing your LC, you may be able to present the document during an extended window after that date. Be aware of the rules governing your LC.

When you cannot present the document for whatever reason

In such an event, make sure to document your efforts carefully to show that you have complied with the terms and requirements of the LC. This will work in your favor as you try to resolve the issue. 

As we properly head into 2021, we thought it would be a good time to examine some of the key economic risks that the world faces this year. Some are longer-term and far-reaching while others may soon subside or never materialize. 

A Global Food Crisis 

Unfortunately, it seems that this risk may already be unfolding as the UN predicts that we are about to witness the greatest global food crisis in 50 years due to COVID-19 supply chain disruptions. Even more alarmingly, UN figures indicate that more people will die of COVID-19 related malnutrition than of the virus itself. Parts of Africa, South America, and the Middle East are at particularly high risk. 

Low Oil Prices Ravage Middle Eastern Economies 

Due to reduced demand and increased supply, oil prices may remain depressed for some time to come. This will have a significant economic impact on oil-dependent economies in the Middle East and North Africa. However, some economies will work to adapt and diversify and this may lead to more trade opportunities in the region.  

A Cyber Black Swan Event 

As more and more of the world relies on the internet and digital technology, a global cyberattack or the occurrence of rare natural phenomena, such as solar storms, could take down the internet and send the global economy reeling. With the potential booties from cyberattacks only increasing in value, criminals are choosing to work from home too. 

Another GFC Driven by COVID-19 Debt 

Emergency spending has sent government debt skyrocketing in the wake of the pandemic. Worldwide debt rose by more than 15 trillion US dollars in 2020. All this unchecked debt will likely come back to bite at some point and could trigger another global financial crisis, especially if governments insist on continuing draconian pandemic measures. 

US-China Flare-up Over Taiwan 

Taiwan is a hotspot for US-China tensions and the two regularly engage in military displays, creating a volatile situation that could erupt at any moment. Having said that, this has generally been the status quo ever since tensions began. Thus, while outright conflict is unlikely, the situation is incredibly strained and any flare-up could hurt global supply chains and send shock waves throughout the world economy. 

Vaccines Become a Disaster 

The slow rollout or outright failure of the global COVID-19 vaccination drive could send the world’s economy into a depression, leaving us with more economic chaos than anyone would like to imagine. 

Although 2020 threw the world into chaos and economic turmoil, 2021 could see many positive developments and trends take hold. In this article, we will look at some of the top economic trends that we are likely to see emerge and or grow stronger.  

Online Boom 

Let us get the obvious one out of the way. Online businesses are going to enjoy a boom for quite a while to come. This will provide plenty of opportunities and room for innovation and competition, all of which will ensure that the consumer emerges as the winner. 

Growth in Global Trade 

2021 will likely see significant growth in global trade as supply chains normalize and new opportunities emerge. Also, a more trade-friendly US administration, along with China now championing free trade for its own survival, could potentially work to accelerate this trend.

Increased Inflation 

Governments around the world have been borrowing and spending money like there is no tomorrow to help battle the global pandemic. Such liberal increases in the money supply will likely lead to increased inflation over 2021.

Interest Rates May Rise 

As unbelievable as it may seem, all the cash that is sloshing about in the global financial system will ultimately force central banks to increase interest rates in order to prevent economies from overheating or currencies from collapsing.

Drooping Dollar 

The dollar’s days may be numbered. Russia is flush with foreign exchange and gold, the same with China and, while the US and the EU have been floundering about, Asia has been working towards liberalizing trade and driving economic growth. Thus, it is likely that we will soon see the decline of the dollar. While tales of overnight collapse are popular and make for excellent dinner party conversation thrills, the dollar is more likely headed the way of the pound sterling after the collapse of the British Empire.

A Commodities Boom & Stock Market Slump 

As the world economy recovers, we will likely see increased demand for raw materials, food, energy, and precious metals. Along with this, we will probably see presently massively overbought stock markets going in for a correction. The recent chaos with GameStop and other “stonks” in the USA and globally will soon cause market shifts that will potentially spur much-needed corrections and reality checks in the world’s equity markets.

Innovation Creates New Breed of Entrepreneurs 

The pandemic has created many problems to solve and put many in challenging economic circumstances. These are the drivers of innovation and we are likely to see a new breed of entrepreneurs emerge out of this crisis. 

Free trade agreements promote trade and peaceful economic cooperation between two or more countries. See our article here about “Free Trade Agreements and How They Work”. These treaties bring many benefits to participants, but they can also have some downsides. However, when properly and fairly implemented, the upsides of free trade agreements usually far outweigh any potential downsides.  

In this article, we will look at some of the major pros and cons of free trade agreements. 

The Upsides 

Enhanced Economic Growth – Free trade promotes increased levels of commerce and business activity, resulting in enhanced economic growth. In an atmosphere of free trade, countries can focus their resources on their strengths and increase their presence and competitiveness in the global marketplace. Reduced costs associated with tariffs and regulatory compliance may also potentially reduce prices and spur demand. 

Reduced Government Spending – Maintaining restrictions, enforcing quotas and providing subsidies is costly. Free trade agreements reduce or eliminate a lot of this, freeing up government money so that it may be better utilized elsewhere.  

Increased FDIs – When a nation is open to free trade, trade partners will be happy to supply foreign direct investment. The benefits of this are many including healthy foreign exchange inflows, improved infrastructure, more jobs and overall increased economic activity.

Technology, Expertise & Knowledge Sharing – As trade partnerships flourish, technology, expertise and knowledge sharing occur, creating new opportunities and potential for further growth both on a social and economic level.  

The Downsides 

Excessive Job Outsourcing – Free trade agreements can cause jobs to be outsourced from developed countries to emerging markets. We see this with NAFTA and how US companies have outsourced jobs to Mexico, China and India.

Abuse of Workers & The Environment – Because emerging and frontier markets may have less robust regulations concerning labour and the environment, there is potential for irresponsible and unethical business practices, which is why some trade agreements and programmes, such as those with the EU, require the other parties to conform to certain norms with regard to these issues.

Unfortunately, as trade is never 100% free and likely never will be, imbalances will always occur within trading relationships. Furthermore, politics and public opinion will only ensure that the goal of true free trade is never fully attainable. In these circumstances, and depending on macroeconomic factors, some will appear to win or lose more than others from every free trade agreement. 

In this article, we will look at some of the major pros and cons of free trade agreements. 

The Upsides 

Enhanced Economic Growth – Free trade promotes increased levels of commerce and business activity, resulting in enhanced economic growth. In an atmosphere of free trade, countries can focus their resources on their strengths and increase their presence and competitiveness in the global marketplace. Reduced costs associated with tariffs and regulatory compliance may also potentially reduce prices and spur demand. 

Reduced Government Spending – Maintaining restrictions, enforcing quotas and providing subsidies is costly. Free trade agreements reduce or eliminate a lot of this, freeing up government money so that it may be better utilized elsewhere.  

Increased FDIs – When a nation is open to free trade, trade partners will be happy to supply foreign direct investment. The benefits of this are many including healthy foreign exchange inflows, improved infrastructure, more jobs and overall increased economic activity. 

Technology, Expertise & Knowledge Sharing – As trade partnerships flourish, technology, expertise and knowledge sharing occur, creating new opportunities and potential for further growth both on a social and economic level.  

The Downsides 

Excessive Job Outsourcing – Free trade agreements can cause jobs to be outsourced from developed countries to emerging markets. We see this with NAFTA and how US companies have outsourced jobs to Mexico, China and India.

Abuse of Workers & The Environment – Because emerging and frontier markets may have less robust regulations concerning labour and the environment, there is potential for irresponsible and unethical business practices, which is why some trade agreements and programmes, such as those with the EU, require the other parties to conform to certain norms with regard to these issues.

Unfortunately, as trade is never 100% free and likely never will be, imbalances will always occur within trading relationships. Furthermore, politics and public opinion will only ensure that the goal of true free trade is never fully attainable. In these circumstances, and depending on macroeconomic factors, some will appear to win or lose more than others from every free trade agreement.