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OP-ED: The need for a third party during export trade

  • Published at 11:28 pm June 28th, 2021
Chittagong port import export trade
File photo of Chittagong PortDhaka Tribune

We should keep trade on an upward path

Potatoes are sold by a seller with the help of a van. We buy the goods without bothering where they were sourced from.

From the footpaths, we are shopping regularly without knowing where they come from.

We may work in a manufacturing company and may buy their products from street vendors but do not think of how they reach street sellers. This is the reality. 

In international trade deals, two parties are in a process to execute the transactions under which goods are moved from one to another. The parties may not be real producers or sellers.

We know that fuels are produced by OPEC+ countries, but our import deals are executed with some trading entities located in countries, like Singapore, other than fuel producers.

In the same way, it is observed major import commodities are executed in trade centers like Singapore, and Dubai which sell goods as facilitators.

In many cases, the traders buy commodities through commodities exchange houses for onward sales.

Export for Bangladesh

With regards to our exports, it is observed that our major destinations of exports are North America and European Union.

In reality, we are getting orders from Hong Kong, Singapore, Dubai and many other facility centers. Interesting point is that exporters are receiving payments from these locations also.

Exports data are compiled on the basis of destinations. If it were done by remitter-countries, different pictures would be visible.

It is observed that during the last fiscal, goods amounting to around $1 billion have been exported to a neighbor of ours.

But inside information shows that our exporters shipped goods there against orders received from other countries.

In this context, there comes a question whether our neighbor is a real importer. Foreign exchange regulation of the country requires export payments to be received either in convertible currency or in Taka from a non-resident Taka account (vostro) maintained in Bangladesh by foreign banks.

On the other hand, import payment needs to be executed in freely convertible foreign currency.

The regulations allow payment settlements in the currency of the country of the beneficiary or of the country of origin/shipment of goods, or by way of credit to the vostro account maintained in Bangladesh.

The regulations provide flexibility in payment settlement.

As we know that Bangladesh is a member of Asian Clearing Union (ACU).

Nine participating countries are to settle current payments among themselves under the platform. Iran is one of them but it is out of ACU due to restrictions imposed by global power politics.

Transactions for Iran by our banks may put the global transactions of our banks in jeopardy. As such, banking relations are not working for trading with Iran.

But the interesting point is that Bangladesh is exporting goods to Iran, official data show that goods amounting to $17.81 million have been shipped to Iran during the last fiscal.

How is it possible during the stage of no-banking link? The answer is simple - payment has been received from a third country. 

Bangladesh formulates Export Policy every three years.

The current policy wishes to accelerate banking relations with CIS countries including Russia, inter alia.

Do we face banking problems with Russia? If it happens so, the underlying reason is global politics; the economic model does not work as a solution in this context.

Despite this, official data show that Bangladesh has exported goods amounting to $487.29 million during the last fiscal.

This indicates banking problems are not a bar to shipping goods to Moscow. 

In global transactions, banks work as facilitators. But they do not establish a one to one relation considering cost factors.

As such, they maintain relations with counterpart banks in globally recognized financial hubs.

Only few relations help global transactions; no need is required for one to one relation, other than relationship management arrangement (RMA).

Another dilemma

We all know that there is a dilemma between exporters and importers.

Exporters want cash payment, while importers want to make delayed payments.

But mismatch always exists with regards to payments for which a matching arrangement is needed.

This is basically done by third party financiers which work as facilitators to materialize the trade deals.

We know that Bangladesh is not in a good position with regards to international trade.

We work, being exporters, in buyers’ market; in sellers’ market in case of import trades.

Bangladesh is exporting goods on usance terms meaning that exporters are paid on maturity date depending on agreed upon credit period for more than at least 90 days.

But how is it possible on the part of exporters to manage working capital needs during the period?

At the pre-shipment stage, exporters are supported by local banks.

But another 90 days’ finance is tough by banks to extend to exporters.

Really it is rarely possible, rather it will, if extended, be excessive finance to exporters in the name of trade transactions out of credit norms by banks in Bangladesh.

The solution for usance period is extended by external financiers in the name of supply chain finance or open account finance.

As a result, exporters get paid from external sources at a reasonable cost before maturity of bills.

But if such facilities are not available, exporters will not go for export transactions in spite of potential buyers or markets.

Let us go to the text of export policy articulating to accelerate banking relations with CIS countries including Russia.

It indicates that our banks do not have desired relations with these countries. As stated earlier, Bangladesh is sending goods to these countries.

So, nothing needs special arrangements to make banking relations other than RMA. Such arrangement is also available, as per inside information.

Hence, there should not be a problem making payment settlements.

But the reality is that there are embargoes on the country imposed by politically powerful countries for which our banks are not comfortable to execute transactions with banks there.

Doing such activities will result in problems to be faced for global transactions, avoidance is a better option for our banks.

But they facilitate transactions of exports to these countries from global banks. 

It is true that CIS and Russia are potential markets for Bangladesh.

If so, there comes a question as to why our exporters are not exploring these destinations.

Inside information shows that buyers of these countries require imports under open account for longer term usance period.

No third party payment supports like supply chain finance or open account finance are available against such exports.

Global banks operating therein do not take exposure to the buyers of these countries.

Payment risk is a major bar to explore these markets.

Government to government understanding for banking issues is reported to have reached.

Despite this, banks in Bangladesh are reluctant to tie up relations with them with adoption of their payment system.

We need a better option to explore these markets.

Central bank to central bank payment settlement option can be one of them if the transactions are out of the red eyes from global political powers.

But our central bank will not take such a risk to avoid red eyes.

If it would arrange such a payment mechanism, would exporters come forward? Definitely not, since the central bank will not assure payment risk.

Alternatively, the government may sign bilateral trade deals with their counterparts, specifying goods with quantities.

Under the arrangements, the central bank will select a transactional bank which will maintain settlement accounts to which import payments will be credited and export proceeds will be debited.

Disequilibrium may be settled in acceptable regional currency under the arrangements.

Another option may be explored by allowing local trade agents to make bilateral settlements through goods to goods.

In this case, banks will allow settlement accounts to net off the deals periodically with permissible interest payments.

However, there should be options for settlement of unsettled amounts between trade agents through merchant trade from other countries.

This may work but it may take time to onboard exporters and importers.

The arrangements, if adopted, will keep banks out of red eyes from global political powers.

Trade authorities may look into it and implement the programs by the support of trade agents under settlement accounts to be maintained by respective banks with the guidance note from central bank.

We should bear in mind that trade is a part of global politics.

Considering this view in mind, we should keep trade on an upward path, with avoidance of red eyes of global politics tactfully.

 

 

The author works in the development sector and can be reached at [email protected]