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ICC looks to digital to ease trade finance market disruptions

The International Chamber of Commerce (ICC) has issued two guidance publications designed to help governments and regulators deal with trade finance market disruptions caused by COVID-19.

Trade finance transactions rely almost exclusively on hard-copy paper documentation to process payments and, ultimately, clear the release of goods to buyers. This is because, in many jurisdictions, electronic trade documents are either prohibited or their legal status is unclear. Yet with banks unable to handle documents in-person as government authorities seek to limit COVID-19 transmission, there is a risk that the underlying trade in goods, including essential medical and food products, will be further disrupted.

In light of this, the ICC has issued both technical guidance to practitioners and a roadmap for regulatory reform for policymakers. The first ICC publication, ‘Guidance paper on the impact of COVID-19 on trade finance transactions issued subject to ICC rules’, provides technical guidance to the market on elements to consider in adapting ICC rules for specific trade finance instruments, gives a certain level of flexibility in the monitoring of transactions in respect of ICC rules, and outlines common scenarios experiences in the delivery of documents during the public health measures undertaken in response to COVID-19.

The paper reviews provisions from several ICC rules, namely the Uniform Customs and Practice for Documentary Credits (UCP 600) and its eRules (eUCP 600 2.0), the Uniform Rules for Demand Guarantees (URDG 758), the Uniform Rules for Collections (URC 522) and its eRules (eURC 522), the Uniform Rules for Bank-to-Bank Reimbursements under Documentary Credits (URR 725) and the Uniform Rules for Bank Payment Obligations (URBPO 750).

In the second publication, ‘ICC memo to governments and central banks on essential steps to safeguard trade finance operations’, the organisation outlines the impact of necessary public health interventions to tackle COVID-19 on the processing of paper-based trade finance transactions, and calls for immediate regulatory intervention to ensure the continued functioning of the trade finance market.

The main headline from this memo is that is sees the ICC call on governments and central banks to immediately void the legal requirement for paper-based documentation, and to adopt the UNCITRAL Model Law on Electronic Transferable Records. Commenting on this guidance, the ICC secretary-general, John W.H. Denton AO, said:

“The trade finance market is systemically important to the functioning of the global economy. With these publications ICC is doing our part, but we need action from governments, central banks and international regulatory bodies to ensure the processing of trade finance instruments and the vital flow of goods that they facilitate.”

Corporates need to do more too

On the corporate side of things, noting the need for clear and principled corporate leadership, the ICC has also issued a call for multinational corporations to preserve their supply chains, operations and workforce as the economic repercussions of the novel coronavirus (COVID-19) pandemic ripple through global supply chains.

As the institutional representative of more than 45 million companies in over 100 countries, ICC is witnessing the severe impacts of COVID-19 on businesses and people globally - with micro-, small- and medium-sized enterprises (MSMEs) and their workers among the hardest hit.

The corporate call to action follows the global launch of ICC’s ‘Save Our SMEs’ campaign, which began with a call to action encouraging governments to ensure that stimulus efforts flow rapidly into the real economy and provide direct and immediate support to MSMEs and their workers. The call to action states:

“Prior to the onset of COVID-19 many multinational corporations spoke of the pressing need to embrace a more inclusive capitalism, one that put all stakeholders at the heart of corporate purpose, including employees, suppliers and local communities. This trying time for MSMEs presents an opportunity for supply chain leaders to visibly demonstrate commitment to their purpose in outlining their COVID-19 response.”

With the Save Our SMEs campaign, the ICC encourages global supply chain leaders to:

  • Ensure the health and safety of the workforce in the supply chain.
  • Uphold contracts with suppliers and/or distributors.
  • Facilitate continued business operations of the supply chain.
  • Insist on integrity and responsible business conduct.
  • Advocate for stimulus efforts to flow into the real economy.

“The COVID-19 pandemic requires an all-of-society effort to curtail the unfolding economic crisis and protect the lives and livelihoods of millions of MSME workers,” Denton commented. “This includes multinational corporations in their engagement with global value chains. There is no one-size-fits-all approach to corporate leadership in this unprecedented crisis, but there are many things corporates can do, from modifying payment terms to provide much-needed cash flow to suppliers, to granting credit and rent relief to distributors. Such generosity of spirit will not only help keep the global economy afloat, but will pay dividends down the line, guaranteeing a smoother resumption of business activities in the post-crisis recovery.”

 

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