eBSI TradeBrief Issue 2

A Hot Tip about Trade Finance in Ireland

Last updated: 24 Sep 2011

Newsletter containing International Trade related articles and events. Signup at http://www.ebsi.ie

X ICC BANKING COMMISSION TradeBrief MEETING IN PARIS ....................... 1 ISSUE 2 2009 eBSI X ADVANCED CERTIFICATE IN INTERNATIONAL TRADE & LOGISTICS LAUNCHED BY EBSI....................... 2 X EXPERT COMMENTARY ? ASHFAK BOKHARI ? FALL IN EXPORTS & FOREIGN INVESTMENT FLOWS ...... 4 X IFC / ICC TOOLS FOR TRADE??????????..... 5 X WEBLINKS FOR EXPORTERS..... 9 X TRADE PRACTICE CLINIC.......... 10 X COUNTRY FOCUS - TURKEY ..... 11 X IRISH EXPORT SURVEY ............ 13 X EXPERT COMMENTARY ? XAVIER FORNT ? FINANCIAL CRISIS & ISLAMIC BANKING ..................................... 14 X EXPERT COMMENTARY ? SOH CHEE SENG ? MALAYSIAN COURT JUDGMENT ON STANDBY LC......... 20 X EXPERT COMMENTARY ? MAMUN RASHID ? EXPORT, REMITTANCE & TradeBrief GDP GROWTH ............................ 22 X BUSINESS IN? LIBYA............... 23 ICC Banking Commission Meeting in eBSI Paris Steps-up URDG Revision? The most recent meeting of the ICC Opinions and DOCDEX The second day of this meeting was ICC Banking Commission took opened by Mr. Gary Collyer, Technical place in Paris on Thursday 23 Advisor to the Banking Commission, October and Friday 24 October who led the discussion on ICC Official 2008 and was hosted by BNP Opinions as well as recent DOCDEX Paribas. cases. The event was dedicated to panel The welcoming remarks were discussions on critical issues facing del ivered by Ms. Regina Prehofer, the trade finance markets. Banking Commission Chair, who made special reference to the involvement of the International Dr. Georges Affaki provided the commission members with a progress Finance Corporation (IFC). update on the revision of the Uniform Rules for Demand Guarantees Mr. Pierre Mariani (France), Global (URDG). Head of International Retail Services and member of the Executive Committee, BNP Paribas, Mr. Fung King Tak from Hong Kong also welcomed delegates and set took the members through an The IFC Partners meeting was the scene for the important intricate case dealing with the URDG held just in advance of the meeting in the backdrop of the in court. October 2008 Banking evolving global financial crisis. Commission meeting to ensure Focused updates were also provided maximum participation from on: Ms. Bonnie Gallat acted as members of the ICC Banking moderator for a panel of the IFC Commission and trade bankers 1. anti money laundering. trade finance specia from the IFC Global Trade Finance lists who 2. forfaiting guidelines. Program (GTFP) reported the activity and progress 3. SWIFT initiatives of the IFC Global Trade Finance 4. UCP 600 endorsement by This strategy proved to be an Program. UNCITRAL. outstanding success. ICC BC TO BE HELD IN DUBAI The next ICC Banking Commission meeting will be held from 10-12 March, 2009, in Dubai, United Arab Emirates, and promises to be a strategic meeting in the development of the Banking Commission of the International Chamber of Commerce. The three day event will feature a full review of the latest draft of the Uniform Rules for Demand Guarantees (URDG), analysis of ICC draft opinions with the third day dedicated exclusively to the impact of the financial crisis on trade finance operations globally. This important meeting will be preceeded by a Technical Trade Finance Workshop on 9 March covering UCP600, URR525, Maritime Fraud, and Islamic Save the date? 10-12 March 2009 Trade Finance. For further information: kifaya.h@iccuae.com www.ebsi.ie 1 ELECTRONIC BUSINESS SCHOOL INTERNATIONAL TradeBrief eBSI News & Commentary Directors Note Welcome to 2009! The coming year will be challenging. We will fight for survival but trade professionals are ready and able to fight for the cause of international development and global advancement through trade. Trade practitioners are well trained professionals who Modular Schematic of the Advanced Certificate in International Trade & Logistics constantly strive to improve techniques and practice. Advanced Certificate in International Trade We play a complex international trade game & Logistics launched by eBSI which is fraught with risk but supported by internationally Dublin, Ireland proven rules. The combination of these two At the request of interested students programmes of study into a dual and trade practitioners alike, eBSI In the preceding decade the certificate programme will enable has combined its two most popular growth in World markets trade professionals to access two w programs to lead to a dual hich was reflected in broad career development options commodity prices has now certification for trade professionals from the completion of one been seen as a hall of mirrors. awarded by the Institute of Export combined certified online training UK and the Chartered Institute of programme. However, on deep reflection Logistics & Transport (CILT) in The Advanced Certificate in and having undergone a Ireland. international trade & reality check we can see that Logistics and Logistics will cover the The first component of this international banking is going Trade following key areas: program addresses the needs back to basics. Professionals ? Export Marketing of those in the alike will have a Operations transport/logistics industry Trade finance is the basic single entry ? Trade & Customs for a practical certified entry foundation of international point to degree Practice into an academic programme banking and provides the ? Finance of International level studies in Trade in Logistics. The Certificate cornerstone of global trade, their related ? eBusiness disciplines securing international in Logistics from the CILT is ? Logistics commerce and, in turn, a 3 month module which can economic development. be used as an entry point to On completion of this 11 month programme successful participants further studies with CILT to degree Like any challenging game you will be awarded the Advanced level. need to be on the right team, Certificate in International Trade The second pillar to this dual not only to win, but now more from the Institute of Export, UK and certificate programme addresses the than ever just to remain in the a Certificate in Logistics from the need for logisticians and transport international trade game. Chartered Institute of Logistics & personnel to have a comprehensive Transport in Ireland. understanding of the mechanics of Thank you for your ongoing For further details about this new International Trade. The Advanced support and being part of the innovative e-Learning dual certificate eBSI trade professional team. Certificate in International Trade has programme contact Thomas Smith long been awarded to graduates of of eBSI (ts@ebsi.ie) Wishing you success in all eBSI?s International Trade Specialist your endeavours during 2009. Accreditation programme and now Enrolments will take place on until will allow those in the transport 26 January 2009, and every 2 sector to expand their knowledge. months thereafter. Vincent O?Brien www.ebsi.ie 2 ELECTRONIC BUSINESS SCHOOL INTERNATIONAL TradeBrief News & Commentary eBSI Institute of International Trade of Ireland Graduation Ceremony held in Dublin Port HQ The 2008 graduation ceremony for the Institute of International Trade of Ireland?s Diploma in International Trade and E-Business and Professional Diploma in Global Trade and E-Business, and International Trade Specialist Accreditation which is delivered by eBSI took place at the Dublin Port Company, Dublin on Friday 14th November 2008 and the occasion was truly International with a broad spectrum of nationalities represented at the event. eBSI?s Top Graduate for 2008 at the ceremony was Mr. Wagner Da Paixao Santos from Brazil, pictured to the right as he received his International Trade Specialist Accreditation from IITI President Dr. Christina Gates. Congratulations to Institute Vincent O?Brien receives of Export UK Graduates Certificate of Honour in Mongolia Given the multinational nature of our e-learning programmes it?s not always possible to arrange graduation events in every country. However when it is possible we do our best to celebrate our graduates accomplishments! This issue we are delighted to congratulate the following recent graduates of the Institute of Export Advanced Certificate in International Trade that have taken advantage of the learning path to this qualification available through the International Trade Specialist Accreditation Programme. We congratulate Antonio Jesus Rodiguez Mato from Spain, pictured below with eBSI Operations Director Thomas Smith, who was awarded his Advanced Certificate at a special ceremony in Dublin, Ireland. Readers will recall the country report we ran last issue on eBSI?s activities in Mongolia. One major EBRD project which was being implemented by eBSI First Director, Mr. Vincent O?Brien for a number of Mongolian Banks was successfully concluded in September 2008. As a token of appreciation for his efforts in developing Trade Finance capacity within Mongolian Banks Mr. O?Brien was awarded a Certificate of Honour from the Central Bank of Mongolia. To enrol or for further details on the ITS or Advanced Certificate courses please email John Farrell at jfarrell@ebsi.ie. www.ebsi.ie 3 ELECTRONIC BUSINESS SCHOOL INTERNATIONAL TradeBrief News Commentary eBSI Fall in Exports and Foreign Investment Flows THE emerging economies have now begun feeling the painful effects of the financial crisis and recession in the United States and Europe. They are dismayed to discover that their export orders are rapidly shrinking because of a bearish consumer sentiment and tight credit in the West. The trade data released in mid-December 2008 shows a trade slump across Asia, confirming fears that the region?s strategy of export-led growth may backfire once the West buckled. The figures help crystallise a grim economic Expert Profile picture of Asia, although much of the region is less likely to see a downturn of Name: Ashfak Bokhari Position: Economic Journalist and Blogger the kind that the United States and Europe are experiencing. Employer: The Dawn Newspaper The decline in world trade has come faster than many had predicted only Location: Karachi, Pakistan weeks ago. It is evident from a 90 per cent slash in prices by the freight lines Specialisation: Emerging Economies that were sailing full this summer following a big drop in cargo traffic resulting Contact: ashfak.bokhari@dawn.com in a pile-up of unsold goods at ports from Baltimore to Shanghai. The World Bank had warned earlier that the world economy was on the brink of a rare global recession, with world trade projected to fall next year by 2.1 per cent for the first time since 1982 and capital flows to developing countries predicted to plunge by 50 per cent. If these projections come true, the downturn could become serious for many Asian countries. In any case, the falling world trade could mean an end to the global export boom that helped bring huge foreign investment and greater trade to nations like China, South Korea, Singapore and India in recent years. Rising joblessness and closure of factories has been forecast in the months ahead. The volume of world trade, which grew 9.8 per cent in 2006 and was 6.2 per cent in 2008, and is expected to contract by 2.1 per cent in 2009. That drop would be deeper than the last major contraction in trade: a 1.9 per cent decline in 1975. Net private flows of capital to developing countries are expected to fall to $530 billion in 2009, from $1 trillion in 2007. This decline will sharply reduce investment inflows to emerging economies, with annual investment growth slowing to 3.5 per cent in 2009 from 13.2 per cent in 2007.China?s exports and foreign direct investment (FDI) fell in November. Exports dropped by 2.2 per cent to $114.99 billion, the largest monthly decline in seven years, according to official figures. And FDI fell by 36.52 per cent year-on-year to $5.3 billion, Chinese ministry of commerce said. But the country?s trade surplus soared to a record $40.09 billion in November despite a fall in exports because imports fell, too, by 17.9 per cent year-on-year after having risen 15.6 per cent in October. Two-thirds of China?s small-toy exporters closed their businesses in the first nine months of 2008, according to government statistics. China, whose economy has been growing at more than 10 per cent a year for the past half decade, announced a massive $586 billion stimulus package last month in an effort to maintain at least eight per cent economic growth. Moody?s, the ratings agency, is, however, of the view that the stimulus programme would have an insignificant effect and would not offset the expected contraction of the economy and negative effects on the manufacturing sector. Beijing has taken aggressive measures to try to spur trade, such as re-introducing tax rebates for exports and helping banks increase lending. But they have so far failed. Similarly, exports in Japan registered the biggest annual drop in seven years in October, pushing the trade balance into deficit and raising worries of recession. The machinery orders, its major exports, fell 4.4 per cent from the previous month. Exports to Asia fell for the first time since 2002, with sales to China also declining. The slide in exports to Asia indicates that the Asian economies are also taking a blow from weakness in developed economies. Exports fell 7.7 per cent in October from a year earlier, the biggest decline since December 2001, official data shows. Pakistan?s exports declined in November by 0.76 per cent to $1.527 billion from $1.539 billion a year ago. Pakistan?s trade deficit has risen to an all-time high of $8.736 billion during the first five months (July-Nov) of the current fiscal year, up by 20.27 per cent from $7.264 billion over the corresponding period last year. India?s exports fell by 12.1 per cent or to $12.82 billion in October from $14.58 billion a year ago. However, imports grew by 10.6 per cent to $23.36 billion in October compared with $21.12 billion in the same month last year. Trade deficit ballooned by more than 61 per cent to $10.53 billion. Exporters are unsure of achieving the target of $200 billion worth of exports fixed for the current fiscal. Morgan Stanley has cut its forecast for Indian economic growth in 2008/09 to 5.7 per cent from 6.5 per cent due to high cost of capital, falling consumer loan growth and reduced demand. South Korea?s exports also fell sharply in November. They dropped by 8.3 per cent compared to the same month last year to $29.26 billion ? the biggest drop since 2001. Imports fell by 14.6 per cent to $28.97 billion for a trade surplus of $297 million. Economic growth next year is expected to slow considerably and the country could experience its first contraction in a decade. The developing countries are expected to grow at an average rate of 4.5 per cent next year. But the forecast for economies in East Asia is not so worrisome where the World Bank expects 5.3 per cent growth, a marked decline from nine per cent the region enjoyed in 2007, and the projected seven per cent this year. Although East Asian countries appear better poised this time to face a crisis than they were in 1997, none looks capable of eluding the adverse effects of the recession in the western economies. According to The Washington Post, the slowdown illustrates how globalisation, which contributed to rapid growth during times of plenty, can quickly turn against nations during times of bust. Depressed car sales in the United States, for instance, are spreading through the global supply chain, eliminating jobs for contract auto workers in Japan and labourers in South Africa who mine the metals used in car parts. In November car sales were down 37 per cent in the United States. They were also down by 10 per cent in China, 15 per cent in India and 30 per cent in South Africa. In the old days, if there was a crisis in one part of the world, it would take three to six months to affect another part. But now, everybody is so interconnected through trade that the impact is happening instantaneously. What is more worrying for the western nations is that China, the only emerging economy which offered a ray of hope to them in these times, is itself in trouble. The US was counting on sales to China to help combat recession at home. The sharp drop in the US trade deficit should, as a matter of fact, generate more jobs as domestic manufacturers pick up the slack left by declining imports. But it is unlikely to happen now. The reason is that many US manufacturing jobs have already moved overseas because products could be made more cheaply abroad. If consumers won?t buy a $600 flat-screen TV made in China, chances are they now won?t buy a more expensive one made in the United States. In 2009 only nations fit to trade will be fit to survive! This Article was republished with the kind permission of the Author and The Dawn Newspaper, Pakistan, the original article can be viewed at http://www.dawn.com/2008/12/22/ebr15.htm www.ebsi.ie 4 ELECTRONIC BUSINESS SCHOOL INTERNATIONAL TradeBrief eBSI IFC/ICC Seminar IFC Co-organises International Seminar with ICC Paris on ICC Rules for Trade at ICC Headquarters Paris, France In a unique event organised by ICC and IFC, The ICC Rules for Trade workshop comprised of a series of focused presentations on best practices in structuring trade finance products to support trade to and from emerging markets. A central focus was the correct application of ICC Rules as an integral part of such trade finance products and operations. This practical case oriented workshop provided a practical value-added dimension for participants. This workshop was chaired by Vincent O?Brien and delivered by trade finance professionals who have significant experience in trade finance operations in emerging and developing markets. The core focus of the workshop was the Internationally recognised and respected rules and codes of practice Introduction and welcome from Mr. Thierry established by the International Chamber of Commerce, namely Senechal, Policy Manager of the ICC Banking and the Uniform Customs & Practice for Documentary Credits; Financial Services and Insurance commissions Uniform Rules for Collections; Uniform Rules for Demand Guarantees; International Standard Banking Practices and the International Standby Practices. Ms Bonnie Galat of IFC took Vincent O?Brien chaired the Reaction to Implementation of UCP 600 by Mr. participants through the workings proceedings and directed technical Gary Collyer, Technical Advisor to the ICC of the IFC Global Trade Finance questions from the seminar Banking Commission. Program participants. www.ebsi.ie 5 ELECTRONIC BUSINESS SCHOOL INTERNATIONAL TradeBrief eBSI IFC/ICC Seminar A summary of the programme of the event is listed to the right. Workshop Program Th Reaction to implementation of UCP 600 is unique and high profile event attracted a large audience of ? Specific feedback to the revised UCP rules international bankers, many of whom remained during the days ? Introduction to ISBP and how it works with UCP after the workshop to attend an IFC Partners meeting or the ? Key issues in application of UCP 600 ICC Banking Commission meeting which was being held the ? Avoiding pitfalls and getting the benefits. same week in Paris. Typical trade finance structures used in emerging markets ? Discounting credits available by deferred payment and acceptance ? Sight payment credits with deferred payment reimbursement ? Silent confirmation and position under UCP 600 ? Transferable credits under UCP 600 Workings of IFC Global Trade Finance Program (GTFP) ? Brief history and achievements ? Structure and operation ? Trade products covered (letters of credit, collections, guarantees) ? Application of ICC rules under GTFP ? Examples of transactions supported under the GTFP A practical overview of the procedures for availing of the ICC DOCDEX system of Impact of the first year of UCP600 from an dispute resolution was explained by Mrs Calliope Sudborough, head of DOCDEX in emerging markets perspective ICC Paris. Islamic finance alternatives for trade ? Expansion of Islamic trade finance ? Key foundation principles of Islamic trade finance ? Structures and methodologies ? Modifications and exclusions required in application of UCP 600 Queries and cases submitted by participants ? Queries on obligations of banks under ICC rules ? Queries on documentary compliance ? Queries on interpretation of UCP 600 Questions and answers session Mr. Iqbal Karmally, Coordinator of ICC UAE and head of Trade Finance at Sharjah Islamic Bank delivered a practical and comprehensive overview into the operation of Islamic Trade Finance products. Mr. Pavel Andrle of ICC Czech Republic examined a series The ICC Sponsored Toolbox containing over ?500 worth of ICC rules and of cases regarding the interpretation and application of publications is presented to the award winner. UCP600 since its launch in July 2007 from the perspective of Emerging Markets Bankers www.ebsi.ie 6 ELECTRONIC BUSINESS SCHOOL INTERNATIONAL TradeBrief eBSI eBSI Projects FIT Initiative Graduation hosted by ICC Bangladesh in Dhaka on 3 December 2008 FIT INITIATIVE GRADUATIONS Bangladesh and Pakistan Ceremonies a complete Success! A series of Graduation events were recently held in Dhaka, Bangladesh and Lahore and Karachi, Pakistan for graduates of the recently launched FIT Initiative supported in these countries by the International Finance Corporation, IFC. At the event in Karachi Pakistan, Mr. Umar Farooq of United Bank Limited said ?The ?FIT Initiative? in Bangladesh and Pakistan is supported by the ?IFC Global Trade Finance Program? which itself, in a short period of time has proven to be a highly successful global trade finance support program for banks and their customers especially during turbulent times?. Notwithstanding the global financial crisis it is clear to everyone that international trade is of fundamental importance to growth development and reduction in poverty. The FIT Initiative provides graduates with international certification and integrates them into a growing network. See http://www.ifcfitinitiative.net. The IFC ?FIT Initiative? is an e-learning Online Collaboration Site for stakeholders program that is designed with an important To leverage the network aspect of the 'FIT' dual purpose: Initiative all stakeholders (participants, tutors 1. to train and certify international trade and coordinators) will have access to an online finance professionals networking and collaboration system designed to 2. to build an online global network of facilitate exchange of ideas and contact building. international trade and finance professionals who will share knowledge and experience on CD ROM Based Core Learning Material an online platform specifically developed for The Finance of International Trade (FIT) is the program comprised of the following Learning Units: * Methods of Payment This Three Month program is delivered in a * Bills of Exchange combination of the following learning * Documentary Collections elements: * Documentary Credits * Import Documentary Credits Online Support site for students * Bonds & Guarantees Students will be incorporated into the eBSI * Forfaiting, Factoring & Invoice Discounting Alumni and will be able to collaborate through * Structured Trade Finance a purpose built learning platform. * Export Credit Agencies * Complex Transactions Online Specialised training in UCP 600 Dr. Salehuddin Ahmed, Governo * Warehouse Financing r of the Central Bank ICC Approved Online Training in UCP 600 * Trade Facilitation Program of Bangladesh was the Keynote Speaker at the (Mentor or Upskill 600). Graduation in Dhaka. Mr. Vincent O?Brien with participants at Graduation event organized by Institute of Bankers in Pakistan in Lahore on 20 December 2008. www.ebsi.ie 7 ELECTRONIC BUSINESS SCHOOL INTERNATIONAL TradeBrief eBSI eBSI Projects FIT Initiative Graduation held in the Institute of Bankers Pakistan in Karachi on 22 December 2008 Mr. Vincent O?Brien with FIT Initiative Graduates Omer Participants at Graduation in Lahore on Faruque Khan and Kazi Quamrul Islam in Dhaka, Bangladesh. Saturday 20 December 2008 Next Intake Dates for the IFC FIT Initiative The next program intakes will take place in the following countries in January/February 2009 Bangladesh, contact Ataur Rahman, Bangladesh@ifcfitinitiative.net Pakistan, contact Umar Farooq, Pakistan@ifcfitinitiative.net Nigeria, contact Arije Abdulrasaq, Nigeria@ifcfitinitiative.net Vietnam, contact Martin Nguyen, Vietnam@ifcfitinitiative.net Cambodia, contact Cambodia@ifcfitinitiative.net For other countries please contact info@ifcfitinitiative.net Pakistan graduate receives his ?FIT? Cert and ICC Upskills Cert from Vincent O?Brien at Institute of Bankers in Karachi Project Partners in the IFC FIT Initiative eBSI Gratefully acknowledges the participation and contribution provided to the success of this project by the following project participants: Happy and ?FIT? Graduates from Pakistan www.ebsi.ie 8 ELECTRONIC BUSINESS SCHOOL INTERNATIONAL TradeBrief eBSI eBSI Weblinks for Exporters eBSI Weblinks for Exporters is a new section that will provide you every issue with websites recommended by our course participants as being of particular use to them in their international Trade Activities! Websites that can be considered for inclusion in this section include but are not limited to International Trade, Trade Finance and Logistics sites such as: ? Business Networking Sites ? References or Blogs If you have a site to recommend then send it ? Import Export Directories to Weblinks for Exporters at weblinks@ebsi.ie! ? Country Portals Very informative website with blogs and podcasts relating Exportaid was founded in 2001 to help to international business. Recent items covered include ?3 businesses throughout the world with their Keys to Global Business in Today?s Economy?; a podcast on international trade requirements. The company ?Global Business Today, Opportunity or Challenge?; and ?Do currently supports businesses in more than 60 You have an Export Strategy??. countries. http://globalbusinessperspectives.com http://www.exportaid.co.uk International Network of Export Argonaut (argo0) is a web based community for the commercial Consultants, Marketing and Project Management Specialists shipping sector. Argo0 gives you access to the most whose primary focus is to help comprehensive maritime glossary online and for ICS members exporters enter new markets. and students, a wealth of information in the ICS Members Area. http://www.theexportnetwork.com/ http://www.argo0.com/ Looking for marine transportation links, maritime Coastline Solutions deliver top quality Online services, yacht and boat supplies, shipping cruise Training in Documentary Credits, Documentary and sea freight links, bunkerfuels and bunkering, Collections, Online Doc Credit reference DCPRO, information about a port, harbour or marina? and advanced Doc Credit training DC MASTER and This should be your first ?Port? of call! ISP Master all ideal for Trade Banking and serious http://www.worldportsource.com traders! Visit http://www.coastlinesolutions.com LinkedIn is one of the largest business networking sites in the Tradeprofessional.net is a Business Ryze helps people make world with members drawing Networking Site dedicated only to connections and grow their primarily from North America but International Traders and includes a trade networks. You can network to grow with significant further reach. Jobsite, Blogs, Forums, Events, groups and your business, build your career Excellent business networking online Marketplace. Highly Recommended! and life, find a job and make sales. and jobsite for all business! http://www.tradeprofessional.net http://ryze.com/ http://www.linkedin.com www.ebsi.ie 9 ELECTRONIC BUSINESS SCHOOL INTERNATIONAL TradeBrief eBSI Trade Practice Clinic Following on from our complete redesign of eBSI Tradebrief we have also given our Trade Practice Clinic a new look and feel. The process remains the same though, simply email us at trade_clinic@ebsi.ie to have your question considered for the next issue! Our queries this issue come from Taiwan and Bangladesh! Dubai, UAE Eagle, USA Q : We find your eZine very interesting and like Q : I have recently been promoted to the post of your practical approach. We have a specific Shipping Executive of my company. question. Our company acts as a trading organization based As part of my duties I am required to select a in Dubai. We have recently experienced problems Freight Forwarder to handle the company's with variances in the final cost of landed goods in products. What I would like know is various countries in the European Union based on 1) What questions to ask Freight Forwarders and applied tariffs. 2) How do I assess their answers in order to make The reason for the variances has been given as the right selection... ?customs treatment as per rules of origin? A : First of all, let me make this point. It is important to Can you throw some light onto ?rules of origin? and distinguish in Law between a freight forwarder and a their importance in the context of international forwarding agent as a company may on one occasion act trade? as a freight forwarder and on another as a forwarding agent. A : When goods are imported they are sometimes subject This is because a forwarder contracts with a principal, i.e. to different treatment by customs depending on the origin of an exporter, to carry goods from A to B under its own the goods, that is what country the goods come from. The trading terms and is responsible for loss or damage to process of producing and distributing a product or ?good? may goods that may be caused by negligence of his own or his involve activity in more than one country. servants or sub contractors. This implies that the freight forwarder?s invoice is higher than that of the forwarding Consequently, there is a need for rules to determine ?origin? agent. It must be noted that the specific operations of both or in simple terms rules to determine in which country a a freight forwarding company and a forwarding agent are good is deemed to be ?made?. These rules are called ?rules country specific and will vary according to country of origin?. legislation and country freight forwarding association rules. In practice, rules of origin are broken down into two Let?s discuss which questions to ask and how to assess a categories: freight forwarder. I think it is best to consider their ability to perform efficiently, effectively and competitively in the * Non-preferential rules define the origin of a good for following areas: reporting purposes the purpose of such as trade statistics 1. Customs Clearance; and import quotas. 2. Export Packing; * Preferential rules, are rules of stricter application, 3. Freight Rate Quotations; these preferential rules are defined by members of regional 4. Marine Insurance; free trade areas (or other groups countries who have signed 5. Modes of Transport; up preferential trade agreements). These preferential rules 6. Shipping Documentation; ensure that only those goods which genuinely originate in 7. Other. one of the group member countries enjoy low tariffs or possibly other benefits laid down in the agreement. For example under Freight Rate Quotations, you must understand the difference between LCL, FCL, RoRo, break In the context of international trade the rules of origin can be bulk, etc. very important. It is clear that the rules of origin can impact How long is a rate good for? on the delivered cost of goods in a destination market. This What is the rate based on (i.e. volume, weight, obviously has cost competitive elements to be considered. commodity)? Depending on the chosen international commercial term Are there formulas used to quote rates? (INCOTERM) between the seller (exporter) and buyer When is it advantageous for you to go direct to a carrier? (importer) the impact of rules of origin can be significant. Proper research into the freight market can I trust this clarifies what is meant by 'rules of origin'. yield significant cost savings and is worth the time you will need to invest in obtaining this Regards, information. Regards, Pauline Clery. Director, Global Customs Gavin Makowski Oracle Ireland Logistics Specialist Dishman Europe DISCLAIMER: Articles within this publication contain information, which is for guidance on matters of general interest only. There may be omissions or inaccuracies in information contained in this publication and the information is given on the understanding that it should not represent a substitute for professional consultation. Although we have made every effort to ensure the information in this publication is reliable, the electronic Business School International, GTI Learning.com and the Authors of these articles accept no responsibility for errors, omissions or adverse results obtained from using the information. The electronic Business School International, GTI Learning.com and the Authors of these articles issue no guarantee of completeness, accuracy, timeliness or results obtained from using the information. The electronic Business School International, GTI Learning.com and the Authors of these articles will therefore not be liable to you or anyone else for decisions made or actions taken in reliance on the information in this publication. www.ebsi.ie 10 ELECTRONIC BUSINESS SCHOOL INTERNATIONAL TradeBrief eBSI Country Focus - Turkey TradeBrief takes a closer look at the newest country of operation of the EBRD! In October 2008 the EBRD's shareholders agreed that the Bank will Turkey Background start operations in Turkey. The EBRD will support the private sector Turkey joins the EBRD as a country of operations and will rank as the second largest economy in and reach out to areas away from the large metropolitan centres. In the EBRD region. the first two years of operations, investment of up to US$ 600 million Modern Turkey was founded in 1923 from the will focus on developing the agribusiness sector, supporting small and Anatolian remnants of the defeated Ottoman medium-sized enterprises, furthering privatisation, delivering Empire by national hero Mustafa KEMAL, who was municipal services effectively and promoting energy efficiency later honored with the title Ataturk or "Father of projects. the Turks." Under his authoritarian leadership, the country adopted wide-ranging social, legal, eBSI has participated in training and conference events in Turkey for and political reforms. After a period of one-party rule, an experiment with multi-party politics led over 5 years now. Last issue you saw our announcement of a trade to the 1950 election victory of the opposition finance conference and workshop in Antalya, Turkey covering Democratic Party and the peaceful transfer of Documentary Trade Finance Operations - Operations ? Rules ? power. Regulations and Processes. As you will see from this report the Turkey joined the UN in 1945 and in 1952 it objective of the conference, that is to bring CIS based trade finance became a member of NATO. In 1964, Turkey operations personnel into contact with some of the leading lights of became an associate member of the European International Trade Finance to discuss the Global Financial Crisis and Community; over the past decade, it has to explore avenues for growth through more traditional and less risky undertaken many reforms to strengthen its democracy and economy enabling it to begin trade related finance instruments and products was a complete accession membership talks with the European success! Union. Si (Source: CIA - The World Factbook) nce Pictures speak a thousand words we have compiled a photo summary of some of the events eBSI has been involved in this exciting emerging market! Group Photo of participants at the Documentary Finance Operations Conference in Antalya, October 6-8, 2008 www.ebsi.ie 11 ELECTRONIC BUSINESS SCHOOL INTERNATIONAL TradeBrief eBSI Country Focus - Turkey ECONOMY Background Turkey's dynamic economy is a complex mix of modern industry and commerce along with a traditional agriculture sector that still accounts for more than 35% of Basic Economic Facts employment. It has a strong and rapidly growing private sector, yet the state still GDP: $853.9 billion (2007 est.) plays a major role in basic industry, banking, transport, and communication. GDP per head: $12,000 (2007 est.) Annual Growth: 4.5% (2007 est.) The largest industrial sector is textiles and clothing, which accounts for one-third Inflation: 8.7% (2007) of industrial employment; it faces stiff competition in international markets with Major Industries: textiles, food processing, the end of the global quota system. However, other sectors, notably the autos, electronics, mining (coal, chromite, automotive and electronics industries, are rising in importance within Turkey's copper, boron), steel, petroleum, export mix. Real GNP growth has exceeded 6% in many years. The economy is construction, lumber, paper turning around with the implementation of economic reforms. Further economic Major trading partners: Russia, Germany, and judicial reforms and prospective EU membership are expected to boost foreign China, Italy, US, France direct investment. Exchange rate: (in Turkish Lira). US dollar USD 1.562 The stock value of FDI currently stands at about $85 billion. Privatization sales are Euro EUR 1.982 currently approaching $21 billion. Oil began to flow through the Baku-Tblisi- Japanese yen JPY 0.016 Ceyhan pipeline in May 2006, marking a major milestone that will bring up to 1 British pound GBP 2.400 million barrels per day from the Caspian to market. Economic fundamentals are Russian rouble RUB 0.055 sound, marked by strong economic growth and foreign direct investment. Turkey's Chinese yuan CNY 0.228 high current account deficit leaves the economy vulnerable to destabilizing shifts in investor confidence, however. International Conference Documentary Trade Finance Operations Operations ? Rules ? Regulations- Process Fame Residence Hotel, Antalya, Turkey October 6 - 8, 2008 The conference speakers comprised Milan Figala (Czech Republic), Jeffrey Blum (United Kingdom), Thomas Smith (Ireland), Michael Panfilov (Russia), Pavel Andrle (Czech Republic), Karl Mayrl, (Austria), Johan Bergamin (Netherlands) and Conference Chairman Vincent O?Brien (Ireland). The multinational nature of the speaking panel was matched by that of the attendees who came from Austria, Azerbaijan, Belarus, Czech Republic, Georgia, Ireland, Kazakhstan, Kyrgyzstan, Netherlands, Russia, Ukraine and the United Kingdom. Conference Speakers Group Photo EBRD?s Trade Facilitation Programme The Trade Facilitation Programme (TFP) promotes foreign trade from central Europe to central Asia. The EBRD provides guarantees to international confirming banks, taking the political and commercial payment risk of international trade transactions undertaken by banks in the EBRD?s countries of operations. Over 115 issuing banks in 19 EBRD countries of operation participate currently in the Programme with facility limits exceeding ?1 billion. Sixteen Turkish banks have joined the EBRD?s Trade Facilitation Programme as Conference Participants at one of the sessions confirming banks, and received 708 trade guarantees totalling ?49.6 million. Since the start of TFP in 1999, 805 export transactions for Turkish companies totalling ?67.7 million have been supported through the Programme. Most transactions represented trade between Turkish enterprises and countries in the Western Balkans as well as member countries of the Commonwealth of Independent States. Turkish transactions represent a significant part of trade transactions processed under the TFP, ranking second only to Germany. EBRD?s Strategy An upcoming strategy will define the EBRD?s initial activities in Turkey. The EBRD identifies five priority areas for its activities in 2009 and 2010. 1. Improve availability of risk capital, long-term funding and management skills for the micro, small and medium-sized enterprise (MSME) sector 2. Emphasise investment along the food chain 3. Support the delivery of vital utilities to the population and enterprises in the regions of Turkey 4. Promote energy efficiency and renewable energy across economic sectors 5. Support the Turkish government?s privatisation programme in the enterprise and financial institutions sector. Johan Bergamin, chairman of the first days proceedings. www.ebsi.ie 12 ELECTRONIC BUSINESS SCHOOL INTERNATIONAL TradeBrief eBSI Irish Export Survey Outlook Challenging but Manageable for Irish Exporters despite Global Crisis Irish Export Survey Exporters Survey reveals significant challenges for Irish exporters. High labour costs, high cost of finance, high cost of energy and wildly fluctuating currencies have been pinpointed as the major concerns for exporters according to the findings of a major survey conducted by the Irish Exporters Association. The survey also revealed the changing attitudes of Irish exporters on a range of subjects such as export credit insurance, late payments and financing. The full findings of this annual survey were revealed in Dublin at the launch of the ?Export Ireland Survey and International Trade Finance Review 2008?. The main features of the Survey are shown below: Challenges in the market place Thomas Smith at launch of Irish Export Survey. The survey indicated that just under half of the export community surveyed believe Pictured with the speakers at the launch, Brendan that they can increase export sales before year end 2008. Most exporters see their O'Connor, AIB, Pat Higgins, IEA Vice-President, main sales growth coming from the euro zone. However, there are also expectations Dean O'Brien, Euler Hermes, John Whelan, CEO, for sales growth arising in the UK, particularly for the services exporters. The rest of Irish Exporters Association Europe outside the euro zone is ranked third in importance for sales growth with a particular emphasis on Poland. There are a number of ?major concerns? which exporters have in 2008 as reported by the survey findings. The primary concern for the long term growth prospects in Ireland is the loss of competitiveness associated with the cost of labour. The pay pause in the new pay phase negotiated under the Social Partnership Agreement ?Towards 2016? will go some way towards alleviating this concern, but many will have to invoke the - inability to pay - clause when the first payment falls due. Adding further to the concern for competitiveness loss, particularly by the manufacturing sector, was the cost of energy. Payment Methods The method of payment sought by exporters from their overseas clients continues to be ?open- account?, effectively offering the same terms as for clients in Ireland. Exporters to the UK and the euro zone offer open-account to 80% of their clients, whereas in Asia, Middle East and Africa only 40% of clients are given the best terms or open-account trading. Letters of credit and advance payment account for the rest of the trading arrangements, with the latter being utilised much more frequently than the LC?s. Sources of Bad Debts for Irish Exporters Financing of export activity was stated by 52% of exporters as coming from their own resources with only 17% resorting to overdrafts. Coupling the information with the assertion by 97%9of exporters that they have no difficulty in getting banking finance, points to a very positive scenario for the export industry in the aftermath of the credit crises affecting the banking sector. Export Opportunities and State Support The survey shows a growing level of maturity and self reliance amongst exporters when it comes to identifying export sales opportunities. Most exporters (55%) state they use their own marketing efforts to identify export sales opportunities. In second place with 24% of respondents was the reliance on overseas agents and distributors for sales opportunity identification. This is followed by 20% who state they extensively use the internet for this function. A further 15% stated they use trade shows, with an equal number or 15% relying on customer referrals. Less than 10% Use of Export Credit Insurance by Irish Exporters stated they use Enterprise Ireland and the Irish embassies in their search for export sales opportunities. Sources of Funding of Trade Transactions in Irish Exporters Methods Used to Manage Currency Risk by Irish Exporters www.ebsi.ie 13 ELECTRONIC BUSINESS SCHOOL INTERNATIONAL TradeBrief eBSI Expert Commentary The Financial Crisis and Islamic Banking Many countries in the Islamic World have adopted elements of ?Sharia? (Islamic Law) in their respective legal systems regulating Financial entities. And how are they weathering this current rather grave financial crisis? Well, they appear to be doing ok so far, or at least, in our tumultuous western World, we haven?t heard of any Islamic Banks in severe difficulty. European and American Banks, which seemed to be invulnerable, towering examples of stable and modern financial institutions, are falling, stumbling or clinging desperately on to government backed rescue plans. Expert Profile Name: Xavier Fornt Position: Professor International Economics Should public Money be used to save private debacles? Well, this may be a debate Employer: College of International Business best left for another day. Location: Barcelona, Spain Specialisation: International Trade Finance The question we will look at today is why is it that those Arab countries that have Contact: xavier_fornt@yahoo.es incorporated Sharia principles into their Financial Regulation and are practicing ?Islamic Banking? appear to have remained at the margin of the International Financial Crisis. Some other principles, more focused on ethics and moral conduct, such as the prohibition of the charging of interest or of hiding material defects in the sale of goods, still don?t, or shouldn?t, differentiate Islamic banks from western ones. They are more differences in form. Sharia Law prohibits charging or paying interest, which makes Islamic banks have to achieve an equivalent result in other ways. For example, in a mortgage transaction as carried out with an Islamic bank, only up to 80% of the value of the property may be borrowed, which is very different when compared to some of the lending excesses of western banks in recent years. And why only 80%? Because one of the requirements of Sharia Law is prudence when taking on risks. Its that simple. Furthermore, the buyer of the property under mortgage is the bank, and the client pays a monthly rent (which would be equivalent to western capital + interest), and the percentage of ownership in the property transfers to the client of the bank as they continue meeting their rental payments. One might say this is a complicated system, from our point of view in the west, but in essence its similar to a building leasing transaction. If this lending ceiling of 80% of the value of the property is diligently respected by islamic banks, this certainly is one of the reasons why islamic banking has been less affected by the current crisis. But there is more? a lot more. Another requirement of Sharia law is the impossibility of selling that which one does not possess. One must have possession of the object of the transaction. This is another significant difference to some practices in the western World. This simple principle leads to proper asset valuations. An example of intangible transactions which have become common in the western World but which would be prohibited under Sharia law are transactions involving derivatives and options. If I pay a small Premium which bestows me with the rights to an underlying asset, (foreign Exchange, shares, raw materials, etc) and then I am able to sell these assets in the futures markets, assets, which I don?t yet have in my possession, since all I have in reality is the right to buy, but as yet I haven?t exercised that right. These types of transactions, under Sharia Law would be impossible, because we would be trying to sell something we still didn?t possess. All we possess are some rights to purchase the assets, but not the assets themselves. We all know that many hedge funds are working on this basis, and that many fund managers (bad ones) found an easy way to make easy Money while things were going well. But in the end, selling what one doesn?t yet possess goes against all logic and it opens the door to speculation, since with a small amount of Money, you can close a transaction with a much higher nominal value. And this is how things have gone? or better said, that?s how things are going. If we are looking for an answer to the initial question of this article, why Islamic banking seems less affected by the financial crisis, this is the answer. Two simple but very important reasons: 1) be prudent when taking risks, and 2) don?t sell what you don?t have. For the Islamic World, its purely the written law. For the western World its pure logic. Unfortunately, it appears that the immeasurable ambition of many western fund managers has made them forget logic. Iqbal Karmally of ICC UAE speaking at recent event on Tools for Trade at Perhaps we should put logic into law? ICC HQ in Paris provided a practical insight into Islamic Trade Finance. www.ebsi.ie 14 ELECTRONIC BUSINESS SCHOOL INTERNATIONAL TradeBrief eBSI Career Focus eLearning Benefits for Companies In many cases, the biggest dilemma facing a company considering employing e-Learning as a tool to train staff is how to justify the cost of such an approach. Within the context of International Trade and Finance training, without doubt e- Learning delivers more training benefits to more people for the lowest training investment. E-Learning, if it is done the right way always saves time, money, resources, and delivers measurable, tangible results. Instant access to information is one of the driving factors in today's Expert Profile international economy. The key to success is moving knowledge from the Name: Thomas Smith Position: Operations Director people who have it to the people who need it. E-Learning provided by Employer: eBSI competent content providers gives you the power to do exactly that. Location: Kiltimagh, Ireland Virtually anyone anywhere can sharpen their trade skills or develop new ones. Specialisation: International Trade Training Contact: ts@ebsi.ie Participants in the International Trade Specialist Accreditation (ITS) have reported achieving significant cost savings in their trade operations simply by carrying out an audit of entrenched trade procedures and ensuring that service provision contracted such as transport or insurance is still the most cost effective available. Regular revision of customs regulations can also open up opportunities for cost savings through implementation of alternative customs regimes or applying for duty relief where relevant. With a structured e-Learning programme such as the ITS it is easy to stay abreast of events and to obtain practical advice from other trade practitioners within the network from around the world. This availability of focused technical information can dramatically improve your bottom line. Features of E-Learning ? Learning is self-paced and gives students a chance to speed up or slow down as necessary ? Learning is partly self-directed, while we guide students through course content, they are free to choose content and tools appropriate to their differing interests, needs, and skill levels ? Accommodates multiple learning styles using a variety of delivery methods geared to different learners; more effective for certain learners ? Designed around the learner ? Geographical barriers are eliminated, opening up broader education options ? 24/7 accessibility makes scheduling easy and allows a greater number of people to attend classes ? On-demand access means learning can happen precisely when needed ? Travel time and associated costs (parking, fuel, vehicle maintenance) are reduced or eliminated ? Overall student costs are frequently less (tuition, residence, food, child care) ? Potentially lower costs for companies needing training, due to group rates available ? Fosters greater student interaction and collaboration ? Fosters greater student/instructor contact ? Enhances computer and Internet skills ? Content is available for reference for the student in a quick and easy to access format for when a technical question arises. ? Can?t find the answer in the course content? Ask your tutor on the online campus! Studies have shown that without travel time or expenses, e- Learning can save up to 40 to 60 percent when compared to traditional training. And students can take as many courses as often as they need. E-learning participants tend to develop professional relationships which last indefinitely. Just-In-Time Training The ITS Accreditation deliver international trade knowledge on- demand, with up-to-the-minute information. Students can access training instantly-at the office, at home, or on the road, 24 hours a day, seven days a week. Education is available when and where they want (and need) it. The learner has the option of CD ROM delivery or totally online or a combination of both. Global competitive edge The benefit that high-growth companies gain by implementing e-Learning strategies and technologies is consistently beating the competition and maintaining their competitive edge in the marketplace. By availing of an international network of experts intrinsic to a World class learning a company can reduce the need for external consultants until a specific business need arises. The best advice for anyone with a latent interest in e-Learning is to take a tester by undertaking a short modularized and certified e-Learning course or nominating an employee as a pilot trainee. www.ebsi.ie 15 ELECTRONIC BUSINESS SCHOOL INTERNATIONAL TradeBrief eBSI eBSI Recent Events We have been clocking up a lot of air miles while delivering seminars and attending conferences around the world, here is a brief overview of some of our more notable appearances since last issue! Ulaanbaatar, Mongolia eBSI First Director and Finance Tutor, Vincent O'Brien was invited to address the th 12 Biennial Conference of the Asian & Pacific Association of Banking Institutes was held in Ulaanbaatar on 14 and 15 September 2008. Mr Vincent O?Brien with participants of APABI Conference. Belgrade, Serbia A workshop was held in Belgrade, Serbia on 13-14 October 2008 covering cae studies on UCP600. The 2 day workshop was organised by the Association of Serbian Banks and delivered by eBSI Finance Tutor, Pavel Andrle. Pavel Andrle with Participants at the UCP600 Seminar held in Belgrade on 13-14 October 2008 Ulaanbaatar, Mongolia A Trade Finance Workshop was organised by Zoosbank mark the launch of their International Trade Services. The workshop was delivered by eBSI First Director, Vincent O'Brien. Vincent O?Brien, eBSI Director addresses Participants at the ?Silk Road 2008? Seminar in Ulaanbaatar on 20 September 2008 www.ebsi.ie 16 ELECTRONIC BUSINESS SCHOOL INTERNATIONAL TradeBrief eBSI eBSI Recent Events Dubai, United Arab Emirates A workshop was held in Dubai Chamber of Commerce in Dubai, United Arab Emirates on 8 November 2008 covering International Standard Banking Practices (ISBP). The training was delivered by Pradeep Taneja and Vincent O'Brien. Mumbai, India Vincent O?Brien presents the China Systems Award to Ms. Hema Kapoor Vice President Trade Finance, India & South Asia at JP Morgan. Lusaka, Zambia A week long trade finance seminar was delivered on behalf of the IFC for their regional issuing banks in Lusaka from 29 September to 3 October 2008 by eBSI Consultant and Trade Finance Tutor Mr. Pavel Andrle. Pavel Andrle with Seminar Participants in Lusaka. www.ebsi.ie 17 ELECTRONIC BUSINESS SCHOOL INTERNATIONAL TradeBrief eBSI eBSI Recent Events Kinshasa, Democratic Republic of Congo A week long Trade Finance Operations Workshop was delivered on behalf of the IFC in Kinshasa, from 29 September to 3 October 2008. The training which was conducted in French for local issuing banks in the region was delivered by eBSI Consultant Monique Philippe. Monique Philippe with participants of the Trade Finance Training Program Hanoi, Vietnam A Week long Trade Finance Operations Seminar was delivered on behalf of the IFC in Hanoi from 3-7 November 2008 and delivered by eBSI Consultant and Trade Finance Tutor Mr. Pavel Andrle. The seminar was delivered for Vietnamese Issuing Banks under the IFC GTFP and funded by the Government of Japan. Pavel Andrle with Vietnamese participants at the seminar in Hanoi. Prague, Czech Republic The International Forfaiting Association Annual conference was held in Prague, rd th Czech Republic from 3 to 5 September 2008. Vincent O?Brien presenting ?ICC rules ? Legal v Practice? at IFA Annual Conference. www.ebsi.ie 18 ELECTRONIC BUSINESS SCHOOL INTERNATIONAL TradeBrief eBSI eBSI Recent Events Chisinau, Moldova th th On 5 and 6 November, 2008 a Structured Trade Finance Seminar was delivered on behalf of the EBRD for Regional Issuing Banks from Belarus, Moldova and Ukraine. The seminar, funded by the Government of Taiwan, was delivered by eBSI First Director Vincent O?Brien and Johan Bergamin of ING Bank. Participants of the Structured Trade Finance Seminar with Vincent O?Brien and Johan Bergamin at Mobias Bank?s Headquarters where the seminar took place. Dubai, United Arab Emirates eBSI partnered with Standard Chartered bank in delivering a Trade Finance Seminar ?Trade Finance for Emerging Markets? which was held in Dubai on 18 November 2008 for corporate clients of the bank. Vincent O?Brien at recent Standard Chartered Bank corporate trade finance workshop Certificate in Finance of International Trade Learn all you need to know about Methods of Payment & Finance! ? Online Tutorials with ICC Banking Commission Members Contact us for more details: ? Certified by the Institute of Export UK The electronic Business School International ? Includes ICC Online Training in UCP 600 Tel: +353 94 9381444 Fax: +353 94 9381708 ? Recognised by International Finance Corporation Web: http://www.ebsi.ie Email: info@ebsi.ie www.ebsi.ie 19 ELECTRONIC BUSINESS SCHOOL INTERNATIONAL TradeBrief eBSI Expert Commentary SPECIAL COURT OF MALAYSIA ISSUES JUDGMENT IN STANDBY LETTER OF CREDIT An irrevocable standby letter of credit (standby LC) can only be revoked or rescinded with the consent of the beneficiary. This judgment was given by Chief Justice Tun Abdul Hamid Mohamad who headed the five-man bench of the Special Court of Malaya in two Expert Profile related lawsuits. Name: Soh Chee Seng Position: Trade Finance Consultant In the first suit, Standard Chartered Bank (Malaysia) Berhad (SCBM) was the Employer: Self employed plaintiff and the former king of Malaysia, Yang Dipertuan Besar of Negeri Location: Singapore Sembilan (Ruler of Negeri Sembilan, a state of Malaysia), Duli Yang Maha Mulia Specialisation: International Trade Finance Contact: cheeseng@pacific.net.sg Tuanku Ja?afar Tuanku Abdul Rahman was the defendant. The former king had applied for a standby LC from SCBM which was secured by a fixed deposit account. When SCBM sought to charge the account following a drawing on the standby, the former king sued for a declaration that it was not entitled to do so. The Special Court, set up to hear cases involving members of the royalty in 1993 after amendment of the Constitution of Malaysia, sat for the first time to hear witnesses in a civil suit brought by a bank against a member of the royalty. In addition to the Chief Justice, the other distinguished judges were: Chief Judge of Malaya, Tan Sri Alaudin Mohd Sheriff; Chief Judge of Sabah and Sarawak, Tan Sri Richard Malanjum; and Federal Court judges Datuk Arifin Zakaria and Datuk Zulkefli Ahmad Makinudin. The panel unanimously awarded the suit filed by SCBM against the former king with interests at the rate of 8% per annum from the date of this judgment and costs. In his judgment, CJ Tun Abdul Hamid Mohamad dismissed the former king?s counter-suit against the bank. Factual Summary The suit arose after the former king applied to SCBM on 5 February 1999 for a US$1 Million standby LC in favour of US- based Connecticut Bank of Commerce (CBC) for credit facilities to be extended to US- based company, Texas Encore LLC (TEC). The standby LC was subject to UCP500. It was advised through Standard Chartered Bank?s New York branch (SCBNY) on 12 February 1999 and was subsequently confirmed by SCBNY. TEC, a company involved in the production of activated tire rubber, was to use the credit facilities to set up and operate a factory that was to be located within the compound of Ford Motors, in Detroit, Michigan, USA. The former king undertook to provide funds to meet payments made by the bank under the credit, including all interest, commissions, charges, disbursements, and expenses. He also executed a Letter of Set-Off over a fixed deposit of MYR4.18 Million (about US$1.28 Million) owned by him as security for the standby LC. In a letter dated 6 April 1999, the former king wrote to SCBM requesting that the standby LC be suspended. SCBM relayed the message by SWIFT on 16 April 1999 to SCBNY. The former king asserted that the loan by CBC to TEC for which the standby LC was issued had not been disbursed to TEC as of the date of request. There was no communication on the notice of cancellation by SWIFT either from SCBNY or CBC with SCBM until 15 December 1999. On 15 December 1999, SCBM was informed by SCBNY that SCBNY had been given a notice of drawing on the standby LC for the purpose of retiring the loan given by CBC to TEC. On the same day, SCBM relayed the message to the former king. The former king obtained an ex-parte injunction on 18 December 1999 restraining, inter alia CBC from making a call on the standby LC and also restraining SCBM from reimbursing itself from the fixed deposit of MYR4.18 million under the letter of set- off. SCBM was notified of the order on the same day. On 29 December 1999, the former king obtained an injunction order on the inter parte basis, on the same terms as the inter parte order obtained earlier. SCBNY honored its confirmation by paying CBC US$314,772.44 on 22 December 1999 and US$685,000 on 24 December 1999. SCBM?s account with SCBNY was debited accordingly. Legal Issues 1. Irrevocability: The standby LC was subject to UCP500. In the application form for the standby LC, it clearly indicated the standby LC was irrevocable and
Posted: 22 September 2011, last updated 24 September 2011

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