This comes in anticipation of a flurry of tariffs expected to be released by the US on 2 April. As both companies and countries scramble to plan a response to the tariffs, China may be looking for a way to increase its own resilience and take up some of the US’s declining dominance in global trade. 

The French and Chinese foreign ministers met in Beijing yesterday to discuss deepening cooperation between the two countries, with Chinese foreign minister Wang Yi vowing to “uphold multilateralism [and] oppose unilateralism” in clear opposition to Trump. The officials agreed to strengthen economic relations between France and China by encouraging Chinese investment in France and working together on a range of industries, from agriculture to artificial intelligence. 

This move is especially significant as the EU and China have been involved in a trade spat since October, when the bloc imposed high tariffs on China’s auto industry and China retaliated by taxing European brandy imports, hitting the French cognac industry hard. That the two countries are vowing to increase cooperation and find a solution to the reciprocal tariffs is a significant step, which may in part be in an effort to present a united front to upcoming US-imposed sanctions.  

On the industry side, Xi met with over 40 CEOs and executives from companies around the world including FedEx, AstraZeneca, and Standard Chartered to discuss supply chain resilience and stability. The meeting is ostensibly just a second iteration of an event held at the same time last year with US executives and occurred just a few days after the China Development Forum, China’s most important business summit. However, the backdrop of US sanctions clearly influenced the discussions, which reportedly centred around increasing resilience and cooperation. 

While some governments are scrambling to hold last-minute negotiations to decrease the impact of tariffs, many others are looking for alternative trade partners to diversify their export markets and increase resilience. At the same time, companies – especially those with complex supply chains which may experience an exponential effect from tariffs – will be searching for ways to protect their supply chains and be less reliant on US markets. 

China, which has been grappling with slowing growth and weakening domestic demand, could be hard-hit by the sanctions too – especially with its $800 billion car and EV industry facing high tariffs. China may be looking to place itself as a viable alternative to the US when it comes to restructuring supply chains, courting Western and emerging economies alike.

The post China organises meetings with foreign executives and world leaders in preparation for Trump tariffs appeared first on Trade Finance Global.

France joins MLETR club, recognising ‘Titre Transférable Électronique’

I’ll forgive you if you missed this story. 

It’s quite easy to overlook a small legislative change with a significant impact in France and around the world, especially when the Olympic rings were majestically lifted under the Eiffel Tower in preparation for the 2024 Olympics. 

In the same week, World War II veterans celebrated freedom through various D-Day memorials and landings in Normandy and throughout northern France. 

Introduced by Deputy Alexandre Holroyd, this law transposes the UNCITRAL MLETR into a legislative framework aimed at increasing business financing and strengthening France’s attractiveness in the context of international trade.

The law, initially approved by the National Assembly in April, and by the French Senate in May, recognises electronic trade documents, known as ‘Titre Transférable Électronique’, as legally equivalent to their paper counterparts. 

Article 6 of the adopted law specifically addresses the legal recognition of ‘Titre Transférable Électronique,’ ensuring these electronic documents have the same legal standing as paper-based equivalents, by amending several codes outlined in its Title II, such as commerce, monetary, financial, insurance and transport codes.

France joins Belize, Germany, Mexico, Papua New Guinea, Paraguay, Timor Leste, United Kingdom and USA, as countries who have either passed or enacted MLETR legislation through their relevant parliamentary or executive process to become law and enter into force, according to ICC DSI’s MLETR tracker.

The main objective of adopting MLETR is to support the international trade ecosystem by providing a solid legal framework for electronic transferable records. 

By transitioning to digital solutions, French SMEs and mid-sized companies can better compete globally, facilitating quicker transaction times and reducing errors in cross-border transactions.

France’s adoption of MLETR is part of a broader effort to harmonise digital trade practices around title trade documents around the world.

The adoption is also expected to stimulate economic growth by making France a more attractive place to transact, trade and finance, while supporting innovation and sustainability.

This effort aims to harmonise definitions, standards, and data sharing across borders to facilitate the legal use of electronic trade documents, thereby reducing costs and improving efficiency in trade finance.

A rapid law adoption of MLETR

France’s adoption of MLETR follows the UK’s recent enactment of the Electronic Trade Documents Act, signed into law in September 2024 by King Charles III. 

The rapid passage of this law in France shows the concerted efforts of the international trade and trade finance community, proving that united public and private sectors can drive reform.

The French government undertook a comprehensive review to identify necessary regulatory changes, which included drafting a white paper addressing both the legal and business aspects of MLETR.

The result of this, a white paper, involved contributions from experts like UNCITRAL’s Legal Officer, Luca Castellani, who played an important role in outlining the implications and benefits of adopting electronic transferable records. 

Castellani said, “The legislative action by France is significant in two ways. It shows that MLETR is truly compatible with all legal systems and traditions, and it represents the first example of coordination between MLETR and EU legislation like the eIDAS and eFTI regulations. Looking also at the forthcoming implementing regulation, I believe that many countries will take inspiration from this major French legislative effort.”

The process also involved extensive consultations with industry stakeholders such as ICC France, including financial institutions and trade bodies, to ensure the framework was robust and could be implemented. 

The adoption of MLETR is expected to stimulate economic growth by attracting more investment into French enterprises, fostering innovation, and supporting the transition to paperless trade. 

The law is technologically neutral, allowing the use of various digital tools and platforms, such as distributed ledger technology (DLT), in order to manage electronic transferable records.

Digital trade documents are expected to cut transaction processing costs by up to 50%, with projected savings for France reaching €823 million within the first decade of implementation.

Now comes implementation and adoption. MLETR in France will require robust technological solutions and a supportive regulatory environment.

How it happened

The adoption of MLETR in France was a structured process involving multiple legislative steps and consultations. 

Initially, Deputy Alexandre Holroyd led the initiative to incorporate MLETR into a broader legislative framework aimed at enhancing the financial sector. 

The process began with the proposal’s approval by the National Assembly in April 2024, followed by the Senate’s endorsement in May. 

The law’s passage was marked by its formal adoption on June 5, 2024.

Emmanuelle Butaud-Stubbs, Secretary General of ICC France, said, “We are delighted with the adoption of the law, which allows France to join the club of pioneering countries in the digitisation of international trade finance, marking a significant and concrete milestone that will enable players in international trade finance – including bankers, corporations, SMEs, Trade Tech companies, and insurers – to accelerate their digital transformation.”

Next up: Government decree to establish reliable systems for title tracking

In the coming weeks, the French government will issue a decree to establish reliable methods for title identification, holder verification, exclusive control, and title history tracking. 

This decree will support various implementation methods, such as a centralised registry, establishing platforms, and tracking technologies.

If chosen, the registry would be certified or recognised as ‘trustworthy’ by all domestic and international transaction parties.

Exploring other technologies and process changes such as the use cases for embedded tokens and using or accepting secure electronic signatures will also be explored.

To ensure the widespread adoption of digital trade documents, the French government is exploring for the creation of interoperable systems.

These systems could enable various digital platforms and digital registries to communicate and work together seamlessly, enhancing the efficiency and security of trade finance transactions.

In other countries such as the UK, the implementation of MLETR has been left to the private sector to determine.

The ICC Digital Standards Initiative (ICC DSI) is also developing a framework for assessing reliability of systems that is being piloted by platforms and service providers. 

Pamela Mar, DSI Managing Director, said, “Our aim is to develop a core framework that can then be adopted by countries, users, or other industry bodies as needed.  A single framework applied globally could ensure that systems are robust enough to meet MLETR, while also not adding undue burden to enterprises due to national variances”.

Key priorities: interoperability, governance, and use case development

The MLETR framework is being adopted by various markets worldwide, aiming for a standardised approach to digital trade documents, which enhances global trade efficiency and reduces barriers.

France is contributing to ongoing discussions within the G7 and G20 forums, advocating for global standards in the digitalisation of trade documents.

Under India’s Presidency, the G20’s trade and investment working group emphasised the importance of enabling legislation for digital trade.

Philippe Henry, CEO of Dewenson Partners & Senior Advisor to Paris Europlace, said, “The French government’s commitment to digital trade is further demonstrated by its advocacy for interoperable systems. These systems are crucial for ensuring that different digital platforms can communicate effectively, a key factor in the successful implementation of MLETR.”

The legal framework established by MLETR supports the principles of functional equivalence and reliability, ensuring that electronic records can replace paper documents without compromising their legal effectiveness or security.

Patrik Zekkar, CEO, Enigio, said, “We are thrilled to see France leading the way, with the adoption of an MLETR legal framework, demonstrating their passion and commitment to a paperless trade in the 21st century. Enigio’s trace:original technology is prepared to facilitate the move from paper to digital for all parties involved in a trade flow, and we are eager to play a role in this transformation with our reliable and interoperable solution for freely transferable electronic documents and data.”

The broader context of MLETR adoption includes efforts by various countries to harmonise digital trade practices. 

The UK’s recent legislation, the Electronic Trade Documents Act, serves as a parallel to France’s MLETR adoption. 

Both pieces of legislation highlight the importance of recognising electronic versions of title documents such as promissory notes, Bills of Lading and warehouse receipts, as legally equivalent to paper.

For now, scalability and adoption are required, to ensure these digital trade instruments are used to their advantage and contribute to creating a business friendly environment favorable to importers, exporters and supply chain actors.

It is also the French intention to accelerate discussions with the new European Commission post-election in July 2024 on the role of an EU Trade Services governance with four key objectives:

• Guarantee the existence of secure technological solutions accessible to the whole ecosystem, especially banks and businesses;
• Support the creation of a conducive framework for digitization of international trade documents at European Union level, notably when it comes to certification and management of open and interoperable ledgers;
• Foster the European TradeTech ecosystem, the solutions of which are often mature and can help achieve the goals of the reform;
• Ensure that technical standards and requirements are clear and normative, as with PSD2 on payments or e-FTI on electronic information on the transport of goods.

The International Trade & Forfaiting Association, ITFA hosted a Paris event, in collaboration with A&O Shearman, updating industry participants on the French Law by Europlace and addressing technological gray areas of the MLETR, such as what reliable systems are and how such systems should interoperate. 

Andre Casterman, chair of the Fintech Committee at the ITFA, said, “Members of the ITFA Fintech Committee have engaged with Paris Europlace’s MLETR working group since Q2 2022 to demonstrate technology readiness and use cases. Our key message has been around the opportunities offered by the e-bill of exchange and e-promissory note. Our next priority is to help French banks embrace the new legal and technology options to develop their own product strategy and extend the benefits to their clients.”

As other countries look to adopt similar measures, France’s experience with MLETR will provide valuable insights into the benefits and challenges of digitalising trade.

As the French National Assembly adopts MLETR, it’s a moment of both reflection and celebration. 

While preparations for the 2024 Olympics bring a sense of global unity and excitement, and D-Day memorials honour the sacrifices made for freedom, France’s commitment to innovation in trade finance marks another step forward. 

With France exporting over 299 million bottles of champagne in 2023, this milestone is certainly a moment to raise a glass and toast to a slightly more paperless future.

The post France joins MLETR club, recognising ‘Titre Transférable Électronique’ appeared first on Trade Finance Global.

This proposal emerges as France attempts to position itself as a key player in the global financial landscape by expanding business financing avenues, fostering international growth, and updating French legal frameworks.

Legislative proposal: France’s financial flag in the sand

Holroyd’s proposal is set against the backdrop of France’s ambitious efforts to attract financial players post-Brexit, with Paris overtaking rivals to emerge as Europe’s leading market in terms of stock market capitalisation.

This legislative proposal, which will also be submitted to the Senate aims to further these gains by enhancing financing capacities for businesses through financial markets, a crucial move considering the tepid activity in IPOs on Euronext Paris in 2023.

A notable aspect of the proposal is the introduction of multi-voting shares in listed companies, aimed at retaining entrepreneurial control and preventing companies’ offshoring due to fears of losing control. 

This move, while contentious among asset managers and voting advisory agencies, reflects a broader shift towards increasing market attractiveness without compromising governance standards.

Alignment with MLETR

The proposal also highlights the digitalisation of trade finance activities, a move poised to revolutionise international trade by transitioning from paper-based processes to digital systems.

In line with the UNCITRAL Model Law on Electronic Transferable Records (MLETR), the proposal is indicative of France’s commitment to adopting international standards for digital trade documentation. 

The proposal, which contains 5 articles, defines a transferable record and provides a list of instruments within the scope: 

• bills of exchange;
• promissory notes; 
• maritime and river bills of lading; 
• daily certificates; 
• bearer and order insurance policies; 
• and warrant receipts. 

It also outlines the conditions for establishing the legal recognition of the electronic form of the transferable record, as well as the specifications regarding the concepts of integrity, delivery, control, and transfer of an electronic record.

This alignment signifies a substantial step towards streamlining trade processes, reducing operational costs, and enhancing France’s competitive edge in the global market.

The proposal addresses the critical digital divide in international trade, where less than 0.1% of new trade documents were digitalised in 2022.

Recommendations and future direction

The journey from UNCITRAL recommendations to French law enactment, thanks to Paris Europlace and ICC France’s robust technical work and advocacy campaign, involves a structured legislative process, encompassing drafting, reviews, parliamentary debates, and final approvals that the adoption of a decree by the Council of State will complete.

The decree will define reliable methods that encompass the identification of actors, traceability of these, and the preservation of the integrity of the record.

The Paris Europlace / ICC France MLETR report, released to the French government on 29 June 2023, is an important document in this legislative project.

Furthermore, the proposal is linked with ongoing European digitalisation efforts, including eFTI and eIDAS regulations, which aim to digitalise business, administration, and government interactions across the EU.

The report outlines nine key recommendations aimed at fostering the TradeTech ecosystem, promoting regulatory frameworks for paperless trade, and establishing digital corridors with major trading partners and fostering market adoption through awareness-raising and training sessions for stakeholders.

These recommendations are designed to ensure the effective use of digital tools in trade finance, improve institutional representation, and leverage digitalisation to enhance the attractiveness of the trade finance industry.

Philippe Henry, senior advisor to Paris Europlace and co-rapporteur of the working group, told TFG, “The legislative proposal presented by Alexandre Holroyd marks a pivotal moment for France’s financial sector and its approach to trade digitalisation.”

Emmanuelle Butaud-Stubbs, Secretary general of ICC France, and a member of the DSI Legal Reform Advisory Board told TFG, ”This legislative proposal is an important milestone in the digital transformation of the French trade finance ecosystem, opening up interesting opportunities for domestic and international transactions.” 

The financial sector, including bankers, corporates, asset managers, and institutional investors, has expressed keen interest in the measures proposed by Holroyd. 

However, there are concerns about whether the proposal will sufficiently address the need for directing savings towards listed companies and promoting quality research on SMEs, especially in light of challenges posed by directives like MiFID2. 

Some more work has also to be done on supporting exporters: SMEs account for a large part of global cross-border trade volumes but are much less supported on trade financing than large corporates. 

The new law passed in France in the coming weeks could help open new financing tools and reduce the $2.5 trillion trade finance gap.

By addressing key challenges, embracing digital transformation, and aligning with international standards, France is poised to enhance its financial attractiveness and competitiveness on the global stage. 

As the proposal moves through the legislative process, its potential to reshape France’s financial landscape and its impact on the broader European market will be closely watched.

The post France’s Alexandre Holroyd brings forth proposal to boost digital trade in France appeared first on Trade Finance Global.

Businesses and public authorities across the EU may be facing tougher laws on late payments, with the European Commission proposing a new regulation enforcing maximum 30-day terms.

The proposal, part of a comprehensive set of policies designed to underpin the resilience of SMEs across the EU, is set to revise and replace the 2011 Late Payment Directive with a more stringent EU Regulation. The implications of this proposal have spurred discussions and raised several concerns within the supply chain community.

At the ITFA Christmas event in London, TFG’s Deepesh Patel sat down with Silja Calac, a Board Member at the International Trade and Forfaiting Association (ITFA), to discuss the key novelties of the Late Payment Regulation proposal compared to the existing Late Payment Directive, its potential impact on businesses, especially SMEs, and the recommendations put forth by ITFA to navigate these proposed changes successfully.

The 2011 Late Payment Directive: The need for change

On 12 September, 2023, the European Commission unveiled a proposal for a new EU Regulation aimed at tackling the issue of late payments in commercial transactions in Europe. A fundamental feature of the European Commission’s proposal is to replace the current 2011 Late Payment Directive with a Regulation applicable to all EU Member States once enforced.

Currently, the existing directive stipulates a payment term of 30 days for B2B transactions. However, this can be extended to 60 days or more “if not grossly unfair to the creditor”.

In practice, the absence of a maximum payment term and the ambiguity in the definition of “grossly unfair” has led to a situation in which payment terms of 120 days or more are not uncommon.

The new proposal takes a decisive standpoint, striving to establish a uniform 30-day payment term applicable for all commercial transactions, including B2B, large companies and SMEs while protecting businesses from the adverse effects of payment delays in commercial transactions. It is not yet clear how far this will apply to public authorities though.

The proposed regulation sets forth a comprehensive set of objectives, aiming to combat late payments, rectify imbalances in contractual bargaining power, facilitate timely payments, and fortify redress systems. With a pronounced emphasis on protecting SMEs, the regulation seeks to establish a clear, standardised payment term applicable to all European businesses.

As Calac said, “The current Directive in place leaves much room for interpretation. The European Commission wants to establish a very clear and strict payment rule for all businesses.”

Pending approval by the European Parliament and the EU Council of Ministers, the proposed legislation entails automatic penalties for late payments, accruing interest at 8% above the European Central Bank (ECB) base rates. Notably, these laws encompass every commercial or business organisation and are specifically designed to expedite payments for the EU’s SMEs.

Other provisions include the removal of the right for contracting parties to extend payment terms, a restriction on the creditor’s ability to waive late payment interest, and an obligation on debtors to pay late payment interest on overdue invoices. This comprehensive overhaul reflects the European Commission’s commitment to creating a more efficient and equitable payment landscape, particularly benefiting SMEs.

Diving into everyday business challenges: ITFA’s perspective

While the proposal presents at first glance some commendable measures, such as reducing maximum payment terms for SMEs and reinforcing the enforcement by compulsory interest payments, closer examination reveals that the wider impact of the proposed Regulation requires careful consideration.

Despite the regulation’s intention to support SMEs, ITFA advocates against a rigid, one-size-fits-all model. For instance, Calac referenced a potential challenge for buying SMEs, which often operate on tight margins, in complying with the mandated payment term.

Strict timelines, while aimed at promoting financial discipline, may inadvertently burden SMEs as buyers/debtors, constraining their ability to manage cash flow effectively and allocate resources efficiently.

She said, “This will backfire when SMEs act as the buyer. For them, they will need to seek additional funding resulting in higher financing costs, particularly since it will not be based on the rating of their better-rated buyer.”

Moreover, limiting businesses’ ability to freely negotiate extended payment terms tailored to their unique circumstances is highly likely to disproportionately affect industries with complex supply chains and lengthy capital cycles, particularly impacting SMEs.

Such a stringent approach overlooks the diverse nature of industries, distinct business models, and variable financial capabilities of SMEs. Consequently, it unintentionally infringes upon the right to freedom of contract, restraining negotiations that might better serve the parties involved.

As Calac emphasised, “This is not ideal in a free economy. The German Association of Lawyers (Deutscher Richterbund has already expressed its concern as this regulation would be against liberal economic principles and the freedom of contracting. It is also what ITFA fears can be the detriment of SMEs.”

Besides, the proposed 30-day limit of payment terms could be detrimental to the competitiveness of EU suppliers and buyers engaged in transactions outside the EU.

International settings commonly involve longer payment terms, and constraining these terms could result in a competitive disadvantage for EU-based companies. Although the freedom of contract would be maintained in B2B transactions outside the EU, EU-based companies operating internationally might be compelled to require shorter payment terms, diminishing their attractiveness compared to their non-EU counterparts.

The Commission’s proposal for the Late Payment Regulation recognises an opportunity to enhance competitiveness through improved payment discipline which can undoubtedly provide valuable support to SMEs.

However, the present proposal brings along unintended consequences that could jeopardise the very businesses it seeks to protect. Therefore, a nuanced approach is essential, one that achieves a delicate balance, safeguarding SMEs while acknowledging and addressing the specific complexities of different situations rather than applying a one-size-fits-all solution.

The post Video | ITFA Christmas Party: Unwrapping the EU Late Payments Regulation appeared first on Trade Finance Global.

From the contraction in North American trade to the growth in certain European sectors, the world of international trade proves yet again, to be ever-changing and exciting.

G20 merchandise trade decline

The G20 merchandise trade saw a contraction in Q2 2023, with both exports and imports falling by 3.1% and 2.0%, respectively. This decline is attributed to subdued global demand and decreasing commodity prices, particularly in the energy sector.

North America experienced a significant reduction in trade, with the United States witnessing a 5.7% contraction in exports and 2.0% in imports. Canada’s exports fell by 3.7%, while imports remained flat.

Source: OECD

In the European Union, Germany and Italy saw a decrease in merchandise exports, while France experienced growth, driven by the transport equipment sector, especially aeronautics. The United Kingdom’s exports increased by 2.1%, reflecting strong sales in machinery and transport equipment.

East Asia faced a sharp contraction in merchandise trade, with China’s exports dropping by 5.7% due to lower consumer electronics sales. Japan and Korea saw a marked decrease in imports, down by 8.1% and 7.9% respectively, mainly due to reduced energy import expenses.

Services trade slowdown

Preliminary estimates indicate a marked slowdown in G20 services trade in Q2 2023. Exports and imports are estimated to have grown at 0.2% and minus 0.6% respectively, following the strong growth recorded in Q1 2023. The United States saw a 1.0% growth in services exports, while imports decreased by 1.3%, primarily due to lower expenditure on transport and travel.

In Canada, travel and business services boosted exports, while Germany experienced a decline in exports driven by travel and business services. The United Kingdom’s services exports decreased by 1.0%, while imports rose by 2.9% due to higher purchases of financial, intellectual property, and business services.

Australia and Korea saw a significant expansion in services trade, with travel, finance, and ICT driving up exports in Korea. Japan’s services imports dropped by 4.2%, reflecting lower expenditures on business services.

Country-specific insights

• United States: The decline in merchandise trade was significant, with falling energy prices contributing to reduced trade in value terms.
• United Kingdom: The UK saw an increase in exports by 2.1%, reflecting strong sales of machinery and transport equipment.
• China: China’s exports dropped sharply by 5.7%, partly due to lower consumer electronics sales.
• Australia and Indonesia: Falling commodity prices pushed down exports in these countries.
• France: France’s growth in exports was driven by transport equipment, particularly aeronautics.

The Q2 2023 report on international trade statistics by the OECD paints a picture of a global trade environment facing challenges and shifts. The decline in merchandise trade across the G20 nations reflects broader economic trends, including subdued global demand and fluctuating commodity prices.

The services sector also experienced a slowdown, with varying impacts across different countries and industries. While some nations like Australia and Korea saw growth, others faced contractions, reflecting the complex and multifaceted nature of international trade.

What’s next for international trade?

This report highlights certain trends in international trade for 2023. Looking at the data, it is good to ask questions about the environment for the rest of the year.

How will the continued fluctuation in energy prices impact global trade in the coming quarters, and what strategies can countries adopt to mitigate these effects?

What are the underlying factors contributing to the slowdown in services trade, and how can countries leverage opportunities in this sector?

What are the implications of regional variations, and how can they inform international trade policies and agreements?

The post Global trade in Q2 2023: OECD report highlights shifts and challenges appeared first on Trade Finance Global.

The eurozone witnessed a return to growth during the second quarter of 2023, recording an expansion that surpassed expectations, having just about dodged a technical recession at the year’s commencement, according to initial data released on Monday.

Gross domestic product in the eurozone saw a 0.3% upswing in the second quarter, surpassing the forecasted 0.2% in a Reuters survey of economists. When compared to the same period in the preceding year, growth tallied at 0.6%, in contrast to anticipated growth of 0.5%.

In comparison, the 20-nation eurozone reported zero growth in the prior quarter and a 0.1% quarter-on-quarter decrease during the final quarter of 2022.

Among the largest nations within the bloc, France and Spain demonstrated sustained growth rates, bolstered by robust exports and a flourishing tourism sector. Conversely, Germany, the euro zone’s largest economy, posted no growth, and Italy experienced a contraction.

Inflationary pressures, due to escalated energy costs in the wake of Russia’s Ukraine invasion and soaring food prices, in addition to elevated interest rates and dwindling confidence, have left their mark on the single currency’s economy.

Yet, the economy has shown signs of robustness as well, much akin to the COVID-19 pandemic period, during which growth exceeded expectations as businesses adapted to the altered circumstances more swiftly than policymakers had anticipated.

Nevertheless, even with the bloc performing above expectations, growth in 2023 is likely to be subdued due to a substantial decrease in real incomes coupled with surging interest rates.

The European Central Bank has suggested the possibility of halting its interest rate increases in September, as inflationary pressures begin to show early signs of easing and concerns of a recession intensify.

The post EU growth higher than expected in Q2 appeared first on Trade Finance Global.

In preparation for the upcoming International Maritime Organization (IMO) meeting, a Paris summit convened by the French presidency has garnered support from over 20 countries and regional organisations for a levy on shipping industry emissions. The proposed levy aims to address the environmental impact of the shipping sector, which currently accounts for 2.9% of global greenhouse gas emissions (GHG).

As the high seas fall beyond the jurisdiction of any single government, the shipping industry has largely evaded taxation. However, if the IMO, the United Nations body responsible for regulating shipping, were to introduce a tax on carbon emissions, it could incentivise shippers to adopt greener practices at an accelerated pace. 

Furthermore, the funds generated from such a levy, estimated at approximately $100 billion per year, could be directed towards supporting developing nations in their efforts to mitigate and adapt to climate change.

The recently released chair’s summary from the Summit on a New Global Financing Pact confirms the commitment of 23 countries and regional organisations to adopt a revised IMO GHG strategy during the committee meeting scheduled for 3-7 July 2023. 

The objective of this strategy is to align the international maritime transportation sector with the goal of limiting global temperature rise to 1.5 degrees Celsius, as outlined in the Paris Agreement.

The summary highlights the collective support for the principle of implementing a levy on shipping’s greenhouse gas emissions. It emphasises that the revenue generated from such a levy should contribute significantly to facilitating a “just and equitable transition” within the shipping sector. 

Notable nations and entities endorsing this approach include Denmark, Norway, Cyprus, Spain, Slovenia, Monaco, Georgia, Vanuatu, South Korea, Greece, Vietnam, Lithuania, Barbados, Marshall Islands, Solomon Islands, Ireland, Mauritius, Kenya, Netherlands, Portugal, New Zealand, and the European Commission.

While the tax-free status enjoyed by the shipping industry already faces challenges, such as the forthcoming requirement for ships to purchase emissions permits within the European Union starting next year, the possibility of implementing a levy remains uncertain. 

However, the IMO could potentially establish a timetable for the introduction of such a levy, signalling its commitment to addressing the industry’s environmental impact.

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In times of macroeconomic and geopolitical uncertainty, such as the current market environment, private companies often hesitate to engage in international trade. This fear is understandable but only exacerbates economic slowdowns and volatility. This is where public-private support from Export Credit Agencies (ECAs), supported by global organisations like the Berne Union step in and support international trade.

Credit insurance is an invaluable part of the international trade ecosystem, and multiple players exist in this arena. At ExCred International, Trade Finance Global’s (TFG) Deepesh Patel sat down with Maëlia Dufour, director international relations, business development, rating, environment and climate at Bpifrance and president of the Berne Union, to learn more about the intricacies of the trade credit industry.

ECAs and private credit insurers: same, but different?

From the outside, ECAs and private credit insurers appear to perform the same duties. But after a closer inspection, there are some important differences between the two.

Dufour said, “The main difference is that export credit agencies have to respect the principle of subsidiarity. So they let private insurers insure first and, if they cannot, the exporters then come to the ECA.”

This distinction is vital for the insurance market. In terms of trade credit, private actors are almost always the first choice when possible, but when market conditions are unfavourable or a company lacks knowledge of the local market, ECAs play an important role.

SMEs are particularly vulnerable to economic volatility. When the economy goes through a crisis, smaller companies often see their lines of credit or insurance decrease. Dufour added, “In times of crisis, if the private insurers step out, then we [ECAs] can step in by reinsuring private insurers in order for them to be able to insure the SMEs and banks.”

Though there is this distinction between public and private insurers, Dufour notes that they work towards the same cause, which is developing export businesses and fulfilling market needs.

In recent years, the market for both private and public trade credit insurance has grown substantially. In the face of COVID-19, the Russia-Ukraine war, and rising inflation, world trade has become riskier than ever. But Dufour pointed out that world trade has recently increased by around 10%.

The combination of increased risk and increased trading means trade credit insurance is more needed than ever.

Berne Union: a common meeting ground for all 

The Berne Union is a unique and powerful international organisation. It has 87 members from over 67 countries, representing ECAs, private insurers, and multilateral institutions. The diversity of the union is the strong point. Industry experts from across the world can communicate and share advice. 

This association is vital to the success of the trade industry. As the world gets more complex and interconnected, no individual or company can navigate it alone. 

According to Dufour, all members of the Berne Union share strategies and work towards a common goal.  “We all have the same objective, to provide credit insurance to our exporters and large companies, as well as SMEs.”

The plan to get to net zero carbon

One of the most important and complicated strategies discussed between Berne Union members is sustainability. Berne Union members are committed to a net-zero target and spend much of their time discussing how to properly implement these standards. 

While discussing her other role with Bpifrance, Dufour said, “We have put in place decarbonisation of our portfolio… As you know, we don’t insure any more coal, oil, or gas. And we have created financial incentives for the green projects.”

As president of the Berne Union, Dufour plans to encourage members to step forward and take concrete actions to reach the net-zero goal. 

Dufour said, “Climate is one of my objectives [as president of the Berne Union]. We discuss a lot about what the ECAs, or private insurers, or multilaterals are doing regarding climate change, and this includes developing financial incentives, decarbonising portfolios, and how to reach the net-zero targets.”

Even though there has been lots of progress, both internally in Bpifrance, and within the Berne Union, there is a lot of work to be done. 

Dufour said, “As you know, it will be a long marathon and we have to keep being in the race and reach the finish line.”

The fight against climate change is a collective movement, one that will not be won in the near future, but action needs to be taken now. Bpifrance and the Berne Union understand this urgency and are constantly finding new ways to collaborate and take tangible steps towards a more sustainable future.

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Chief executive of gas grid operator Enagas, Arturo Gonzalo Aizpiri told reporters on Thursday that the European Union funds could finance 30% – 50% of the underwater hydrogen pipeline to be laid between Spain and France.

Spain and France have agreed to explore the possibility of building a pipeline to ship green hydrogen between Barcelona and Marseille at a cost of about €2.1 billion, Gonzalo said, while a connection between Spain and Portugal would cost around €350 million.

The funding would come from that set aside by the EU for key cross-border energy infrastructure designated as “Projects of Common Interest”.

Gonzalo said the remaining 50% – 70% of the cost would be covered by the countries which would benefit from the project, the pipeline’s future customers and fees charged to ship the gas.

“It will have no cost for Spanish consumers,” he added.

Enagas’s top executive said the countries involved, including Germany which expressed interest last month, were “advancing in the technical definition” of the project, which is being evaluated to see if it meets the EU’s funding requirements.

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Into scope

Alex Gray, head of trade finance at The London Institute of Banking & Finance, explains why the staff at trade banks will have an important role to play in gathering and utilising ESG data from supply chains 

If firms are to hit the right goals for environmental, social and governance (ESG) standards, they will need to find out what is going on in their supply chains.

That depth of knowledge is not just nice to have. In Germany, for example, the Supply Chain Due Diligence Act (SDDA) of 2021 requires large firms to cut the human rights and environmental risks in their supply chains or risk fines of up to 2% of annual turnover.

France has the Corporate Duty of Vigilance Law (DoV), which came into force in 2017. The DoV doesn’t levy fines, but the rules can be used as a stick by NGOs because it allows “interested parties” to make a civil claim against firms that breach the rules. 

The problem for large firms of course, is that depending on the model used, they can have up to 14 “tiers” of suppliers. Visibility into tier 1 is usually very good. But, by tier 14, where very small suppliers can be involved, it’s hard to get any data – good or bad. 

Standards

How, then, can firms get reliable ESG data out of the entirety of their supply chain? 

First of all, they need to decide what they’re looking for. There are no global standards in place. The EU has issued a “common classification system for sustainable economic activities” with the EU taxonomy, but these don’t apply elsewhere.

The Taskforce on Climate Related Financial Disclosures (TCFD), has a much wider range, and TCFD-aligned reporting was introduced for large firms in the UK in April 2022. It also has uptake elsewhere.

The TCFD reported in October 2022 that over 3,900 organisations from 101 countries and from nearly all sectors of the economy support it. However, the TCFD focuses on climate-related reporting and the firms involved are not SMEs. So, that doesn’t solve the problem of tracking ESG in a supply chain – though it does pile more pressure onto big firms.

The carrot and stick of supply chain finance

Large firms can have over 60,000 suppliers, and often provide them with supply chain finance. Though supply chain finance has its critics, it has provided a vital lifeline for many small firms during COVID, when big firms used their own preferential access to credit to extend working capital to the smaller players. 

Why does that matter for ESG reporting? Because, when it comes to getting data out of supply chains, that flow of funds could be linked to reporting on ESG. 

Firms that provide demonstrably good ESG data in line with certain standards would get access to supply chain finance – perhaps on preferantial terms. The others wouldn’t.

The role of fintech

Fintech offers a promising solution to help get data out of supply chains in three ways.

First, small firms are likely to need help when gathering and presenting ESG data. Fintechs with a focus on sustainable procurement should be able to help them track what’s going on, and to present it to the wider supply chain. 

For example, small farmers might be able to collect data using mobile phones, or Internet of Things sensors. 

Second, partnering with fintechs helps with the possibility of a relatively swift move to workable standards.

Third, fintech data should be fully auditable. This will help everyone in the supply chain comply with regulations – both now and in the future. 

Fintechs are already rolling out solutions to enhance supply chain transparency and compliance. For example, the Coriolis ESG platform, which was acquired by US fintech TradeSun in December 2022, automates ESG scoring for businesses of all sizes against the UN Sustainable Development Goals and regulatory frameworks.

The role of training

As trade finance itself becomes increasingly digital, trade finance teams will need to know how to use the new data to help clients be ESG compliant. 

Some of the technology is already available – software can already do much of the everyday lifting in checking documents, leaving the important analysis to human checkers, for example. Much of the tech that trade finance will use in the future, however, is yet to come. 

There will be bumps in that road. Blockchain, for example, no longer looks as essential as it did in 2018 when the World Trade Organization called it, potentially the “biggest disruptor to the shipping industry and international trade since the invention of the container.” 

What will be important is not the technology tool, but the business case. The United Nations Conference on Trade and Development (UNCTAD) said that global trade in 2021 totalled $28.5 trillion. So, there is plenty of business to go around, and there is more business to come. 

Trade finance has important work to do, not only in the “E” of ESG, but also in the “Social” and “Governance” aspects. The “trade finance gap” of $1.7 trillion, between demand for trade finance from SMEs and the ability and appetite of banks to fund them, will be solved partly by technology and data, but also by the will and ingenuity of trade finance staff.  

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