eNews March 13, 2014

March 13, 2014

eNews

News Briefs

  1. Trade Finance Transactions Head in an "Easier Direction" at FCIB Roundtable
  2. Venezuela Getting Back into the Game?
  3. Credit Card Processors Team Up to Tighten Security, but Retail Remains Skeptical
  4. Controversial Judge Grants Temporary Bankruptcy Protection to Infamous Monetary Exchange
  5. Exports Start 2014 Strong
  6. Fed Beige Book Regional Breakdown: Trends Still Positive

 

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Trade Finance Transactions Head in an "Easier Direction" at FCIB Roundtable

Trends in dispute resolution between exporters and their international buyers seem to suggest that the entire process is in the middle of a shift toward the informal. Emerging markets are where the opportunities are, and so exports continue to flow to these countries, but their legal systems remain far less sophisticated than those in the US or the European Union. As such, alternatives to resolving a dispute in court have become increasingly popular among international business partners.

"I don't think arbitration is as efficient as it used to be, but I think we're moving away from litigation to arbitration," said Robert Brown, an attorney with Greenebaum Doll & McDonald PLLC, at this week's FCIB New York Roundtable, hosted at the offices of Lowenstein Sandler PC. "I think trade is always moving in that direction, toward easier transactions."

Exporters are looking for ways to make their trade finance transactions simpler, safer, faster and more profitable, and they found them in the roundtable's exchange of executive-level insights and cutting-edge glimpses into the latest developments affecting trade financial instruments, regulatory compliance and export support.

After beginning with a networking luncheon and a comprehensive, exporter-sensitive economic outlook from Carolyne Spackman, vice president and economist, country risk with American International Group, Inc. (AIG), the roundtable's central panel, moderated by Aysegul Budak, ICCE, credit manager at Osterman & Company, Inc., and titled "Current Issues Impacting Trade Credit," tackled a host of prescient topics.

In addition to discussing international dispute resolution, Brown also delved into the intricacies of the Foreign Corrupt Practices Act (FCPA) and US anti-money laundering regulations, warning attendees to remain vigilant or face steep fines, or even possible jail time, for non-compliance. "This is great leverage for when people are asking you for a sale and it gives you red flags that you need to be worried about," he said. "You now have the authority to say 'I need more information' or you can say 'I'm just trying to keep you from going to jail.'"

Michael Quinn, managing director at JPMorgan Chase followed Brown with a discussion about the Bank Payment Obligation (BPO), a new financial instrument similar to a letter of credit (LC), but without the documentary requirements. Discrepancies affect timely payment on more than 60% of traditional LCs today, but the BPO could make those delays a thing of the past. "The banks are not going to be processing paper; they're going to be processing data," Quinn said. "It's data rather than documents."

Finally, Yuki Fujiyama, ICCE, trade finance specialist with the US Department of Commerce's International Trade Administration (ITA), offered attendees a look into the many ways that his agency can help US exporters make the most of foreign markets. Fujiyama provided just a brief overview of the ITA's vast resources and industry connections that can help any company, large or small, determine how the US government can advance their business by targeting key markets, and then fielded specific questions from attendees about how their companies can get on board. Fujiyama also discussed ITA's rich history of collaboration with organizations like FCIB, which deepens each party's knowledge base and allows them to more effectively support every exporter's efforts to grow their business, and the US economy, through international sales.

To learn more about FCIB and how we can help your company expand internationally, visit www.fcibglobal.com.

- Jacob Barron, CICP, NACM staff writer

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Venezuela Getting Back into the Game?

While battling civil unrest at home, Venezuela appears to be upping its efforts on the economic front to step out of the shadow of the Chávez regime. Venezuelan officials announced this week rules for a new foreign exchange platform, dubbed Sicad 2. It is hoped the new system, which replaces the current Complementary Administration System for Foreign Exchange (Sicad is the Spanish acronym), will ease dollar shortages and combat black market trading.

The original Sicad was set up to trade dollars at nearly 12 bolivars for most items, and about half that for important “preferential goods.” However, sanctions put on Venezuela by the United States in past years chilled opportunities for businesses in both countries, and the subsequent dollar shortage that accompanied worsening relations between the US and the Chavez regime until the leader’s death in 2013 led to a thriving black market dollar exchange. Instead of trading at 6 or 12 bolivars to the dollar, as intended, the shortages brought black market pricing as high as 80 bolivars to the dollar, according to reports.  

Despite natural resources and other desirable holdings, many businesses in the US had walked away from doing business in Venezuela in past years because even companies with great payment reputations were simply having too many problems getting money out. There was also the ever-present danger of losing investments to surprise “nationalization” of industries.

While it is clear Venezuela wants to loosen up the dollar shortage and stymie its black market currency trade, the Sicad 2 announcement was lacking several important aspects such as the date it would go live, pricing or availability.

- Brian Shappell, CBA, CICP, NACM staff writer

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Credit Card Processors Team Up to Tighten Security, but Retail Remains Skeptical

Visa and MasterCard announced last week that they would form a new cross-industry group focused on enhancing payment system security to "keep pace with the expectations of consumers, retailers and financial institutions." Comprised of banks, credit unions, acquirers, retailers, trade groups and others, the group's formation is the payment card industry's first major step toward increasing payment security in the wake of several major data breaches.

"The recent high-profile breaches have served as a catalyst for much needed collaboration between the retail and financial services industry on the issue of payment security," said Ryan McInerney, president, Visa Inc. "As we have long said, no one industry or technology can solve the issue of payment system fraud on its own. These conversations will serve as a useful forum to share ideas, break down barriers and spur the adoption of next generation security solutions for the benefit of all."

In announcing the formation of the group, Visa and MasterCard announced that their first point of order would be to endorse and speed the adoption of chip technology in credit and debit cards. Currently, the only real security measure for most cards is the magnetic stripe, but cards with an embedded chip that stores consumer data, instead of a magnetic stripe, are more difficult for criminals to counterfeit or copy.

Many countries already rely on this technology in conjunction with a personal identification number (PIN) as well, which puts yet another barrier between the card holder's data and fraudsters aiming to access it. Visa and MasterCard stopped short of endorsing PIN technology, having traditionally disagreed on its use in conjunction with chips due to the significant investment in new payment technologies that it would entail. Citing this reason, the world's largest retail trade association largely rejected the newly-formed coalition's suggestions on card security, arguing that they don't go far enough.

In an earlier letter authored by National Retail Federation (NRF) President and Chief Executive Matthew Shay, echoed in an interview last week by NRF General Counsel Mallory Duncan, the association described implementing chip technology without PIN technology as installing an alarm on the front door of a home while leaving the back door open. "Retailers have called for these cards for years, while the banks have balked at issuing them," Shay wrote in January. "It’s time for banks to put consumers first and offer American shoppers the same security already being used in 80 countries around the world."

- Jacob Barron, CICP, NACM staff writer

NACM National Trade Credit Report—By NACM Members, for NACM Members

When it comes to providing businesses with factual, accurate and relevant information, the NACM National Trade Credit Report is the right choice. NACM National Trade Credit Reports include trade payment data, days beyond terms and fresh, robust and timely business information.

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Controversial Judge Grants Temporary Bankruptcy Protection to Infamous Monetary Exchange

A Texas-based federal judge who is no stranger to controversial decisions granted temporary bankruptcy protection on March 10 to a digital monetary exchange facing lawsuits on two continents amid the puzzling disappearance of holdings that equate to millions of dollars because of either hacking, fraud, mismanagement or all of the above.

Judge Harlin Hale has, for the time being, allowed the Mt. Gox bitcoin exchange to pursue Chapter 15 insolvency protection through the American court system. Mt. Gox is attempting to invoke the cross-border bankruptcy provision in the wake of the disappearance of more than 700,000 customer bitcoins (online currency holdings). The filing is thick with irony as those who originally spearheaded the development of bitcoins were doing so to set up an alternative to the US dollar and other major currencies, seeking to be free of almost any government regulation and oversight.

“There are a bunch of digital currencies right now, bitcoin is just out in front as the biggest,” said David Zeiler, an associate editor of Money Map Press who has in the past traded on bitcoin exchanges. “With the Mt. Gox bitcoin exchange, there are a lot of suspicions. How do you lose that volume of money? Now, they want protection from the lawsuits in the United States. People are trying to sue in Chicago as well as in Japan. And there’s still an old lawsuit from a year or two ago over a contract dispute.”

The case is intriguing because digital currency is so new and non-mainstream that it remains almost entirely unregulated. As such, as Zeiler explained, there are almost no tried-and-true methods of recourse when disputes arise. Because of various allegations of wrongdoing on the part of Mt. Gox owners, the situation is even more complicated.

If granted more than temporary Chapter 15 status, it wouldn’t be the first time Hale broke ground from the bench. Two years ago, Hale notably denied enforcement of a restructuring plan from Mexico-based glassmaker Vitro SAB, a plan previously approved in a Mexican court, because he believed Vitro’s plan flew in the face of US bankruptcy policy and the interests of American creditors. In most cases, a judge would affirm such plans out of respect to judges in friendly nations and for important trade relations.

- Brian Shappell, CBA, CICP, NACM staff writer

You Are Not Alone

Need information? How do you find your way between fact and fiction, hope and charity, and faith and foolishness?

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Contact your local NACM Affiliate to learn more about NACM credit groups and to find the group for your industry.

Exports Start 2014 Strong

The US Commerce Department's Bureau of Economic Analysis (BEA) announced last week that American businesses exported a near-record amount of goods and services in January 2014. There were $192.5 billion worth of exports for the first month of the New Year, marking a $1.2 billion increase from the total in December 2013.

Both Export-Import Bank Chairman and President Fred Hochberg and Commerce Secretary Penny Pritzker praised exports' strong, solid start to 2014, and pledged their agencies' resources to continue increasing US sales abroad. "The US Department of Commerce will continue helping US companies access new markets so they can reach the 95% of worldwide consumers who live outside our borders," Pritzker said. "We know that when our businesses sell their goods around the world, they create growth and opportunity here at home. Exports supported 11.3 million jobs nationwide last year, and we’re working hard to ensure more US communities benefit from the job opportunities and economic benefits that come from exporting companies."

Among individual markets, January saw the same familiar markets dominating purchases of US goods. Among major export markets, which are those with at least $6 billion in annual imports of US goods, the countries with the largest annualized increases in US goods purchases compared to 2009 were Panama (24.5%), Russia (20.2%), Hong Kong (19.6%), Peru (19.3%), Colombia (18.4%), United Arab Emirates (18.1%), Ecuador (17.2%), Chile (17.0%), Argentina (16.3%) and Indonesia (15.2%).

January's total remained smaller than November's $194.7 billion figure, which was revised downward slightly, but remains the nation's all-time strongest month for exports. In the last year, exports of goods and services totaled $2.3 trillion, 44.3% higher than export levels in 2009, the year before President Barack Obama launched the National Export Initiative (NEI).

- Jacob Barron, CICP, NACM staff writer

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Fed Beige Book Regional Breakdown: Trends Still Positive

Though some districts were negatively affected by bad winter weather, most of the country continued to expand at a modest to moderate pace in January and early February, according to the Federal Reserve’s Beige Book economic roundup.

First District (Boston): Most manufacturers reported heightened activity in the district. Those tied to construction felt a slight dip, mainly due to weather-related reduced activity. The commercial and residential real estate sectors were somewhat mixed, though leaning positive, on greater economic uncertainty.

Second District (New York): Sales were down noticeably as this district was among the hardest hit by snow and ice storms. Manufacturing and service sector firms report positive plans to increase staffing levels, on aggregate. Commercial lending activity remained largely unchanged, save for a slight decline in delinquency rates.

Third District (Philadelphia): Like New York, the district’s struggles were tied more to severe weather than to mid- or long-term downward trends. But it did put stress on manufacturing, real estate and retail during the opening period of 2014.

Fourth District (Cleveland): Weather was more an “inconvenience” than a growth-slowing problem. The auto industry and energy sector (shale gas, primarily) continued to show strength. Manufacturing production was on pace with or better than a year ago in most quarters. Business delinquency rates were stable or trending lower.

Fifth District (Richmond): Retail and manufacturing orders showed an uptick that is expected to accelerate with more favorable weather in the spring. Eastern port activity was mixed, especially where agricultural products were concerned. Agriculture contacts noted declining prices for crops and higher input prices. Non-residential construction was strong in Washington, DC, but not elsewhere.

Sixth District (Atlanta): Expansion continues, albeit slowly and mostly on the back of tourism from international travelers. Residential and commercial builders showed increased optimism amid recent improvements. Manufacturing and port contacts expect acceleration in activity levels over the next three-to-six months. Agriculture struggled amid dry soil conditions.

Seventh District (Chicago): This was one of only four districts that did not show growth. Builders, manufacturers, farmers and retailers were all hit by brutal winter conditions, even by upper-Midwestern standards. Credit conditions changed little. Plans for business capital expenditures and other expansion in key sectors trended upward.

Eighth District (St. Louis): Manufacturing is outperforming service sector counterparts significantly. Manufacturers spent more money on equipment and workers, with auto and plastic producers leading the way. Residential and commercial real estate showed strong gains. Commercial loan demand increased, while delinquencies fell again. Coal production was among the industries that declined significantly.

Ninth District (Minneapolis): Most industries, with the exception of residential real estate and agriculture, showed moderate growth. New hotel construction is proving to be a boon for suppliers and employment in that sector, though others in retail had setbacks. Service sector contacts reported reasons for optimism. The energy sector sputtered slightly, which is expected in the upper Midwest at this time of year. Farming conditions also unsurprisingly continued to soften.

Tenth District (Kansas City): Growth was stable and expected to show an uptick as early as the next period. Manufacturers, especially of durable goods, saw a fast rise in new orders, production and shipments. Real estate activity decreased, but only slightly. Business credit lending standards showed little change. Agricultural conditions deteriorated throughout the period. Natural gas producers enjoyed strength, but a temporary price drop is likely on the horizon in the short term.

Eleventh District (Dallas): Manufacturing grew on aggregate with particular bright spots in energy production. Though retail was down for the period, which is not shocking after the holiday shopping season, the outlook is positive. Drought conditions made it a tough go for agriculture. Commercial construction activity was strong.

Twelfth District (San Francisco): Moderate expansion was noted. Commercial loan demand trended upward. Manufacturing was a bit mixed, though semiconductor sales showed record levels through late 2013 with expectations for more growth. Agricultural activity expanded on balance. Demand for business and consumer services rose.

- Brian Shappell, CBA, CICP, NACM staff writer

 

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