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Laying emphasis on merchanting trade a must

Published : Thursday, 22 September, 2022 at 12:00 AM  Count : 654

In terms of export policy in force, central bank issued a policy framework of merchanting trade. The policy starts with a definition of merchanting trade as a trade for which goods/services procured from a country are shipped/ delivered directly to a third country. Media reports show that Bangladeshi traders can trade like those of Singapore, Hong Kong. Really it is possible since Bangladesh is in a possession of different traders, indenters and buying agents. They have vast experiences with global exposure.

The operational instructions of merchanting trade include compliance of export and import formalities. But declaration form - EXP - will not be required. In place of it, form C will be used for inward remittances. On the other hand, TM form will be used in place of IMP form for import payments.

The circular asks banks to satisfy themselves with the bonafides of the transactions, including adherence to KYC and AML/CFT guidelines while handling such transactions.The counterparts to merchanting trades shall be from FATF compliant countries, the circular stated. The entire merchanting trade is to be routed through the same bank which will verify the documents and satisfy themselves about the genuineness of the trade. Banks are also asked, if necessary, make online verification oftransport documents of goods shipped from sourcing countries through acceptable tracking system.

The circular allows letters of credit (LCs) to transfer to suppliers of relevant countries in terms of provisions of uniform customs and practice (UCP) for documentary credit in force for procurement of goods/services to be sold to respective customers of third countries. The payment for the procurement will be settled in observance of the procedure laid down in UCP. Banks on behalf of merchanting traders can issue fresh LCs favouring to suppliers abroad subject to settlement of paymentsout of receipts from export-leg. The circular allows import settlement under short term buyers' credit from external sourcesbefore receipts of payments from export-leg. In this case, receivables from export-leg can be assigned for the shot term loans. Restriction is imposed to banks for issuing any forms of payment undertaking/commitments/acceptance for such loans.

Banks will encash traders' margin as income. The remainder will be retained in foreign currency till the settlement of payments under import-leg including charges. The circular allows traders to discount receivables, the amount of which after adjustment of traders' margin, can be retained in foreign exchange for settlement of payments at import-leg.

As per the circular, banks cannot make payments from their own sources. The difference between inward receipts and outward payments including relevant all charges will be reasonably satisfactory for meeting local expenses and profits. The transactions are subject to deductions of applicable taxes.

Merchanting traders can maintain retention quota accounts at permissible rate out of their margin amount.  The trade under merchanting arrangement is a source of income from external sources. In this case, the roles of traders are noting but  communication with different parties. Banks' roles are to facilitate transactions by services without taking any payment obligations.

Like merchanting trade, there is another trade known as entre-pot. Under this system, imported goods touch relevant ports of Bangladesh. Specific instructions need to be observed as outlined in Import Policy Order in force for procurement of goods from sourcing countries. Another obligation under entre-pot trade is to maintain 5 percent as mark up against the transactions. Transactions by communication cannot not bring 5 percent as profit. As such, policy guidelines for merchanting trade can bring fruitful results by generating income in foreign currency. This income is generated basically out of nothing since no resources are used from Bangladesh sources except expertises of traders and transactional supports by banks.

Merchanting trade is a way out for other transactions. Export Policy of the country in force states that central bank will take initiatives to frame transactional procedures for counter-trade. The policy defines counter-trade as settlement of import payments by export proceeds. This is nothing but a modified version of barter trade. Under counter-trade, Bangladeshi parties work as trade agents. They have arrangements with counterpart-traders abroad. Banks' roles under the transactions are very insignificant. They just maintain special accounts in the name of non-resident counterparts.

The payments deposited in the special accounts are used for settlement of payments against exports from Bangladesh. The accounts are in foreign currency. Importers' banks make payments to this accounts in foreign currency which are transferred to exporters' banks as export proceeds against relevant exports. The mode of settlement is within Bangladesh, but goods are moved between countries. This method is useful for countries whose banking system is not so functional. This method can help to trade with countries in Central Asia, African countries, and South American countries. In simple word, counter-trade will help to explore untapped markets. But there lies some fundamental problems. Export is never equal to import.

Bangladesh is a country of deficit in trade. Import is higher compared to export. In this situation, it is not easy to squire the position. Balances after adjustment between exports and imports need to be made through banking channel. Use of transactional channel for settlement is a problem to bring the real benefits of counter-trade. For this reason, bilateral settlement platform by goods to goods is not so workable as desired. Without making payments, there needs another platform to execute transactions.

An example of imbalance situation can be cited. Under counter-trade arrangement, Bangladesh imports 100 units of goods and exports 70 units of goods, leaving a balance of 30 units. No coincidence is available for export from Bangladesh. On the other hand, it is not easy to remit the payments to receivable countries. But this very countries may need imports from other countries. In this case, merchanting trade is not supportive? The answer is 'yes'.

Surely and definitely, the mechanism of merchanting trade can reconcile the imbalance in a simple way. Merchanting traders in Bangladesh will receive orders from receivable countries and place orders to third countries which will ship goods to ultimate destinations. The balance held in special accounts will be used for settlement of payments against the goods shipped from third countries. After completion of the transactions, the balance will be zero - a win-win situation which is inevitable to operate counter-trade transactions.

As per Export Policy in force, central bank is bestowed with responsibility to frame policy on merchanting trade and counter-trade. A new guideline has already been circulated by central bank on merchanting trade. It is expected that work on counter-trade is under progress. In framing policy tools for counter-trade, merchanting trade may be a solution to balance the imbalance position. It should be considered as a tool to be used as last solution for washing out payable position available in special accounts.
The writer is contributor












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