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New UN Treaty Targets Digital Trade in Asia-Pacific

Bangladesh, Cambodia and China have signed a new United Nations treaty aimed at strengthening digital trade in the region.

The Framework Agreement on Facilitation of Cross-Border Paperless Trade in Asia and the Pacific aims to promote paperless trade across borders in the region, cut trade time and costs, and ultimately boost economic competiveness.

It’s open to all 53 member states of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), and several other countries at the signing ceremony also expressed their commitment to sign the treaty.

According to a recent ESCAP study, regional export gains for the Asia-Pacific region are estimated to reach US$250 billion annually with the full implementation of cross-border paperless trade. Even partial implementation of cross-border paperless trade could lead to an export increase of US$36 billion annually, and decrease the time required to export by as much as 44% and reduce costs by up to 31%.

 “On average, cross-border trade transactions entail exchanges among 27 to 30 different parties involving 40 documents, 200 data elements—30 of which are repeated at least 30 times—and the re-keying of 60 to 70 percent of data at least once,” saidShamshad Akhtar, ESCAP executive secretary, in a speech at the signing ceremony. “To give you just one example, Indian exporters to Bangladesh must obtain up to 330 signatures on 17 documents at multiple stages to sell their products into a neighboring market.”

The treaty is expected to achieve the following:

  • Promote regional harmonization and coordination in cross-border paperless data exchange, resulting in cost and time savings.
  • Offer opportunities to developing countries to close the e-readiness gap and implement cross-border electronic data exchange.
  • Allow parties with different implementation capacity levels to take action based on their initial respective e-readiness levels.
  • Help member countries migrate to an electronic data exchange environment with pilot projects designed to help members iterate and adjust their systems before engaging in actual cross-border trade data exchange.
  • Support ESCAP member states in meeting the requirements of their international and regional commitments by offering digital implementation of trade facilitation measures, including the WTO Trade Facilitation Agreement and other bilateral and subregional agreements.

The treaty is open for signature at the UN headquarters in New York until Sept. 30 and will enter into force 90 days after five countries have ratified the agreement.

Coalition Government on Germany’s Horizon

Chris Kuehl, Ph.D.

German populists will likely force a coalition government—not that the AfD (Alternative for Germany) party will be part of that coalition. Angela Merkel is on her way to a fourth term as chancellor because her main opposition has faded, and she has made it abundantly clear she will not form a government with the AfD involved.

Merkel has also rejected the far left as a partner. This likely means cobbling together a government that unites with the Free Democrats and the Social Democrats, and that means trying to govern with parties that fundamentally disagree with her positions on several issues. The party that is peeling away some of her one-time supporters is the AfD.

This right-wing populist group was a tiny band of euroskeptics and cranks for many years, but Merkel’s decision to allow over one million refugees from North Africa and the Middle East gave the AfD an issue that some Germans could rally around. The sudden arrival of millions of refugees and immigrants overwhelmed the country; it was close to six times the number expected.

The AfD is overtly racist and calls for those who have arrived already to be deported. It demands an end to the program. The rural Germans are the most supportive. These are the communities that have the least contact with the new arrivals because the majority have been settled in and around urban areas where the needed services can be provided. That means that rumors can circulate in the rural areas without contradiction.

The AfD still has minimal support, but it will win more seats than in the past. It will be able to play the spoiler role and force Merkel to build that coalition, making it harder to develop coherent policy on a host of issues. The populist wave in Europe has been blunted by the defeats in France and the Netherlands, but the movement is far from powerless. The immigrant issue remains very hot and controversial. People’s fears are easily stirred.

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SMEs Need Trade Finance Options

Alternative financing mechanisms and financial technology solutions hold significant promise for bridging the trade finance gap, especially for smaller enterprises, according to a recent International Chamber of Commerce (ICC) Bank Commission publication and an Asian Development Bank survey.

Supply chain finance, fintech and dedicated trade finance funds are some of the options mentioned in ICC’s 2017 Rethinking Trade & Finance report with regard to Africa.

“In recent years, we have witnessed the emergence of trade finance funds and greater use of trade credit insurance as sources of alternative finance or means of risk distribution,” the report states. The use of instruments “such as payables financing and factoring, among others … is still limited in most African markets.”

The global trade finance gap remains relatively stable at $1.5 trillion, compared with $1.6 trillion the previous year, according to the Asian Development Bank’s 2017 Trade Finance Gaps, Growth and Jobs Survey. The 2017 survey results were obtained through the participation of 515 banks from 100 countries and 1,336 firms from 103 countries.

“Emerging economies continue to face the greatest shortfalls,” the survey finds. SME suppliers in Asia and the Pacific continue to have the largest numbers of requests to banks for funding and rejections, it further notes. “Banks report that 74% of rejections come from [micro-, small- and medium-size enterprises] and midcap firms. The difference is that 46% of global proposals came from Asia and the Pacific, a third of which originated from developing Asia, including the People’s Republic of China (PRC) and India. Around 40% of total rejections are from Asia and the Pacific.”

About 36% of the rejected transactions were considered viable, the survey says. These cases were rejected either because of low profitability or the need for additional client information or collateral. “These types of rejections, however, may be fundable by other financial institutions such as fintech firms, which have different requirements.”

The survey also points out that fintech and digitization have been recognized as potential solutions “for timely and affordable finance. … The potential for both remains great, but the build phase continues.”

Export credit insurance is another way to manage overseas credit risks, expand international sales and arrange financing of foreign receivables, says Gary Mendell, president of Meridian Finance Group. In an upcoming webinar, Mendell will describe new flexible kinds of policies and the credit insurance market’s field of players, as well as trends in coverage and claims and the outlook for the rest of this year and for 2018.

Exporters new to using credit insurance or who have not experienced losses may wonder how they can be confident their claims will be paid, Mendell noted. “There’s no mystery to getting indemnified.” Mendell will also share best practices for managing international credit, complying with policy conditions and filing claims. Click here for more information about the webinar at 10 a.m. on Tuesday, Sept. 12.

Election Calendar

Sep. 22 – Aruba, President
Sep. 23 – New Zealand, New Zealand House of Representatives
Sep. 23 – Singapore, President
Sep. 24 – Germany, German Federal Diet
Oct. 10 – Liberia, President
Oct. 10 – Liberia, Liberian House of Representatives
Nov. 19 – Chile, Chilean Chamber of Deputies
Nov. 19 – Kyrgyzstan, President
Nov. 19 – Chile, Chilean Senate
Nov. 19 – Chile, President
Nov. 26 – Honduras, Honduran National Congress
Nov. 26 – Honduras, President

Global Roundup

Xi calls for BRICS to play bigger role in governance. Five major emerging economies opened a summit on Monday to map out their future course, with host Chinese President Xi Jinping calling on them to play a bigger role in world governance, reject protectionism and inject new energy into tackling the gap between the world’s wealthy and developing nations. (Business Mirror)

Venezuela's Maduro says will shun U.S. dollar in favor of yuan, others. Venezuelan President Nicolas Maduro said on Sept. 7 his cash-strapped country would seek to “free” itself from the U.S. dollar next week, using the weakest of two official foreign exchange regimes and a basket of currencies. Maduro was referring to Venezuela’s “DICOM” official exchange rate in which the dollar buys 3,345 bolivars, according to the central bank. (Reuters)

German companies pull away from the U.K. As the third round of Brexit negotiations kicked off last week, German companies engaging in trade with the U.K. say their outlook of the country is worsening, while exports from Germany to the U.K. drop and German investment gets redirected. (Global Trade Review)

Africa's economic giants, Nigeria and South Africa, exit recession. Africa’s two biggest economies—Nigeria and South Africa—on Sept. 5 came out of recession according to statistical figures released by the respective government agencies. The exit comes on the back of a Reuters poll late the previous week that predicted that both countries were heading out of recession in the second quarter. (Africa News)

U.S.-China trade growing robustly. In July, the United States goods trade deficit with China rose 10.6% year-on-year to reach $33.6 billion, a 3% increase over June, according to a report just released by the U.S.-China Economic and Security Review Commission. U.S. exports to China increased 9.7% year-on-year to reach a seven-year monthly high of $10 billion. Civilian aircraft, engines and parts, and sorghum, barley and oats, largely contributed to this increase. (Global Trade)

Trump pledges to withdraw from U.S.-South Korea Trade Agreement. President Trump says he wants to begin withdrawing from the U.S.-South Korea Free Trade Agreement. The pact was supposed to help U.S. companies sell more to Korea, but the trade gap is wider than it was when it took effect. The reasons have to do with regulations in Korea, the relatively weak economy in Korea and the U.S. consumer's love of spending. (NPR)

NAFTA round 2: No deal yet on divisive issues. President Trump's top trade official says the U.S., Canada and Mexico are making progress in NAFTA negotiations. "I am pleased to report that we have found mutual agreement on many important issues," U.S. Trade Representative Robert Lighthizer said at the end of Round 2 of talks in Mexico City. (CNN)

Are the “Asian Tigers” hamstrung by hidden flaws? Amidst recurring bullish predictions and rhetoric of Asia’s rise, we should be careful of falling into complacency. Despite years of high economic growth, Asia faces many serious challenges.  Regional political relations, economic health, water security and demographic trajectories will push many key Asian nations towards instability. (Global Risk Insights)

Is an Asia-Pacific free market feasible? The Trump Administration's dramatic disavowal of the Trans-Pacific Partnership (TPP) trade agreement in January prompted the question “Is the region ready for a free trade agreement?” Eight months on, the short answer is that while most of the region most definitely is, without the support of the U.S. and China such an agreement is unlikely to shift from theory into practice anytime soon. (Interpreter)

Week in Review Editorial Team:
Diana Mota, Associate Editor and David Anderson, Member Relations