These bankers, business leaders and policymakers – gathering for the International Chamber of Commerce (ICC) Banking Commission bi-annual meeting running from 25-29 March – are meeting to take stock of current regulatory constraints jeopardizing the supply and demand of trade finance.
“It is crucial that, during this economic crisis, trade finance be freed up to promote economic growth, especially in the developing world,” said Sheikh Khalifa Al Thani, Chairman of ICC Qatar and the Qatar Chamber of Commerce and Industry, which hosted the meeting. “This would stimulate a well-functioning and effective private sector, thereby improving the conditions for investment and trade.”
Economic crises have negatively impacted trade finance in many countries over the past five years and conditions are still difficult in many regions. As trade finance markets become less liquid, the entire supply chain is affected with a particular toll being taken on small- and medium-sized enterprises (SMEs) in developing countries.
“SMEs could be the engine of economic growth if given better access to investment through new regulatory frameworks for trade finance,” said Kah Chye Tan, ICC Banking Commission Chair.
While ICC recognizes that it is important to improve the resilience of the financial system, it is also urging governments to take measures that make trade finance more accessible and affordable, and to avoid drafting regulations that may penalize trade.
Shaping recommendations for the G20
ICC also held a policy consultation with its Banking Commission members on Monday in order to tap into their expertise on key business issues – including trade, investment and finance – ahead of the G20 Summit being held in Los Cabos, Mexico on 18-19 June. The consultation is part of the ICC G20 Advisory Group’s ongoing efforts to gather policy priorities from business leaders and CEOs worldwide.
“The consultations we’ve held in Europe, North America, Asia and here in the Middle East ensure that businesses large and small have an opportunity to contribute their views and help shape ICC’s policy recommendations for input into the G20 process,” said ICC Secretary General Jean-Guy Carrier.
Discussion at the event focused on trade and finance market constraints, including demand, risks, pricing, availability of trade finance, currency exposure and US liquidity issues. Financial regulation and reform, and the impacts of Basel III on industry were of critical concern to participants.
They also stressed that G20 leaders need to rapidly expand access to financial services, particularly in the developing world, so as to finance economic growth. Regulators, they said, should give SMEs greater opportunities by:
simplifying regulatory and bureaucratic requirements for setting up and doing business;
providing incentives that encourage the financial sector to lend to SMEs;
improving access of SMEs and innovative ventures to capital markets.
The banking experts recommended that regulation of trade finance be based on facts and an objective assessment of trade finance's low risk, self-liquidating character. Trade finance should receive a more favourable treatment under the financial regulations being considered in line with the Basel III framework, they said.
Classifying trade finance as a high-risk financial instrument, subject to higher capital adequacy requirements, could have a severe and adverse impact on the pricing and supply of trade finance.
“Such a development would negate the positive impacts of our trade-supportive policy efforts, with knock on impacts in terms of lost jobs and higher costs for all parts of the global supply chain,” said Mr Carrier.
Results from this consultation in Doha will be fed into the business recommendations being prepared by Mexico’s B20 Organizing Committee, chaired by Alejandro Ramirez, CEO of Cinepolis, with support from ICC, the World Economic Forum, the OECD and McKinsey. Mr Ramirez and CEOs from the B20 policy task forces will present recommendations to Mexican President Felipe Calderon in advance of the Business (B20) Summit and G20 Summits in Los Cabos.
CEOs from ICC’s G20 Advisory Group have been playing an instrumental role in the B20 process since the Seoul Summit in November of 2010 – including the development of business policy recommendations and meeting with heads of state and their sherpas.
Breaking the deadlock in global trade talks
ICC has also launched an initiative to define multilateral trade negotiation priorities for business and to help governments set a trade policy agenda for the 21st Century that contributes to economic growth and job creation.
More than 80 business executives and trade experts, together with World Trade Organization (WTO) Director-General Pascal Lamy, recently attended the first conference of the ICC Business World Trade Agenda in Geneva (13-14 March) with the aim of driving more effective trade talks.
“By working directly with the global business community, governments could find effective solutions to help tackle the economic crisis,” Mr Carrier said. “Removing barriers to trade and investment would not only provide a necessary stimulus to the global economy, but would also give business the clear sign that governments will not resort to protectionism.”
For the first time in 60 years, the multilateral trade negotiation process is at a standstill and after 10 years, the Doha Development Agenda has reached a stalemate. Yet global trade remains a mainstay of the world economy and it is therefore crucial that global trade rules address the needs of the global marketplace.
Visit the ICC G20 Advisory Group for more information on ICC activities ahead of the G20 Summit in Los Cabos.