Saturday, 10 December, 2022
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Bangladeshi Businessmen’s Trading Opportunity in International Market

Nironjan Roy

Bangladeshi Businessmen’s Trading Opportunity in International Market
Nironjan Roy

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Bangladesh Bank has recently brought about important changes in the country’s foreign exchange regulation allowing Bangladeshi businessmen to undertake direct trading operation in international market. Bangladesh Bank has announced Merchanting Trade policy under which our business community is now permitted to undertake direct trading business in international market. Nature of foreign trade has gone through phenomenal changes during last two decades and keeping pace with these changes, such decision allowing country’s business community to play better role in international market, must have been taken much earlier. Although off late, Bangladesh Bank has taken an appropriate decision for which they deserve appreciation. During last one decade, our economy has significantly developed with rising GDP (Gross Domestic Product). Size of the economy has also significantly increased and maintaining consistency with economic development, trading volume including import-export turnover has also gone up. In addition to export of traditional items, the scope of exporting many non-traditional items has also widened. However, our business community cannot properly reap the benefit from widening scope of export business due to some limitation in our foreign exchange regulation. As for example, our import-export business is still mostly based on LC (Letter of Credit). Except some situations, our business community cannot carry out import-export business without LC, whereas the use of LC is gradually disappearing. The use of LC has almost disappeared from the developed countries. LC although still being used in the emerging market, is gradually reducing and will end soon. Our foreign exchange regulation has not been updated incorporating these changes already taken place in an international trade and therefore, our business community is facing undue competition and always remain in disadvantageous position while carrying out foreign trade. In this context, Bangladesh Bank has taken some courageous measure by introducing Merchanting Trade what should be the beginning of modernizing foreign exchange regulation.

Merchanting Trade Policy: Introducing Merchanting Trade by Bangladesh Bank is a very crucial measure under which our business community is now permitted to undertake direct trading activity in international market. However, successful application and thus maximizing benefit thereof, require detailed policy guidelines and additional supports. I have tried to go through this Merchanting Trade policy but could not manage a copy and even, such important news has not been well covered in the local media. So, we do not clearly know about how this policy will work, which businesspeople will be entitled and what type of business will qualify for direct trading opportunity. We believe all these relevant issues have been elaborately and conspicuously covered in Merchanting Trade policy because this is a new area for our country. So Bangladesh Bank should not leave any scope of confusion and misinterpretation. Regardless of all pertinent aspects covered or not, this is a good start for better positioning our business community in the international arena. Any further upgrade, addition or deletion - if necessitated - can be done as part of continuous process.

Changing International Trade: Nature and scope of foreign trade particularly the supply chain management across the world has undergone revolutionary changes. Once upon a time, the importers used to establish LCs in favor of exporter for importing goods and even, the exporters used to ship the goods only after receiving LCs. Now gone are the days. Importers do not issue LCs anymore for importing goods; rather exporters not only send goods without LCs but also reach the merchandise to retailers’ warehouse or stores at their own risk. Even, the exporter sometimes put the merchandise at retailers’ shelf at their own responsibility. Similarly, once upon a time larger business houses used to select the merchandise from the manufacturer for selling in their retail stores. This practice has also disappeared and in most cases, the retailers do not take the risk of directly procuring merchandise from the manufacturer, instead they have strategically shipped this risk to the third-party companies. Trading companies have now emerged with new role of assuming all risk associating with supply chain management. This trading companies channel merchandise from manufacturing unit to final selling unit. In the developed world mainly in the USA, many reputed trading companies have been established and doing brisk trading business across the world by maintaining their office and subsidiaries in all strategically important locations of the world. In order to keep pace with new pattern of supply chain business and with a view to competing with those international trading companies, our business community must have similar scope and opportunity in carrying out foreign trade what might have been presumably granted under Merchanting Trade policy.

Detailed guidelines and additional supports: Now question arises that mere permission of direct trading will not effectively work because detailed guidelines accompanied by direct support will be needed for our business community to make good start in this new area of international trade. The report published in the local media based on information released by Bangladesh Bank has cited one example what states that under Merchanting Trade, Bangladeshi Businessman will now be able to procure goods from manufacturer in Nepal and directly ship to the importer in France without touching our country. In this transaction, LC bank must be a commercial bank in Bangladesh and after repatriation of the export proceeds, payment due to manufacturer in Nepal will be reimbursed. Success of this type of transaction structure is very minimum because exporter in Nepal will no way deliver the goods merely based on verbal assurance without receiving any payment guarantee. In order to make this trade structure workable, Bangladeshi Businessman will have to either become stakeholder of that Nepalese manufacturer or establish a subsidiary company in Nepal. Either choice will require investment from Bangladesh and this Merchanting Trade policy must clearly spell out that investment scope including fund transfer facility. As an alternative measure, Standby LC is used to undertake this type of trade transaction, but this trade finance product is not popularly used in our country’s banking system. So, Bangladesh Bank will have to make our commercial banks popularize Standby LC and then allow this direct trading facility.

Allowing offices in abroad: One more important aspect is not clear to us about this new policy that whether Bangladeshi businessmen will only be allowed to carry out trading in international market just by staying inside the country or they will be allowed to establish office or subsidiary company in the strategic area of the world for undertaking direct trading business.            

If the policy requires that Bangladeshi businessman will only be allowed to carry out direct trading business just staying inside the country, then this measure may not produce any desired result. In order to maximize benefit from this new policy, country’s business community will be allowed to establish offices or subsidiaries in the strategic locations across the world from where direct trading operation should be carried out. The companies which are engaged in trading business follow this standard practice. Many large American trading companies have established their offices and subsidiaries in many important global locations including Singapore and Hong Kong for undertaking their trading business. One reputed Japanese automaker has set up their subsidiaries in Mexico and Colombo for carrying out direct trading business. Even, some companies of our neighboring countries have also set up their office / subsidiaries in Latin American countries particularly in Uruguay, Chile, and Peru from where they conduct trading businesses. So, our business community will be provided similar scope and opportunity as enjoyed by international trading companies otherwise, they will not be able to compete in the international market and thus full benefit of this policy change cannot be achieved.

Mitigating fund diversion risk: Needless to speak that as soon as our business community commences direct trading business in international market, some issues including fund diversion from country will come up. This is very natural and therefore, all businessmen should not be indiscriminately given this opportunity. The business enterprises which bear highest standard, good reputation and outstanding track record will only be allowed to undertake direct trading operation under this policy. Besides, the allegation of siphoning fund off country is not new at all. Before there was no direct trading opportunity, yet there was common criticism of siphoning fund off the country. Those who are engaged in taking money out of country will continue to do so regardless how stringent the law is. So, there is no reason of refraining from modernizing our foreign exchange regulation just for the fear of fund diversion from the country. Sincere and dedicated businessmen never siphon fund off the country. Nevertheless, if this fund diversion issues stands as threat on the way of allowing trading opportunity to our business community, there is means under trade finance operation to mitigate this risk. This is completely different aspect and as such there is no scope of further elaborating here. In order to diversify our export, increase the export volume and maximize foreign exchange earnings, Bangladesh Bank has taken appropriate measures by introducing Merchanting Trade policy and now they will have to be ready to do whatever is needed to make this policy successful with businessmen’s greater role in effectively carrying out direct trading operation in international market.

 

The writer is a banker, Toronto, Canada.

Email: [email protected]