Home ›› 17 Nov 2021 ›› Editorial
The open account trade means international trade against contract without any letter of credit or lc, is mostly common in developed countries. Bangladesh was far behind from the open account trade transaction in export. Our main competitors in RMG export get competitive advantage of open account payment method in export. In an estimate, exporters of Bangladesh use LC in 60 per cent cases and only 30 per cent transactions under Documentary Collection.
Under Section 23 of the FERA, non-repatriation or partial repatriation is responsibility of exporter and failure is a punishable offence. Bangladesh Bank (BB) also has the legal authority to exempt the affected exporters from the liability to repatriate the foreign proceeds by exercising the powers under Section 12 (2) (b) of the FERA but the process is very complicated. Another option is the BB’s power under section 12 (3) of the FERA, to permit the affected exporters to sell the exported goods from the port of the buyer's country and procure the sale proceeds accordingly. But the exporter can never realise the full value of the consignment for such consignment laying in buyer’s port. The process also involves port charges, demurrage and container charges etc and exporters usually don’t get fair price of the exported materials.
In order to facilitate the export deal, two important issues are transfers of ownership of consignment and payment rights. One transfer is for consignment and another for payment or consideration of the contract for export. The major concern of these contract is transfer to document which give ownership of consignment and terms and methods of payment.
Bangladesh Bank has filled up this legal gap by issuing a circular (no. 43 dated November 17, 2019) titled "Discounting of direct or deemed export bills - transfer of right". It has granted general permission for assigning rights to dues at maturity of a usage bill of export from Bangladesh in favour of a license bank/financial institution abroad by paying usage bill in full, final and without recourse.
The circular was issued in the context of absence of Bangladeshi laws and policies in relation to such transfer of ownership on invoice. There is no interpretation of whether invoice or bill receivables is considered actionable claim although under section 3 of the Transfer of Property Act, 1882, an actionable claim includes a claim to an unsecured debt.
As paragraph 10(iii), chapter 8 of the Guidelines for Foreign Exchange Transactions-2018 (GFET), Vol-1 in terms of which Authorized Dealers (ADs) are required to pass all shipping documents covering exports from Bangladesh.
BB circular (no. 43 dated November 17, 2019) has referred to instruction at paragraph 25, Chapter 8 of Foreign Exchange Transactions (GFET), 2018, which also allowed the overseas correspondent institutions under subsection (b) stating that the authorised dealers may arrange fund against the discounting of usage bills in foreign exchange through their own offshore banking units/ correspondent banks, financial institutions abroad or international financing institutions. The circular has tried to get the coverage of payment repatriation against export under open-account. Under the open account method, goods are shipped on credit terms with payment commitments from banks/financial institutions abroad.
However, in a FE Circular No. 32 dated October 03, 2021 authorised Ads to allow exporters to dispatch export documents (excluding original transport document of title to cargo) directly to importers or their agents abroad through secured media, subject to observance of following instructions: (a) The underlying sales contracts/letters of credit provide for such direct dispatch of export documents. (b) ADs shall be satisfied with the arrangement of realization of export proceeds within statutory period. (c) ADs shall endorse original transport document retained with them “on receipt of payment against relevant export”. (d) ADs shall, within 14 days from the date of shipment, obtain EXP Form from exporters to comply with regulatory instructions including reporting routine to Bangladesh Bank. (e) Exporters’ account with ADs is fully compliant with KYC/AML/CFT guidelines in force.
Although, BB circular no. 43 dated November 17, 2019 allowed transfer of export documents to the bank or even export finance company such as Factoring companies but the Circular No. 32 dated October 03, 2021 restricted the sending documents (Bill of Lading0 without payment as the authorised dealer banks will have to retain the original shipping documents and endorse those on receipt of payments against the exports. It seems BB is trying to out of facilitating the smooth transaction through open account particularly the condition of pre-payment to release B/L of the consignments.
There are some additional conditions imposed upon sending documents (except B/L) that (b) ADs shall be satisfied with the arrangement of realization of export proceeds within statutory period. The circular did not elaborate without any guideline to ‘satisfied’ about arrangement of realization of export proceed within specified period of 4 months as per FE regulation of the BB.
Recently BB has allowed factoring service with some conditions. Through international factoring, the exporters are guaranteed of payment of their goods and services instantly after shipment of the same. The factoring services provide security of payment and financing through transfer shipping documents along with ownership and rights over the payments. The circular dated October 3, 2021 restricting transfer of document will hamper smooth service of Factoring and export financing by trade finance companies. Bangladesh Bank may evaluate the circular address the embargo over transfer of full set of documents.
The writer is a legal economist. He can be contacted at mssiddiqui2035@gmail.com
