I just spent the two days at the GTR Trade & Treasury Week here in Singapore. This event brought together nearly 1100 attendees to discuss a variety of issues with an especially strong focus on trade financing.
What was so striking is the extent to which industry and government are disconnected. It is not—let me be clear at the outset—that companies are full of brilliant people and government officials are not, or the reverse. It is just that the two groups talk about such different things or talk in ways that continually move past one another.
While there were 1100 people registered for GTR, almost none were from government. This is not at all unusual.
Officials will attend, on occasion, if they are asked to speak. Indeed, Bernard Wee from the Monetary Authority of Singapore gave a very good opening address. He explained Singapore’s approach, took no questions, and then left the building.
There were a few other staff members from Singapore’s IE scheduled to attend. In general, however, government officials do not go to conferences like this one. They are simply too expensive. Even if complimentary tickets are arranged, staff members are rarely granted the time to spend away from their desks. No one, to my knowledge, is ever granted permission to attend an overseas event put on by industry. Budgets simply are not large enough in government for such a luxury.
But even if officials had gone, many would likely have been bewildered by the conversations taking place on stage and in the networking events. The language used by business is simply different.
Bewildered is not the right term. But here is an example. Many different speakers addressed the issue of trade financing. They wanted to know why trade financing is still handled today like it was hundreds of years ago, with physical letters of credit demanded in a world that otherwise seems to get by with the push of a button.
Instead, speakers wanted to talk about the digitization of financing or even about the use of blockchain.
I’m not certain about this of course, since we had no officials in the room to ask. But based on my experience with a variety of Asian governments, I’m guessing that many (and certainly not all) would have had no idea what digitization of financing even means, let alone what a blockchain is or what it does or how it might apply to trade. None of the business speakers ever bothered to explain these concepts.
Nor did anyone really address the practical obstacles that might be preventing the adoption of such concepts to trade today.
It is not that trade regulators are stupid people. They have not kept letters of credit in place for this long simply because they are senile. It is because no one has yet been able to explain, in a convincing way, how new solutions to old problems actually make the situation better or, more importantly, how these solutions can be implemented effectively.
There are a lot of different pieces to the puzzle of resolving letters of credit that have to be properly addressed before a system can simply be moved to a new digital process. Such a system has to be in place between multiple countries and many, many different regulatory agencies. Coordination is a challenge.
There are pilot projects underway to test concepts or ideas or elements of such schemes. Singapore is about to roll out a significantly revised and expanded version of its single window for customs and trade facilitation later this year that will include more trade financing options via its new online platform. It remains to be seen how well the system will work within one country across different ministries and departments in cooperation with the private sector.
Moving these types of projects cross-border, however, is an entirely different challenge.
Trade officials currently negotiating in different fora, like the Regional Comprehensive Economic Partnership (RCEP), could even block the whole brave new world from happening. In RCEP, there are many country officials who are quite concerned about the movement of data at all. They would like to stop all such data transfers between countries, particularly information of a financial nature.
Some readers may recall that even the Trans-Pacific Partnership (TPP) trade agreement, which otherwise expressly allows the free movement of data across borders and prevents restrictions on where data can be housed, has a prohibition on cross-border movement of financial data for e-commerce.
In other words, the very best standard trade agreement we have to date does not guarantee the movement of exactly the sort of information needed to ensure digitization of letters of credit (let alone blockchain) between TPP members.
Thus, while banks and other financial institutions are enthusiastically discussing blockchain and other dazzling digital inventions, officials are potentially moving in exactly the opposite direction.
At the global level, the World Trade Organization (WTO) is trying to put e-commerce on the agenda for discussion at the next meeting in Argentina in December. This effort has been blocked by some WTO members who do not see benefits of even having a discussion on e-commerce, let alone starting to craft any type of global rules that might be the first steps towards creating a global consensus needed to replace paper letters of credit or anything else digital.
Thus we appear to have a disconnect between what the private sector wants to accomplish and what government officials may be up to in various settings. It is perhaps time for the two groups to come together and try to find a common language to discuss issues like trade financing. Otherwise, both sides may find they have been working at cross-purposes with one another.
***Talking Trade has been written by Dr. Deborah Elms, Executive Director, Asian Trade Centre***