Week in Review

What We're Reading:

August 31, 2020

Abe, Japan’s longest-serving premier, resigns due to health. Japanese Prime Minister Shinzo Abe said he would resign to undergo treatment for a chronic illness, ending his run as the country’s longest serving premier in an announcement that surprised some members of his party. (Bloomberg)

Taiwan paves way for US trade deal by easing pork, beef imports. Taiwan paved the way for an eventual free trade deal with the United States on Aug. 28 by announcing an easing of restrictions on the import of U.S. beef and pork, as the island looks to boost ties with Washington at a time of tensions with China. (Reuters)

Sweden sounds the alarm over ‘heightened’ Baltic tensions. Stockholm looks to send strong signal to Russia over Moscow’s increased military activity. (Financial Times)

Japan: Shinzo Abe's checkered economic legacy. The Japanese prime minister's aggressive economic reform policy, known as Abenomics, has had a mixed record. Abe's procrastination on structural reforms for fear of losing political currency is mainly to blame. (DW)

China cash shortages push up funding costs, pressuring bonds. As a wave of global liquidity pushes assets ever higher, the opposite is occurringin China. Borrowing costs in the world’s second-largest economy are spiking, driving down bonds and stocks, as the central bank holds back on aggressive easing. (BloombergQuint) 

Belarus will shut transit routes if sanctions imposed, Lukashenko says. Belarusian leader Alexander Lukashenko, facing a nearly three-week popular uprising since a disputed election, threatened on Aug. 28 to cut off European transit routes across his country if sanctions are imposed. (Reuters)

Australian economy reeling towards record contraction. Treasurer Josh Frydenberg says the coronavirus has hit the global economy like an “earthquake,” and warned Australia is not immune from the shock. (HSN)

China’s expansionism enters a dangerous phase. China’s expansionist drive, from the East and South China seas to the Himalayas and the southern Pacific, is making the Indo-Pacific region more volatile and unstable. Along with the spread of the Wuhan-originating coronavirus, this has also given rise to growing anti-China sentiment. (The Hill)

The surprising truth about digital currencies. Central banks all over the world are planning to launch digital currencies. Fueled by competition from private firms as well as increasingly charged geopolitical ties, authorities believe cash may soon no longer be king. (DW)

Algeria chafes against EU trade deal as deadline looms. Days ahead of a final deadline, activation of a long-planned Algeria-EU trade deal risks unravelling as political and business leaders in the North African country warn it will undermine economic sovereignty. (EurActiv)

A diplomatic breakdown over ‘snapback’ tests the UN. Dispute over a US call for pre-2015 Iran sanctions has pushedthe Security Council to its limit. It’s been there before. (Interpreter)

US, China trade negotiators seen pushing phase-one deal success. The United States and Chinese trade negotiators discussed the phase-one trade deal, with the U.S. saying that both sides saw progress and are committed to its success. (Business Mirror)

Africa: Trade briefing. Sub-Saharan Africa’s trade performance, its projected growth and developments around intra-Africa trade. (Global Trade Review)

We cannot really deal with this pandemic-inspired economic lockdown forever, can we? In truth, some rebound and recovery has occurred already, and there is every confidence that activities once considered normal will resume.

However, it is also obvious that many things have changed permanently. Some of that change was already taking place. The pandemic basically accelerated the pace. These would include the rise of online shopping and the move toward working from home. There have been other shifts that are far more unique and can be largely attributed to the pandemic and the lockdown recession. At the top of that list has been the patterns of global trade.

There has always been tension over trade. As soon as a nation trades with another nation, there are winners and losers. The pattern in past years has been to favor the interests of the consumer as opposed to the producer. A maker of toys in the U.S. would much rather see restrictions on imports from countries like China or India or anywhere else. 

It would much prefer a world where it could set its prices and enjoy exclusive access to markets. Consumers have a much different attitude. They want cheaper prices and variety that comes with having access to toy producers all over the world. As there are far more consumers than producers andpeople that work for those producers, the balance has always been in favor of trade.

That may be starting to shift dramatically. The collapse in global trade volume in the spring was record setting. There had never been a more drastic decline. By the end of May, trade volumes declined close to 25% in most nations. The impetus for this sharp decline was the lockdown, but the deterioration in the global trade numbers had started even before the pandemic.

The last few years have been marked by a series of trade wars, most of them involving the U.S. The country that had once been the major advocate for trade had become increasingly hostile to the very idea of trade. The deals that get made to boost exports have always been partly political, but trade was weaponized over the last few years. Since the easing of the lockdown, some rebound in the volume of trade has occurred, but some larger issues have evolved that will have an impact on trade for a very long time.

First, every country in the world is now focused on employment as never before. The pandemic response has cost around 400 million jobs worldwide, perhaps as many as 50 million in the U.S. and 60 million in Europe. Nothing galvanizes the political community like job loss. This will lead to efforts designed to promote and protect employment. There will be efforts to train and place workers, but there will also be efforts to protect workers from outside competition. The irony is that countries will also try to stimulate exports as a way to boost growth and hiring. However, as every nation is trying to reduce its level of imports, this will be a tough task.

In addition to the desire to protect jobs, there will be an emphasis on what has been loosely described as national security. This used to mean protecting industries that are connected to military preparedness, but the definition has vastly expanded over the years as countries seek to protect agriculture, technology, and now medical equipment. Confidence has waned that other nations would always be willing to sell what was needed as countries seek to become more self-sufficient.

Consumers still have a stake in all this, but their voice is diffused as compared with producers. Estimates vary considerably because no two consumers buy the same things at the same level. There is agreement that limiting imports will cost the average U.S. consumer between $8,000 and $11,000 a year. It is essentially a trade tax. Consumers get more limited variety and higher costs; and therefore, they see a lower standard of living.

The Global Supply Chain Finance Forum (GSCFF) released a paper in response to growing concerns regarding the use of supply chain finance (SCF) and, in particular, payables finance programs. The report, Ensuring Payables Finance Remains a Force for Good, aims to address criticisms across three key areas: the potential adverse impact on suppliers, issues relating to financial reporting and transparency, and overall program risk.

“Reports relating to the misuse of payables finance programs, notably around suppliers being forced into accepting unfavorable terms, are extremely worrying,” said Christian Hausherr, chair of GSCFF and European product head of payables finance, trade finance and supply chain finance at Deutsche Bank. 

The report addresses topics ranging from the alleged “bullying” of small and medium-sized enterprises (SMEs) to join payables finance programs, to issues around financial disclosure, to the impact of COVID-19 on the use of the technique. Key conclusions include:

• SMEs should never be “bullied” to join such programs. Reports of such practices are highly concerning and taken for the GSCFF. They also ignore the balance that can be achieved through well-structured payables finance programs, which not only help buyers and therefore assure the health of the overall supply chain, but also provide prompt access to funds for suppliers on an affordable basis, addressing the systemic SME cashflow challenge.
• Suppliers should feel that there is absolutely no obligation to participate. If they are not in urgent need of cash, they can opt to receive payment in full on the original due date. The report strongly encourages finance providers to follow accepted industry practice in considering extensions of terms.
• Liabilities rising from SCF programs do not create additional financial risk above and beyond those that arise from trade between a buyer and a seller. Negative outcomes can be avoided by implementing strong credit analysis of a corporate’s balance sheet before engaging in an SCF program.
• Transparency of financial reporting relating to the usage of an SCF program is desirable but requires developing parameters for disclosure in corporates’ financial statements in coordination with accounting standards bodies.
• COVID-19 may have resulted in increased use of SCF, yet this does not create increased risk within the system as it would be counter-productive and inappropriate for banks to swiftly withdraw credit lines.

GSCFF is comprised of BAFT (Bankers’ Association for Finance and Trade), FCI (formerly known as Factors Chain International), the International Chamber of Commerce, the International Trade & Forfaiting Association and the Euro Banking Association.

The global pandemic is accelerating digitization, and it’s not a trend lost on the B2B payments landscape. Indeed, organizations large and small are increasing their use of electronic payment rails to move funds in various ways. But as this week’s Payment Rail Innovation Tracker reveals, some B2B fintechs are taking this moment as an opportunity to drive adoption of non-traditional rails to facilitate B2B trade.

Mastercard, AptPay Embrace Push Payments 

Mastercard’s Mastercard Send solution, a push payments platform that wields card and bank rails to move funds, will be integrated into the AptPay solution, the companies recently announced. AptPay operates a digital payment platform in Canada for businesses, connecting clients to its own network of financial institutions and a variety of payment rails.

The integration will expand those transaction offerings for companies with a focus on enhancing businesses’ cash flow management, the companies said. AptPay can now allow its business customers to wield Mastercard Send to push funds into cards, bank accounts or mobile wallets in near real-time, which, the firms noted, can also help these companies migrate away from paper checks and related fraud risks.

In addition to its partnership with AptPay, Mastercard recently released new research on the impact of the pandemic on B2B payments, finding that small and medium-sized businesses are embracing digital payment rails like cards to navigate disruption.

Fifty-seven percent of surveyed SMBs said they have increased their use of electronic B2B payment methods, with card transaction volume seeing the greatest leap. Cash and checks, meanwhile, have seen a decline.

“The pandemic has made it painfully clear how labor-intensive current business payment processes are, especially for small and medium-sized businesses,” said Ron Shultz, executive vice president, New Payments Business, North America at Mastercard, in a statement. “With cash flow more critical than ever, we’re seeing an accelerated shift to digital B2B payments as businesses of all sizes look to safeguard their operations today and prepare for the future.”

Distichain Enhances B2B eCommerce with Blockchain 

To streamline B2B payments within B2B eCommerce workflows, Distichain is embracing blockchain. The company recently announced that its B2B eCommerce Software-as-a-Service offering will be enhanced through a partnership with SECDE Digital Custodian, a collaboration that can facilitate digital wallet technology as well as escrow services and banking within the B2B eCommerce portal.

Citing the friction of traditional payment rails, including wires and cards, the companies said B2B traders can face a slew of friction points like low card limits. Distributed ledger technology allows businesses to bypass these legacy infrastructures to connect, trade and transact on a unified portal.

Plastiq Tackles Card Rail Friction 

Addressing one of the biggest pain points of commercial card rails—acceptance—is Plastiq, which recently announced the general availability of its Plastiq Accept solution. The product supports card acceptance without the burden of high interchange fees, which are often cited as the biggest challenge to B2B suppliers when accepting card payments from their corporate buyers.

Focused on accelerating payment collections, Plastiq Accept is also pointing to cash flow disruptions as a result of the pandemic as another reason why vendors must embrace card rails.

“COVID-19 and the associated restrictions have caused a domino effect of late payments across the economy,” said Eliot Buchanan, CEO and co-founder of Plastiq, in a statement. “As cash reserves run dry, many businesses have been unable to pay suppliers, as they simply don’t have the cash on hand. This has left suppliers unable to pay their own bills due to these late or missed payments.”

Reprinted with permission from PYMNTS.com.

FCIB Webinar: Insolvency in Turkey
September 8, 2020     10am ET

UnitedKS’s senior managing partner, Cengiz Söylemezoğlu, will provide insight into Turkish insolvency law. In this webinar, Cengiz will discuss the following issues: General Information about enforcement methods in Turkey for the collection of debt from debtors. Legal procedures for bankruptcy against debtor by the creditors. Legal procedures for bankruptcy commenced by debtor. Consequences of a granted bankruptcy decision.

 Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations