The Chairman of ICC-Pakistan Banking Commission, Ahsan Aziz, on Friday said that the trend to use letter of credit (LC) as mode of trade transactions was declining the world over, necessitating extra effort on the part of the bankers to create awareness and make it simpler.
Ahsan, who is also the chairman of ICC (International Chamber of Commerce), Paris, Banking Commission, was talking to APP after delivering his inaugural address at the two-day course on 'UCP-500 and eUCP', organised by Institute of Bankers Pakistan (ISP) in collaboration with ICC.
He said that the LC mode of transaction was the safest, especially for the eastern countries, where the importers, exporters and the host country bank are not familiar with each other and lack any guarantee against their money or goods.
Out of a total $13 trillion trade transactions the world over, only 15 percent are executed through LCs, he said, adding that 75 percent LC transactions are made in Asian countries where the English is the not the mother tongue.
Earlier, addressing the course participants, he said that Uniformed Customs Practices (UCP) needed simplification so that importers/exporters as well as the bankers could understand and interpret every section of the UCP perfectly in the same way as is done elsewhere.
Now the interpretation of UCP is different indifferent countries. He said that 60 to 70 percent of documents are rejected world-wide on the basis of negligible variations, which hardly impact upon the trade or its transaction, like full stop, coma, semicolon etc or code of any branch of the same bank in same city etc.
"We need to change the mindset of the bankers and train them to accept the documents with variations which do not have impact upon the transaction." But he added that it was a difficult task. "It took one year in India and one and half year in Australia," he said.
He expressed hope that things would be pretty good in Pakistan. "At least, we started it and, I am sure, are moving in the right direction," he asserted.
He said that bankers have a responsibility to create awareness about the UCP and its electronic version ie, 'eUCP' in their clients and customers.
Though the number of electronic documentations from the businessmen to the Customs/authorities is increasing gradually but the opening and executing of LCs was very poor.
So far, only 100 LCs have been opened world-wide, he said and held the ignorance to use the electronic mode responsible for the poor response to the facility.
He said the ICC was actively working on simplification of the UCP and, out of 45 articles, 19 have so far been reviewed.
The focus of ICC is on simplification of the UCPs in order to facilitate trade transactions, study and identify the problem areas through consultation of the users and stakeholders whose opinion has already been sought and finally looked into the issue of interpretation with special reference to the deferred payments.
He said that under the revised form, while discounting a document, the approval of the issuing bank would be required first, so that the chances of emergence of any forged document could be checked.
About trade transactions in western countries, he said the LC is the fourth to advance payment, open trade account and collection modes. Open trade account is popular with the multinationals as these have their own offices in importing and exporting countries.
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