As told to Ravi Mehta by Marek Dubovec

Marek: After the change of the political regimes and the separation from the Czech Republic, Slovakia aspired to establish itself on international markets. In order to attract foreign investment, increase the economic development and fulfill conditions for the membership in international economic and political institutions, it had to go through a transition process, an integral part of which was to phase out various trade restrictions.

With respect to the use of LCs, former Czechoslovakian law regulating transactions in international trade provided rules on letters of credit. However, economy was strictly regulated by central plans, which did not allow local merchants to utilize credit instruments (such as LCs and negotiable instruments) in cross-border transactions. The rules on LCs were subsequently incorporated into the current Commercial Code, according to which local banks may issue domestic LCs and bank guarantees. To facilitate international trade, all Slovakian banks offer a wide range of financing products. LCs and bank guarantees, along with the discount of drafts play an important role in export-finance. The political and commercial risk in the cross-border transactions financed by LCs is further reduced by export-insurance products.

Ravi: Export trade plays vital role in the economic development of developing and transitional economies. How Slovakia acquired expertise in export trade management, export-related risk management, and LC management? Are exporting businesses small, medium or large, family owned businesses or corporate?

Marek: Export trade expertise became a new phenomenon after the communist regime, based on planned economy and trade restrictions collapsed. The lack of expertise was filled by foreign companies and banks that invested or privatized local businesses. In this way, local merchants were given an opportunity to learn the law & practice of exporting and eventually transformed themselves from suppliers of investors to actual exporters with direct links to foreign customers. The banking expertise has developed in a similar way as the majority of Slovakian banks have been bought up by foreign banks, which brought the necessary banking expertise.

Our export, for the lack of better term, may be described as “car driven” by large manufacturers. Slovakia may be one of the most attractive places for manufacturers of cars. Recently, huge investment projects have been signed with Peugeot and Kia. Their exporting capabilities will add to the already existing high volume of exports represented by other companies, such as Volkswagen.

Ravi: Apart from expertise, export business requires finance. What arrangements Slovakia has for financing export?

Marek: In 1997, the Eximbank was established with the purpose to support Slovakian exports to the countries of OECD and EU. The bank offers a variety of products designed for domestic merchants regardless of their exporting capacity. For instance, a program of discounting bills of exchange has been designed for small exporters. Obligations of medium sized exporters may be backed up by bank guarantees and other guarantee-type products (e.g. bid bond, counter-guarantee, confirmation of guarantees, etc.) agreed upon in the underlying mandate contract between the bank and its customer. The Eximbank also provides financing in the form of re-financing loans to local commercial banks that advance funds to domestic exporters. The financing is provided on the basis of tri-lateral contracts signed among the Eximbank, exporter and his commercial bank. The Eximbank further offers insurance of irrevocable LCs confirmed by local banks against the risk of non-payment from the issuing bank posed by political and commercial risks or vis maior. This export-promoting measure is available only to those LC banks, which finance products of Slovakian origin. In the line of supporting exports, Slovakian banks offer special financing products to domestic exporters provided that at least 50% of components have been manufactured in Slovakia.

Ravi: Export success requires friendly federal policies, regulations and procedures. Is Slovakia's regulatory environment exporter-friendly?

Marek: The answer to this question is twofold. Proper export-friendly rules must be adopted both on the private as well as on the public level. In regard to the former, I believe that the starting point in the promotion of export should be rooted in the principles of modern secured transactions regimes. Secured transactions laws, based on the notion of non-possessory security interest backed-up with public registries of interests, provide lenders with incentives to advance more funds on collateralized basis. In this aspect, Slovakia took a crucial step when it incorporated the EBRD Model Law on Secured Transactions into the provisions of its Civil Code, followed by the establishment of the Notarial Registry of security interests.

With respect to the public policies, Slovakia is a member of the WTO, EU, and OECD. One of the purposes of these institutions has always been the support of free trade and dismantling of trade barriers. Before our accession to these organizations, Slovakia had to harmonize its trade-related laws and regulations. As a result of that, Slovakia offers export-friendly environment on both levels.

Ravi: International trade is open to disputes. What arrangements Slovakia has for resolving trade (payment) related international disputes?

Marek: I have been monitoring Slovakian case law related to payment issues involving foreign elements for some time. Interestingly, my search did not turn up any LC or bank guarantee cases. In my opinion, the majority of the disputes involving “foreign elements” is handled in out-of-court proceedings, such as arbitration. Slovakia has recently adopted a new law on the arbitration proceedings to facilitate and speed up the process of resolving disputes. The law is equally applicable to domestic and international issues of commercial and civil nature. It is also very likely that payment disputes do not even reach the arbitration court and are resolved through negotiations. Slovakia and its dispute-handling systems are very young, which sometimes makes foreign traders uneasy about its efficiency and as a consequence of that they rather resolve their disputes in a “friendly” way.
 

Ravi: Has Slovakia mechanized its international trade and trade-related banking and financing practices like Western Europe?

Marek: Most of the government-owned Slovakian banks, after undergoing necessary revitalization, have been privatized by major foreign banks. The foreign banks implemented their expertise and established practice in the Slovakian banking sector, which resulted in the simplification and modernization of banking procedures, wider access to export-credit and the introduction of modern types of export-financing. Slovakian exporters also benefit from the membership in the European Union, the resulting free flow of goods, services, capital, etc., and the relatively free access to modern markets, which exposes local exporters to new practices and technology.