ECONOMIC DEVELOPMENT NEEDS GOOD LC SPECIALISTS 

By Ravi Mehta

[For bios of the good LC specialists named here click "Who's Who in LC World - Online"]

The political aim of developing and transitional economies is economic development. Such economies develop an economic development strategy, in which international trade promotion for economic development acceleration is given importance as a vital tactic, because, as economists say, domestic trade development alone is not adequate for economic development. And for international trade such economies opt to use letter of credit (LC) as an international payment keeping in view their lack of sophisticated skills for risk management. LC is an  easy risk management tool. It has in-built ability and advantages to cover some political and commercial risks inherent in international trade.

LCs call for presentation of required documents prepared in accordance with its stipulations. Payment is subject to compliance with the LC. But surveys suggest that 50-70% documents are rejected at first presentation. The reason? Bad or erratic documentation by the exporter. The surveys pinpoint common obvious discrepancies and as a result checklists are designed to help traders prepare error-free documentation. The common trader generated discrepancies adversely affect international trade (payments) and thus contribute to slow down international trade and economic development.  But, what about the discrepancies that are open to dispute and litigation? A discrepancy may not be the result of erratic documentation but also of controversial document examination by the banker. The controversy may be the result of wrong or manipulative  interpretation of the UCP rule or LC stipulation. Or it may be the result of application of the rule of strict compliance in which a trivial immaterial error is taken, willfully or otherwise, as non-compliance, resulting in non-payment, which may be pre-determined because of internal exigencies .  There is now a controversy whether the UCP really asks for strict compliance or reasonable compliance . The reasonable compliance notion aims at overlooking the immaterial errors, like “mashine vs machine”. The recent ICC publication ISBP 645, which clarifies and facilitates application of UCP, indicates strict compliance is not the rule.   We know the percentage of rejections but we have no survey to suggest what percentage of rejections are disputed/litigated. The disputed discrepancies give rise to the need of ISBP. But ISBP alone is not adequate. There is also a need of good LC specialist, who has the expertise and knowledge to make dispute-free documentary compliance  examination.  For international trade development we need not only error-free LC and error-free document presentation but also dispute-free document examination. LC will not serve the purpose of international trade promotion if the discrepancies are disputable and payments are delayed for wrongful reasons because the so called  LC specialist lacks skill of knowledge management. Therefore, for economic development through international trade development we need good LC specialists, who have right attitude and have right knowledge for right application at right time. A good LC specialist is a trade facilitator. A bad LC banker  is a trade barrier.  Lucky is the trader who gets good LC and good LC specialist  Now the question arises: what’s a good LC specialist?

Donald Smith, the world famous US-based  good LC specialist says: “ some of the

basic characteristics of a good LC specialist include:

1. Common sense and a sense of “fair play” (both are lacking far too frequently these days)

2. Thorough knowledge of the rules (including ICC opinions, Docdex decisions, etc.

3. Thorough knowledge of the laws and regulations appropriate to their role in the transaction

4. The ability to apply their knowledge to a given transaction (some people have knowledge but can not apply it in practice

5. Knowledge of the “business of trade” and of the “world of trade”.

Donald Smith explains “business of trade” and “world of trade”. The “business of trade” knowledge, he says, represents a working knowledge of how trade is conducted, such as how transactions are concluded between buyers and sellers, the role of various parties in a trade transaction. It also might include why and how applicants might attempt to use an LC in inappropriate ways in order to have discrepancies that might permit them to renegotiate prices (as one example of bad practice in trade), how payments flow, the role of the central bank, export licenses, tariffs and duty in importing countries, etc – a general sense of how the business is conducted. "World of business" is understanding the environment in which trade is conducted - that is, the situations of trade regulations, trade treaties, trade facilitation.   

How to get “business of trade” and “world of trade” knowledge? Donald Smith tells: “I have encouraged people in the trade business to gain a broad perspective – for example, bankers should visit their clients’ manufacturing operations when possible and also visit ports and talk with forwarders and carriers’ representatives, insurance brokers and others, to gain an understanding of how their banking piece of the transaction fits in with the other pieces.”

In the opinion of  Soh Chee Seng, Technical Adviser to Association of Banks in Singapore, “ a good LC specialist must act within his/her expertise and professional capacity, other than being familiar with the ICC rules and International Standard Banking Practice. He/she must not be bias towards the person from he/she has received transactions or by whom he/she is employed.”

EXAMPLES OF GOOD LC SPECIALIST

From Developed Economies

In the developed economies the two good LC specialists , for example, are KIM CHRISTENSEN , Denmark, and NICOLE KELLER, Germany. He - Kim - is a good LC specialist. So is she - Nicole.  His views are convincing. His writings are impressive. His expertise, works and achievements are inspiring. So are hers. Kim and Nichole are new examples of good LC specialist. They belong to new generation of LC specialists.

DEVELOPED EUROPE'S NEW GENERATION OF  GOOD LC SPECIALISTS  

Two Examples - He and She

Kim Christensen TF specialist, Nordea, Denmark

Nicole Keller Trade Finance Product Manager Dresdner Bank, Germany

Europe's Old Generation of Good LC specialists

Two Examples - He and He

They are retired from banking world but not tired in in LC world where  they are still active source of inspiration for the new generation of LC specialists.

Kim Christensen is the next Reinhard Langerich.

Kim  works for Nordea in Denmark, as a trade finance specialist. Denmark has a world-famous LC specialist Reinhard Langerich who retired this year from Nordea. Kim (we use the first name being short to facilitate our discussion) is the next Reinhard Langerich.  

 About Kim, Reinhard Langerich writes in his e-mail message to Ravi Mehta:                                                           

 “ I have known Kim  for many years. As a matter of fact I employed him, when he looked for new potentialities for his job. He came from the “career and freight forwarder” area and changed to see it from the other side: Trade Finance in a bank. He started as an ordinary Trade Finance employee, but due to his basic knowledge in transport and not a least his strong ability to understand the difficulties in the Documentary Credit area he soon advanced to be one of our group leaders. Very soon I learned he was different. Most of our employees are very strict to follow the UCP and other rules to advise our customers and to serve the bank as such. So did Kim too, but he also started to look behind the rules. To understand why they were written that way, and whether they should be amended.  Such a person I was in quest of, as my bosses for long time asked me to find a successor for me when I had to retire.  Until then I was always disappointed of the “candidates.” But it was different with Kim. He very early gave me the trust that he would do, and he did.  It was an advantage that he besides understanding the rules, had a good knowledge on transport but also was so interested in IT, E-commerce and E-Trade Finance. So very soon he was the specialist in that area.

So when I retired early 2004 I must say it was a great pleasure for me that my bank – Nordea – followed my advice to make him my successor and I trust he even will be stronger, if ever possible”.        

 Lakshmanan Sankaran,  Head of Trade Finance Services Center,  Commercial Bank of Dubai, U.A.E. – he is a national of India and earlier  worked in India’s banking system - includes Kim in his list of the world’s 10 most influential LC specialists, saying:                                                

 “I think Kim is a great teacher and uses his thorough knowledge and understanding of documentary credits to come out with his own unique views on LC-related issues. His English is very good and simple. He is clear in conveying his thoughts”.

 Why is Kim a  good LC specialist in the opinion of Jia Hao, Financial Product Manager, Bank of China, China?  Because , says Jia Hao:

 “I came to know about Kim first from LC VIEWS, a US-based e-magazine. Since then the young expert has been placed in my mind. And later I found him in DC-Pro Discussion Forum where he has been an active member with his sharp ideas. In DC Insight he acts as an active contributor, and in LC VIEWS he has always been a productive commentator. His words are simple, logical and sharp. One thing I should emphasize is Kim’s experience in transportation field before his service in Nordea. It may be seen as his unique fortune as compared with we bankers, which makes him more professional and confident when facing controversial issues on transport in LC disputes. This advantage brings double weights to his position in the LC community. One word, I like him, admire him and feel pleasant to share ideas and exchange views with him”. 

Laxmanan Sankaran includes Nicole Keller, who works for Dresdner Bank in Frankfurt,  in his list of top ten specialists. Together with Pavel Anderle she has worked to develop LC expertise in the Eastern European transitional economies. 

FROM DEVELOPING AND TRANSITIONAL ECONOMIES - Asia, Eastern Europe, Middle East 

Developing Economies' Developed LC Specialists

Seven Examples of New Generation of Good LC Specialists 

Conclusion

One most effective solution for reducing document rejections, delays, disputes and litigations in LC-based trade is good LC specialist.  The good aim of the ICC publication ISBP 645 is rejection reduction. The ISBP will work good if it is in the hands of a good LC specialist who is good and sincere in its interpretation and application. We don’t need specialists who specialize in UCP manipulation, in discrepancy concoction, in willful document rejection.  They are trade barrier. They moderate trade and retard economic development.  We need good LC specialists as trade facilitators and economic development accelerators. We need Kim Christensens, Jia Haos.  We need good UCP, good LC and good LC specialist to do good to global trade and economic development.   The qualities of good LC specialist can be summed up in UCP:

U: UCP knowledge management skills acquisition

C: Comprehension of “business of trade” and “world of  trade”, as Donald Smith says

P: Performance of the right practices, including International Standard Banking Practice (ISBP).

When we say “comprehension of business of trade and world of trade” it means a good specialist goes beyond UCP and LC to understand other relevant things which could be helpful in improving his LC specialization and its application for  trade facilitation.