With the COVID-19 pandemic now behind us, several key themes have emerged that will challenge the trade finance industry in 2022.
From digitalisation to sustainability, SME participation, and closing the trade finance gap, overcoming these challenges will be a top priority for all market participants in the year ahead.
Against this backdrop, the International Chamber of Commerce (ICC) has taken a leading role in building industry standards, promoting regulatory clarity, and offering practical tools and resolution services for commercial contract disputes.
This list is by no means exhaustive, but here’s what the ICC currently has on its agenda, and what to look out for in 2022:
- Advancing the Digital Standards Initiative (DSI)
- Promoting sustainable trade and sustainable trade finance
- ICC recommendations for trade finance development
- Developing small business and entrepreneurship hubs
- Expanding ICC Dispute Resolution Services
1. Advancing the Digital Standards Initiative (DSI)
In May 2020, the ICC formed a joint initiative with the Asian Development Bank (ADB) and the government of Singapore, known as the Digital Standards Initiative (DSI).
The DSI aims to build and implement foundational standards and legal frameworks for trade-based technologies.
It has cross-industry membership, and thus engages with all relevant stakeholders in international trade to ensure coverage of all aspects of the supply chain.
In August 2021, the DSI Industry Advisory Board was set up with 30 industry leaders, including specialist international trade associations such as the Digital Container Shipping Association (DCSA), businesses such as Inditex (a Spanish multinational clothing company), and banks such as JP Morgan and HSBC.
The DSI publishes a range of resources for international trade stakeholders, who it groups into three key decision-makers:
For developers:
- The DSI publishes industry association digital standards for different technologies, such as digital identities, document creation, and validation.
- These frameworks can be used by businesses to develop or adopt digital trade technology.
For executives:
- The DSI encourages business leaders to contribute to the development and adoption of digital standards.
For policymakers:
- The DSI publishes a directory that promotes the United Nations’ (UN) Model Law On Electronic Transferable Records (MLETR), alongside guides to legal reform and case studies.
In December 2021, the ICC launched the Legal Reform Advisory Board (LRAB), which will sit on the DSI Governance Board.
The LRAB will help drive the adoption and harmonisation of digital trade laws across national jurisdictions, and will also support the DSI Industry Advisory Board to promote the adoption of digital standards in international supply chains.
As of today, the ICC also entered into a new partnership known as the Future International Trade (FIT) Alliance, which aims to drive use and acceptance of electronic bills of lading.
The FIT Alliance is built around a memorandum of understanding (MoU) signed by the DCSA, the ICC, SWIFT, the Baltic and International Maritime Council (BIMCO), and the International Federation of Freight Forwarders Associations (FIATA).
2. Promoting sustainable trade and sustainable trade finance
In November 2021, the ICC published a white paper in partnership with Boston Consulting Group, which outlines recommendations for building sustainable standards for trade and trade finance.
In the report, the authors suggest that when measuring the sustainability of a trade transaction, traders should separate each of the transaction’s components.
This is especially important in international trade, as there are multiple stages and stakeholders involved in each trade.
These granular data can then be used to offer a more representative view of the sustainability of a trade transaction, and make actions to improve sustainability in a more targeted way.
Proposed measurements:
- Seller/origin (where the goods came from)
- Buyer/destination (where the goods are heading)
- Transition/transportation (how the goods will get from supplier to buyer)
- End of use purpose (what the goods or services are for)
A sustainability grading system is then applied, based on whether each component in the transaction breaks, is neutral to, or contributes to the UN Sustainable Development Goals (SDGs).
As such, it is hoped that by building on the widely accepted SDGs, this will reduce the complexity of the sustainability framework.
To make sure that companies can initially participate in and will develop their sustainability capacity over time, the ICC proposes transition phases that will progress in detail and stringency:
- In the short term, trade transactions should be assessed on blanket minimum standards based on SDGs
- In the medium term, trade transactions should be assessed on both the minimum and on specific environmental standards
- In the long term, trade transactions should be assessed on detailed economic, social, and environmental (ESG) standards
The ICC has set up an open consultation, and will develop an updated and more detailed white paper on sustainability within the next year.
3. ICC recommendations for trade finance development
The record-high global trade finance gap of $1.7 trillion, revealed by the ADB in October 2021, has led to an industry-wide consensus on the need for action.
In November 2021, the ICC released a white paper with McKinsey & Company on recommendations to improve access to trade finance for SMEs.
In the report, the authors suggest that the trade finance industry should nurture shared utilities, much like our shared water or electric grids.
These utilities could include know your customer (KYC) systems, application programming interface (API) gateways, company identifiers, and credit assessment facilities.
Moreover, the report emphasises that the trade finance industry should standardise data collection and sharing, since these common standards could then enable an interoperability layer.
One example of this would be interoperable KYC, anti-money laundering (AML), and credit risk analysis data sharing, which could reduce onboarding costs and could offer more accurate risk mapping.
This would be beneficial for SMEs because a reduction in onboarding costs would mean that financiers can tap into economies of scale, i.e. by onboarding a higher number of SMEs to make up for their lower individual transaction value.
Building a portfolio of businesses with traceable risks also makes insurance on trade finance products easier, enabling the expansion of trade finance as an investable asset class.
In essence, an interoperable layer of shared utilities would allow the trade finance ecosystem to allocate liquidity more safely and more cost-effectively. This isn’t too dissimilar to developments in open banking and open finance.
Moving forward, the ICC wants to publish guiding principles on digitisation in trade finance, and develop an ecosystem in which participants engage in the development of regulatory discourse and troubleshooting.
4. Developing small business and entrepreneurship hubs
The ICC has a small business hub that includes the Centre for Entrepreneurship, ICC Trade Now, and SME360x.
The ICC Centre for Entrepreneurship, launched in 2020, focuses on supporting SMEs and start-ups in emerging markets.
It also develops partnerships with local institutions to provide resources to develop entrepreneurial skills, help digitise SMEs, and scale start-ups.
Moreover, the ICC has recently expanded the centre’s coverage.
In partnership with the UN Economic Commission, Africa hubs were established in September 2021, and hubs in Jakarta and Buenos Aires were established in October 2021.
The centre also has a number of other regional hubs that distribute services on a local basis, as outlined below.
Regional hubs:
- Istanbul hub: Central Asia and the Caucasus
- Beirut hub: Middle East and North Africa
- Jakarta hub: Asia-Pacific
- African hubs in Ghana, Kenya, Morocco
- Buenos Aires hub: South America
In May 2021, the ICC launched ICC TradeNow, a hub for digital trade finance solutions tailored to SMEs.
This includes ICC TRADECOMM: a Finastra and ICC partnership that offers a trade finance platform where accredited SMEs can upload invoices which investors can then choose to finance.
In July 2021, the ICC announced a pilot run in Ecuador, with other markets to be announced and the progression of the pilot to be reviewed this year.
ICC Discover SME360X was launched in September 2021, as a digital platform to measure the impact of business operations on the environment.
The project can help measure and manage environmental impacts, and the scores can help compare business performance between regions, sectors, and competitors.
Businesses can also obtain a Global Sustainability Certificate from the ICC.
As SMEs participate, you can expect the ICC to monitor these programmes and update them with added material going forward.
5. Expanding ICC Dispute Resolution Services
At the end of 2021, ICC Dispute Resolution released its Year in Review, with several notable successes.
The agency saw record case filings for arbitration and amicable dispute resolution (ADR) services, and also saw the election of the first female president of the ICC Court of Arbitration.
Consequently, this led to there being more women than men on an ICC court for the first time.
The agency has also implemented a Disability and Inclusion Taskforce, for the inclusion and safeguarding of the disabled and LQBTQI communities.
Moreover, the ICC intends to expand the availability and understanding of the agency’s dispute resolutions.
Working with ICC Africa Action Network and the ICC Africa Commission, a new regional director for Africa has been appointed, with a mandate to build capacity and enhance access to ICC dispute resolution.
The agency has also appointed three regional directors for business development in North Asia, South Asia, and Middle East, with a mandate to publicise ICC arbitration services.
Despite turbulent political times, ICC Dispute Resolution is expanding its global legitimacy.
In May 2021, the Russian Ministry of Justice granted the ICC the status of a Permanent Arbitration Institution, which means that parties can seek enforcement of ICC arbitration awards in Russia.
Additionally, in October 2021, the ICC became the first arbitration institution licensed by the US Office of Foreign Assets Control (OFAC) to allow for arbitration proceedings with Iran.
To conclude, over the next 12 months, the ICC will be looking to further strengthen itself as a global leader in commercial contract dispute resolution.