UPDATES FROM THE S&W TRADE FINANCE BREAKFAST SEMINARS by Geoffrey Wynne, Sullivan & Worcester

Following Sullivan & Worcester’s Breakfast Seminar in London last December, Geoff Wynne has highlighted below a few matters that are worth bringing to everyone’s attention. We trust that these short summaries will be helpful to you when considering whether you need to take any further action or not in the normal course of your business. A copy of the full deck and replay of the seminar can both be found on the S&W website.

FACTA - Where do we stand and what to do

The Foreign Account Tax Compliance Act (FATCA) is a complex piece of US legislation, enacted in March 2010, the primary objective of which is to identify non-compliance by US taxpayers using offshore accounts. The remit of FATCA is far-reaching, and includes a requirement for foreign financial institutions (FFIs) (a broadly defined term which includes traditional banks as well as a broad array of non-bank financial institutions, including hedge funds) to annually disclose information about accounts held by US individuals or foreign companies in which US individuals hold a substantial ownership interest.

Although FATCA is technically a voluntary reporting regime, FFIs that refuse to comply by entering into an agreement with the Internal Revenue Service (IRS) to provide information will face a stringent penalty in the form of a withholding of 30% off all their US-source payments income (such as interest and dividends). Foreign banks are thus essentially forced to cooperate at the risk of losing access to US capital markets.  FATCA provisions are now in effect.

FATCA compliance poses several practical and legal issues. FFIs of various jurisdictions may face a conflict of laws and obligations – the disclosure requirements imposed by FATCA versus local data protection, confidentiality and bank secrecy laws. In order to alleviate this conflict, countries enter into bilateral agreements with the IRS in order to elevate FATCA compliance onto a national level. 

One of the legal effects of FATCA is that many lenders are including FATCA-specific wording in contracts to the effect that they are entitled to withhold tax as and when required by FATCA without the need for gross-up payments, even when such wording does not have contextual applicability. Any lender which is not FATCA compliant by the applicable time limit therefore risks receiving interest and principal net of FATCA withholding.

On a practical level, there are various drafting options for lenders which make FATCA a risk for the borrower, either: by (1) relevant obligors representing that they are outside the scope of FATCA; and/or (2) an actual gross-up and indemnity. Such options are particularly useful if the lenders in question are not certain that they will be FATCA compliant.

Sample drafting to give effect to the first option includes a representation from the obligor that ''it is not a FATCA FFI or a US Tax Obligor'' and a procurement from the [Company] that ''no Obligor will become a FATCA FFI or US Tax Obligor''. Additionally, a lender should consider including wording to the effect that ''…the [Company] shall procure that any Obligor which is a FATCA FFI or a US Tax Obligor shall resign as Borrower or Guarantor (as the case may be)…''.

Sample gross-up wording, whether made by an obligor or lender should refer to the fact that: ''the amount of payment due from the Obligor shall be increased to an amount which (after making any FATCA Deduction) leaves an amount equal to the payment which would have been due if no FATCA Deduction had been required''. The above wording examples are not necessarily enough when protecting a lender from the risk of FATCA non-compliance; they are merely intended as samples.

Article 55 BRRD – Where are we?

Article 55 of the Bank Recovery and Resolution Directive (the BRRD) imposes an obligation on institutions subject to it to include an ‘Article 55 clause’ (described below) in agreements entered into on or after 1 January 2016 and governed by the laws of non-EU countries (Third Country Agreements).

The Article 55 clause in such a case must include: (i) a recognition by the institution’s counterparty that amounts owed by the institution subject to BRRD may be written down or converted into equity as part of a bail-in; and (ii) an agreement by the counterparty to be bound by any such reduction or conversion.

The BRRD’s remit is broad and applies to EU credit institutions (banks and building societies, for example) and certain EU investment firms authorised under the Markets in Financial Instruments Directive (MiFID), the ‘Affected EU Institutions’.

The purpose of the above requirement is to address the question of the enforceability of bail-in powers by a resolution authority against counterparties in Third Party Agreements. Within the EEA, the effectiveness of statutory bail-in powers is ensured by the mutual recognition requirements under the BRRD. Beyond the borders of the EEA where mutual recognition does not apply, the BRRD purports to fill the gap by offering a contractual solution whereby the counterparty is held to the agreed contractual terms, thus preventing potential court challenges in the relevant non-EEA jurisdiction, the resolutions of which would involve examining the relevant governing law and applicable conflicts of law principles.

The nature of some transactions and documentations make compliance with bail-in requirements impractical - short-term trade finance and letters of credit being examples of this. Many take the view that an ‘impractical’ solution (whereby bail-in rules can be applied by resolution authorities in a proportionate manner, including, in some cases by granting a waiver all together) can be applied to all “standard” rules, including those promulgated by the ICC, for example in relation to letters of credit and demand guarantees.

More amendments are underway to the broadly drafted bail-in requirements; where this will leave the Affected EU Institutions will be a topic to follow. One point under consideration is the potential limitation of the BRRD to arrangements which affect bank capital and not its funding or general banking arrangements.

Dodd-Frank Act:

The Dodd-Frank Act (the Act), enacted in July 2010, drastically reformed financial regulation in the US in a bid to avoid another financial crisis, such as the one witnessed in 2008.  Currently, only around 70% of the 398 required rules are in place. 

Two areas of the Act have caused some concern for financial institutions within trade finance and in relation to participation agreements (MRPAs). The first relates to Title VII of the Act, and the second relates to the so-called ‘Volcker Rule’. In essence, both relate to involvement in derivatives and what it would mean if an MRPA were treated as a derivative. 

The Volcker Rule seeks to prohibit banks from the proprietary trading of their own accounts as well as from sponsoring or owning private equity or hedge funds, save for limited circumstances.  The general view is that including MRPAs between financial institutions cannot have been intended as these are regulated by banking authorities.

After much debate, the market has taken comfort in the fact that MRPAs are not derivatives and are therefore outside these provisions, save perhaps for the question of whether a risk participation in a funded transaction is still caught.  A clear statement from the regulator has been sought but not obtained.  Some law firms, including Sullivan & Worcester, have argued that there should be no problem, and that the “identified banking products” exemption should apply in this case as well as in others.  It is for participants to consider whether they can proceed on this basis. To date, there has been no challenge by the regulator to this view.

In line with his stance on the need to dispose of the Act, US President, Donald Trump, has recently signed an executive order which is to scale back the Act in a bid to dismantle much of the regulation that was implemented after the financial crisis of 2008.  The practicalities of scaling back the Act will no doubt involve a long and arduous process, but the question remains as to what regulation, if any, Donald Trump proposes to use in order to fill the US regulatory void.

Disclaimer: This information does not constitute legal advice and is for education purposes only.  You should not rely on this opinion as an alternative to seeking legal advice.

EU REFERENDUM AND BRITISH TRADE contributed by Lloyds Bank

Since June, the outcome of the EU Referendum has dominated headlines – and the thoughts of financial services professionals and business leaders worldwide. Although the historic vote to leave the EU may have presented some organisations with challenges, Lloyds Bank believes there are opportunities for businesses and financial institutions to work in partnership to ensure the future of British trade across the globe.

In the wake of the EU Referendum result, one thing has remained a constant for the British economy: uncertainty. At a time when economic recovery was starting to show promise, Britain voted to leave the European Union, its largest trading partner, and now faces negotiating a withdrawal.

Aside from the initial impacts on exchange rates, stock markets, and interest rates, one of the most significant challenges facing both financial institutions and their corporate clients is that the view of the future remains opaque. Although Article 50 will be triggered by the end of March 2017 it is unclear yet what the UK’s exit strategy will look like. Only as negotiations start to unfold will this picture become clear.

Additional challenges

Compounding the uncertainty, some, including the Financial Policy Committee, see the present high level of the UK’s current account deficit as a potential source of risk (Figure 1 below). Perhaps reflecting this and the level of uncertainty, the Pound is at a 30-year low against the US dollar. To help mitigate some of the risks in the economic outlook, the Monetary Policy Committee has reduced interest rates to an all-time low of 0.25%. This did not stop supermarket giant Tesco and the UK's largest food manufacturer, Unilever, becoming embroiled in a battle over wholesale prices. The latter sought to raise its prices by about ten percent to offset the higher cost of imported commodities. Tesco offered a very public resistance to this move by its supplier.

Although this particular confrontation was resolved, the overall picture might appear somewhat challenging still. But there is often opportunity to be found too. With a fall in the Pound, British goods and services are becoming less expensive – and therefore more attractive – to companies and consumers around the world.

This is an excellent opportunity for UK businesses to export – either for the first time, or expand into new markets as part of an existing overseas strategy. There is also an opportunity for UK businesses to benefit from increased tourist spending. Burberry has seen like-for-like sales climb by more than 30 percent in the three months to 30^th September after the falling pound saw overseas shoppers increase their purchasing at a better price. At Lloyds Bank, our vision is to help Britain to prosper, globally. As a major UK financial institution, we are committed to facilitating British trade both now and in the future.

Supporting British business

One of the key ways that UK businesses can achieve overseas success is to leverage the banking system and the way in which financial institutions, including Lloyds Bank, have developed strategic partnerships. Such partnerships not only include bodies such as Britain’s new Department for International Trade, but also a network of trusted partner banks across the globe.

By establishing these new partnerships and reinforcing existing working arrangements with banks worldwide, British financial institutions are able to support business clients as they export into new territories. To be truly supportive of business though, such collaboration needs to function across a number of areas including service excellence, credit appetite, documentation negotiation, funding support, and foreign exchange (FX). And, inevitably, companies looking to expand their export or supplier base may come up against challenges at each step of the value chain, and will require support to overcome them. This should be forthcoming as numerous new partnership opportunities for UK and overseas financial institutions are brokered.

Take a typical manufacturing value chain (Figure 2), for instance. At each of the five steps, UK banks and overseas partner banks will be able to work together to help British exporters settle payments, take advantage of currency movements, reduce risk, and maximise working capital in a post-Referendum world, while maximising business opportunities. Let’s take a closer look at each of those five steps.

1. Tendering/negotiating contracts: With the Pound’s value having fallen against a number of currencies, European buyers further afield are likely to be hungry for high-quality cheaper British exports.

This is where financial institution partnerships that cover a range of different geographies will become even more important for the future of British exports. For example, while traditional trade instruments, such as tender guarantees and performance guarantees could help corporates boost their attractiveness to existing and prospective overseas buyers (and are therefore likely to be in growing demand), UK banks will require the support of local partner banks to issue these guarantees in-country.

Additionally, supporting the beneficiary’s needs across the globe will necessitate the expertise and coverage of a network of partner banks. This creates a win-win situation for partner banks and their business clients as working with UK financial institutions will resolve client trading issues and lead to new business opportunities for those banks.

2. Sourcing of inputs: Due to their often globalised supply chains, British companies ramping up their export activities are likely to see an increased requirement to bring goods and inputs of production into the UK. To manage supplier performance risk, especially as these companies look further afield for new inputs, banks will need to make available products such as Import Letters of Credit (LCs), Guarantees and Standby LCs. In order to be delivered globally, such instruments require strong collaboration between partner banks.

In order that trade relationships are maintained, optimal working capital for both buyer and seller is essential. Partner banks also play a key role in ensuring this is possible. Larger UK corporate buyers may look to use solutions such as Supplier Finance or Bills of Exchange to help bolster their suppliers’ working capital and underpin sourcing. This may require the help of their UK bank to onboard suppliers globally, as well as to make payments into new geographies, and mitigate risk – all of which will require access to a worldwide ecosystem of local partner banks.

3. Manufacturing: Productivity is a crucial consideration for British companies looking to remain competitive in the wake of the EU Referendum. As new technologies such as 3D printing and additive manufacturing become more accessible, there will be a number of companies considering reshoring their manufacturing activities, especially as the cost of off-shoring goes up. Implementing a reshoring strategy will of course require significant capital expenditure, which may also include importing equipment from overseas. However, with interest rates at an all-time low, it’s a great time for British companies to be investing.

As well as driving a flow of Import LCs out of the UK, this increased capital expenditure will bolster the requirement for overseas suppliers to access working capital by discounting receivables and Bills of Exchange from UK corporate buyers, via their own local banks. To assist, UK banks, such as Lloyds Bank, should exhibit the necessary appetite to support these local banks, either by participating in the UK corporate buyer’s risk or providing Bill Avalisations. Additionally, for companies looking to manage their working capital when making significant equipment and machinery purchases, there may be a need for bank syndicates to form in order to support asset-backed lending.

4. Shipment/sales: Understandably, clients considering opportunities with new buyers or in new markets will be looking for support to assess and mitigate risks. As a result, it is likely that more Import LCs will be requested by UK exporters to manage buyers and/or sovereign risk. This will increase the UK banking sector’s need to secure traditional trade business partnerships with overseas banks.

5. Servicing/after sales: This final part of the value chain can be an important differentiator for overseas companies looking for new UK suppliers. By facilitating the delivery of excellent after sales support, through the provision of a warranty or guarantee issued by a local partner bank, for instance, financial institutions can work together to help give British exporters a competitive edge in overseas negotiations.

A bright future for business

Following the Referendum and as Britain starts to negotiate its withdrawal from the EU, the corporate community should continue to look for opportunities to prosper globally. The facilitation of safe and efficient trade by financial institutions can help generate new business opportunities both at home and overseas across traditional trade, open account and FX. We at Lloyds Bank are looking forward to playing our part in helping our clients grow and thrive in this new paradigm.

This article is provided for information purposes only and is not to be construed as regulatory, investment, legal, tax or accounting advice nor should it be treated as an offer or solicitation to offer, to buy or sell any product or enter into any transaction. The information and any opinions in this article are subject to change at any time and Lloyds Bank is under no obligation to inform any person of any such change. This article may refer to future events which may or may not be within the control of Lloyds Bank, and no representation or warranty, express or implied, is made as to whether or not such an event will occur. If you receive information from us which is inconsistent with other information which you have received from us, you should refer this to your Lloyds Bank representative for clarification.

NEW ITFA MEMBERS

ITFA is pleased to announce that this month two new institutions have joined as members of ITFA.

Intermarket Bank AG is a registered Bank under Austrian Banking Regulation - mainly focusing on Receivables Finance (Factoring, Forfaiting, Reverse Factoring etc) and operating in Austria. Furthermore, Intermarket - as a subsidiary majority owned by Erste Group - is responsible for all Supply Chain Finance related products and strategy within the Erste Group geography.

Erste Group is a leading universal banking group in Austria and CEE - registered in Austria and present with major Banks in Czech Republic, Slovakia, Hungary, Croatia, Serbia and Romania.

Sebastian Erich will be the main delegate for all ITFA related matters.

Established in 1984 and based in London (UK), Jordan International Bank (JIB) operates today with four principal areas of business: Personal Banking, Structured Property Finance, Trade Finance and Treasury Services.

The Bank endeavours to offer the full range of services required by their highly valued clients. Stemming from the overriding philosophy to unlock the doors of opportunity for clients, JIB’s Trade Finance team offers traditional trade finance products, such as letters of credit, letters of guarantee, bonds or standby LC’s, as well as documentary collections, to facilitate international trade for importers and exporters. They are also involved in forfaiting, risk participation, and other traditional trade finance solutions.

With their extensive experience in the MENA region, they strive to consistently facilitate success for their clients and partners. Their highly experienced team of industry professionals in London is supported by its shareholders regional network of Banks in Jordan, Qatar, UAE, and Algeria.

Mohammad Fariz will be the main delegate for all ITFA related matters.

ITFA CONDUCTS A WORKSHOP AT THE GTR MENA TRADE FINANCE WEEK by ITFA Board Executives

The GTR Mena Trade Finance Week is well known within the Trade Finance community as one of the most successful events in the region. This is the reason why the ITFA board was keen to support the event through an ITFA led workshop. Our own Zeyno DeVries-Davutoglu, Board Member and Chair of the ITFA educational committee led the Stream B workshop. Opening the workshop, Zeyno highlighted the benefits of being an ITFA member and the value the association adds to companies, financial institutions and intermediaries.

The workshops were structured around presentations with the speakers facilitating discussions to allow all participants within the individual groups to enter into practical discussions. ITFA would like to thank the facilitators within their workshop who played a key role in making this happen.

Gary Slawther, Director, Corporate Advisory Resources explained the way such receivables are discounted placing emphasis on the Standard Definitions for Techniques of Supply Chain Finance, non-recourse financing of receivables discounting, forfaiting, factoring and payables finance. This workshop was moderated by Lorna Pillow who highlighted the popularity of the technique to effectively manage cash flows and risk mitigation. Falling margins, surplus liquidity, fewer assets that meet the Banks’ narrowing framework were amongst the topics discussed. Anirudha Panse, Executive Director at NBAD, provided insight on the popularity of receivables financing in the Mena region and what makes the region so resilient even in the midst of mounting political and economic turmoil including the low oil price environment. The recent discussions with Moody’s on Abengoa’s treatment of debt sparked interest amongst the banks who continued to discuss this well after the workshop closed. ITFA will be producing a paper on this theme.

Anurag Chaudhary’s presentation on Supply Chain Finance, also called Payables Financing or Reverse Factoring, focused on real life examples extracted from Citibank’s Supplier Finance programme and the popularity as well as success of the programme with leading buyers and suppliers. Anurag focussed on the legal documentation in originating such bi-lateral programmes leading to a global standard documentation. A case study on Rolls Royce in extending support to their suppliers was very well received by the audience. This gave the audience some insights on how to structure solutions for their clients and was the stepping stone for various methodologies for risk mitigation and asset sales. 

Harish Parmeswaran, Group Chief Operating Officer, Tawreeq holdings, delivered a presentation on the buyer led programmes.

For the third work stream on Risk Mitigation and Insurance, Silja Calac explained the current regulatory challenges faced by banks under Basel III. ITFA recently published Guidelines for its members concerning the use of non-payment insurance as an eligible unfunded credit protection for credit risk mitigation. This followed another initiative that ITFA took in producing a legal opinion to satisfy all ITFA members requirement in ensuring that the BAFT MPA is legally effective, enforceable and meets the criteria of the regulatory requirements within the EU. Silja mentioned to all those present the work that is currently being done jointly with BAFT in updating the current MPA agreement and which will be also available to ITFA members. Risk Mitigation and distribution of assets led to an active discussion on the BAFT MPA agreement and Credit Risk Insurance,  which was moderated by Paolo Carrozza, Commercial Director, Euler Hermes Middle East. ITFA would like to thank Paolo Carrozza for his contribution. This session consisted of a briefing on the growth in the insurance market and its key benefits in acting as an alternative distribution channel.

ITFA would like to convey their gratitude to GTR as their Global Media partner in closing another successful event. Those present from the ITFA board held a meeting with the MENA regional committee and active ITFA members to provide insights as to the enhanced role that ITFA would like to have in the region. Throughout the conference, the feedback to ITFA board members was very positive and the MENA Regional Committee is planning an event in Dubai for April 2017. More details to be provided shortly.

MARCH 2017 - TRADE OUTLOOK by Dr. Rebecca Harding, Equant Analytics

The stage looks set for the UK to trigger Article 50 as planned by the end of March 2017. This will start the process of negotiating the UK’s way out of the European Union, a process which will be at best difficult. As no-one at this stage knows precisely what the trade arrangements will be after Brexit, and as these arrangements won’t come into place for at least eighteen months, it is a good idea to take a snapshot of where we are now in trade terms and, indeed, to look at what the future looks like if nothing changes. At the very least, this provides a reference point for that point in the future when we are, well, where we will be.

Figure 1: Projected annualized average growth of UK trade with global regions, 2016-2020

Source:  Equant Analytics 2017

At first glance the chart shows that although UK exports to the EU 27 and the EU currency area are projected to fall, export growth to the Asia Pacific region (APTA) may be as high as 7.4% annually to 2020. This is a pattern that has been gaining some momentum for the past few years, particularly since the investment of BMW in the UK, which has boosted car exports to China for example. Export trade to the Middle East and North Africa is also projected to grow and much of this is in aerospace and engineering-related supply chains. Trade with North America seems set on a downward path – clearly Theresa May’s recent visit to the US has yet to show through in the projections!

CHAIRMAN'S MESSAGE - Sean Edwards, ITFA Chairman / Head of Legal at SMBC

Dear Members and Friends,

Welcome to 2017!

The global economy ended 2016 on a strong note, and started this year in the same vein. Economic data such as PMIs and leading economic indicators from the world’s major economies continue to indicate strong and robust growth, at least in the short to medium term. This positive string of economic data releases can well be explained by a concoction of looser economic policy and expectations of an improving global economic scenario. This mix of policies in the leading emerging and developed economies is propelling an increase in consumer’s propensity to consume and policies are expected to remain growth-friendly over the next couple of years.

However, some emerging markets will be left with no choice but to tighten their current accommodative stance and adjust their imbalances. 2017 is expected to be a year where political risk takes centre stage and the economic policies of certain countries face a great deal of risks which could impact the trajectory of inflation, both domestically and worldwide. The US economy and US dollar are pivotal for emerging market economies as the Trump administration and its new policies begin to infiltrate into the world economy. President Trump’s swift decision to cancel the US‘s involvement in the TPP was not surprising given his previous rhetoric but does the current void signal the start of protectionism or something more benign? Global trade may well shrug off these developments unless the apparent movement to protectionism become more generalised.   

In this edition of the 2017 ITFA Newsletter you will find an ITFA release titled ''Payables Finance: a Threat Averted’’. One also finds an interesting article contributed by GTR - ''Trump’s ‘Aggressive’ First Days in Office Worry Trade Experts’’. Our regular feature - Chart of the Month, contributed by Dr. Rebecca Harding of Equant Analytics provides an interesting read titled ''Trade’s Tectonic Plates’’.

As we informed you all in the past couple of days, ITFA is pleased to announce that the 44th Annual International Trade and Forfaiting Conference will be held in Edinburgh, Scotland between the 6th and 8th of September 2017. This year we will be greeting you at the Caledonian Hotel, an iconic five-star venue in the heart of historic Edinburgh. A networking afternoon with dedicated rooms and a reservation portal to book meetings with all conference delegates will take place on the second day of the conference. At this point we just ask you to Save the Date and to keep following our regular updates.

We look forward to hearing from you with any feedback you may want to share with us by sending an email to myself, any of the Board Members or to our general email, info@itfa.org.  

Best wishes,

Sean Edwards

PAYABLES FINANCE - A THREAT AVERTED by representatives of the ITFA Board

Those active in payables finance (often called reverse factoring or just simply supply chain finance but we prefer to the term payables finance as defined in the "Standard Definitions for Techniques of Supply Chain Finance" published last year by the ICC and ITFA amongst others) will have been concerned by the paper published by Moody's relating to the use of payables finance by Abengoa, a Spanish solar energy company that is currently going through a local insolvency protection  process.

The Moody's paper expressed their belief that Abengoa’s payables finance arrangements had “debt-like” features which could lead to reclassifying what had been trade debt for Abengoa, as the obligor of the receivables, into bank debt following the commencement of the programme. This would, of course defeat the purpose of these kinds of arrangements for many corporate users. The Abengoa programme had specific and unusual characteristics but it was unclear to what extent Moody's views would become generalised and apply to payables financing in general. Clarity was urgently needed especially given that Moody's had announced a review of its methodology for making adjustments to financial statements when rating companies.

Representatives of ITFA held a meeting in early December with Moody's to express this industry concern and to argue that the use of payables finance was a legitimate and acceptable form of finance which should not automatically result in trade debt being re-categorised as bank or financial debt.

Moody's have accepted our concerns and in their reviewed methodology have stated that use of such programmes must be examined case by case using careful analysis and judgement and will not result in an automatic reclassification of programme receivables. The methodology does not state what criteria will be used in this analysis and ITFA will therefore be publishing a paper on this subject in the near future with guidance on the issue utilising the insights gained during the meeting.

TRUMP'S ''AGGRESSIVE'' FIRST DAYS IN OFFICE WORRY TRADE EXPERTS by Melodie Michele, GTR

This article has been issued by GTR - click here to view the GTR website.

In his first five days in office, President Donald Trump has followed through on many controversial campaign promises, prompting concerns in the trade world.

The reassuring stance adopted by most analysts after the election is starting to waver. ''We thought that this was all electioneering. We felt that there was going to be a bit of protectionism – he would have to follow through on some of the pledges – but we weren’t really sure he was going to do an awful lot. Our anxiety began to rise as we saw the various people he was appointing to the trade posts. He is starting to look a lot tougher on trade than we thought he would be in practice,'' says Rob Carnell, chief international economist at ING.

The US’ withdrawal from the Trans-Pacific Partnership (TPP), implemented through an executive order on Trump’s first day as president, will have limited economic consequences, as the agreement hadn’t yet been ratified. It may give room for China to expand its commercial influence in the region, but this doesn’t seem to concern Trump.

On the other hand, the announced renegotiation of the North American Free Trade Agreement (NAFTA) could have much larger implications.

“The question is on how far he goes and what he’s prepared to accept. But it does look pretty aggressive,” adds Carnell.

Trump is in a good position to have his demands met, as Canada and, to a much larger extent, Mexico are far more dependent on the US than vice-versa – 20 times more for Mexico, according to ING.

''Whether or not US manufacturing jobs keep declining as a proportion of the total is perhaps neither here nor there: that falls into the category of economic facts and it sounds like he doesn’t really care about those. What he cares about is soundbites and perceptions and if he seems to be delivering he will be voted in again and I think that’s what he’s after.

I think all sides would be prepared to concede a little bit and admit that the US has gained far less than them from the agreement,'' Carnell tells GTR.

At the Peterson Institute on International Economics (PIIE), Gary Hufbauer believes Trump will most likely focus on the agreement’s rule of origin clause in the auto sector, asking to lift it from its current 65%. ''That will make it inconvenient for some companies such as Toyota, but other companies might like it. Mexicans might go along with that, probably not willingly,'' he says.

In exchange, Hufbauer believes Mexico could ask for infrastructure improvements to ease congestion along the border – but Trump’s expected executive order today (25 January) to start using funds to build ''the wall'', his signature campaign promise, is likely to do more harm than good when it comes to Mexico-US traffic.

Dismantling NAFTA still looks unlikely, less because it would harm all economies involved than because Canada and Mexico appear willing to agree to some US demands.

''The threat to rip up NAFTA would not be a logical step economically – everybody would suffer from that, but we’ve had countries prepared to do things for political rather than economic reasons, and it’s a real threat that we need to take seriously,'' Carnell adds.

However, Hufbauer thinks the agreement’s name could be changed to satisfy voters. ''I want to emphasise the symbolism point. I think NAFTA’s name will be changed. For many of his supporters that will be quite a triumph. And [Trump may] replace the substance of NAFTA with bilateral agreements, one with Canada and one with Mexico,'' he says.

It is worth noting that Canada already has a pre-NAFTA bilateral trade agreement with the US, and trade regulation would revert to that if NAFTA is repealed.

When it comes to China, President Trump seems to be treading a much more cautious path. Despite his promise to label the country a currency manipulator in his first days in office, and his threat to impose an up to 45% tariff on Chinese goods entering the US, no action has yet been taken.

This is partly because his nominee for treasury secretary (who would be responsible for labelling China a currency manipulator), Steve Mnuchin, hasn’t yet been confirmed by Senate. In his confirmation hearing, he did not give a clear answer on his position about such label.

Traditionally, there is also a list of criteria that needs to be met by a country before it is labelled a currency manipulator: spending at least 2% of its GDP selling currency to buy foreign exchange (which, according to Cornell, China doesn’t); having a more than US$20bn trade surplus with the US (it does); and running a 3% or more current account surplus (it did in 2015, but not consistently).

Carnell believes Trump is more likely to negotiate without drastic action, at least at the beginning. “Trump would perhaps like to trade a blind eye to some of China’s geographic ambitions in the South China Sea in exchange for a more reasonable attitude to trade. China could somehow limit the amount of certain key industries which are dumping – steel in particular. I think this is the nature of the debate that could happen. My guess is that tariffs will be used only as an extreme if he sees no move at all on the Chinese front,” he says.

Another one of his campaign promises, which he reiterated at a breakfast meeting with executives this week, is to impose a border tax on US companies relocating production outside of the country and sending the finished goods back to the US. He has described this as ''selective'' 35% tax. But according to experts, this is easier said than done.

Hufbauer says: ''I think if he imposes tariffs on individual companies, naming them, he will run into court problems pretty quickly. He could name the product that the company imports on a very finely designated level and put a tariff on those. But naming companies sounds like a breach of the 14th amendment, which requires equal protection of the laws.''

4 NEW ITFA MEMBERS

The following four new members have joined ITFA this month:

Finanz AG Zurich is a Swiss finance company active in structured trade and commodity finance as well as trade related debt arranging. It also offers traditional trade products (including forfaiting) and provides advisory services to corporates and financial institutions.

With offices in Zürich, London, Moscow, Buenos Aires, São Paulo, Santiago de Chile, Mexico City and Singapore, Finanz AG has the local experience and expertise in handling complex financial transactions and providing tailor-made solutions.

Specializing in risk distribution, Finanz AG also advises regional and local Financial Institutions as well as large corporations in establishing Risk Distribution desks, including best practice in risk mitigation and syndication of assets.

Hanspetter Rellstab will be the main delegate for all ITFA related matters.

Eurler Hermes is the world's leading provider of Trade-related Credit Insurance solutions with more than 100 years of client support and responsiveness to changing business environments and operations in 50 other countries. They are backed by Allianz, one of the leading financial service providers worldwide.

As a Global leader in trade credit insurance and a recognised specialist in the areas of bonding, guarantees and collections, they help customers world wide to trade wisely and develop their business safely. Its financial solidity, risk analysis and integrated global structure enable the Group to provide companies of all sizes with all domestic and export market knowledge and support they need to successfully manage their business in changing economic environments. 

Karan Jain will be the main delegate for all ITFA related matters.

As part of the Arab Bank Group, which has one of the largest banking networks in the Arab world, Europe Arab Bank is uniquely positioned to offer clients seamless access to markets across MENA, Europe and North America.

Headquartered in London, with offices in France, Germany and Italy, they offer a comprehensive range of private banking, corporate, institutional and treasury services. On the ground support, including cash management across many of the MENA countries, enables their clients to do business with confidence and efficiency.

Haitham Ashour will be the main delegate for all ITFA related matters.

Gulf International Bank UK Limited (GIBUK) is the London based asset management division of Gulf International Bank B.S.C. GIBUK, which has been managing investment portfolios on behalf of institutional clients for over 40 years. Trade Finance is a new asset class being offered to institutional investor clients.

The Bank facilitates banking between Saudi Arabia and UK, mostly at government level and have a balance sheet of USD 7.5 billion (capital USD 300 million), as well as specialises in Asset Management, where they manage circa USD 12.5 billion for institutions (mostly Government, Central Bank, SWF and Pensions).

Ian Henderson will be the main delegate for all ITFA related matters.

UPCOMING EVENTS - SAVE THE DATE

We wish to remind our readers about the ITFA and VEFI Bowling and Jass championship. This is going to be held on the 09 March and will commence at 17:30hrs. The chosen venue is Restaurant Schutzenruh, Uetlibergstrasse 300, 8045 Zurich. For more details about the event, please visit the ITFA events calendar.

TFR's Cross-Border Trade Forum 2017 is also being held on the 09 March, however in London. For those interested in attending, this Forum will prepare you for market changes and growth in 2017. Also, our very own ITFA Chairman, Sean Edwards, will be a speaker at this event. For more information, please visit the event website.

Another upcoming event is that organised by GTR, which will be taking place on the 21 March in Istanbul, Turkey. The GTR Turkey Trade and Export Finance Conference 2017, provides attendees with a perfect opportunity to meet with representatives from domestic and international trade, export and financial institutions, all in one place, on one day. Moreover, Damian Austin, ITFA Deputy Chairman and Head of Regions, will be moderating one of the afternoon panels covering the topic ''Structured Trade and Export Finance: Managing Risks and Maximising Sales''. For more information, visit the event website.