Money Matters

Global trade imperatives

By Majyd Aziz
Mon, 01, 16

There is an imperative need to bring about amendments in certain State Bank of Pakistan (SBP)

There is an imperative need to bring about amendments in certain State Bank of Pakistan (SBP) rules and regulations in order to streamline the trade regime and enable Pakistani exporters and importers to enhance global exposure and reduce time, money, and loss of business. The following points are worth considering:


A long-standing policy was introduced, and is still in force, that for all categories of oil, the customs authorities would provide the Landed Weight Certificate (LWC) on which basis payment is made to the suppliers. However, this policy is not advisable for edible oil for the following reasons:

The European suppliers of edible oil generally get the letter of credit issued by Pakistani banks confirmed. However, none of the foreign banks is willing to confirm letter of credit issued by Pakistani banks if the LWC clause is inserted.

SBP requires that documents must be presented within 30 days from the date of bill of lading. This is a mandatory clause of SBP. The bottleneck is that the voyage period for edible oil shipped from, say Argentine, is between 35 and 40 days. However, documents must be presented within 30 days but unless LWC is received, the supplier is not able to get payment.

Major Pakistani banks (Category 'A') adhere to SBP regulations and do not agree to delete the LWC clause but the smaller banks agree to this deletion provided the importers assure them that if any penalty were imposed then the importers would pay the penalty. Many foreign suppliers routinely complain that if smaller banks agree to delete the LWC clause then this practice should be adopted by all banks. It is proposed that there should be a uniform policy for all banks. It is further proposed that SBP should relax the LWC clause requirement especially for edible oil imports.

It is a proper and advisable decision to require Halal Certificate for edible oil. However, for soybean oil, no Halal Certificate should be required. There is no Halal or Haram in soybean oil as it is not meat but is a species of legume. If there is still the requirement for such a Halal Certificate then the words "After refinement" and "Fit for human consumption" must be added to these Halal Certificates.


There is an issue with containers. A case in point is that if a foreign supplier sells goods that are sent through containers to a Pakistani buyer on either L/C basis or Cash Against Documents (CAD) basis and if market dynamics change, e.g. midstream imposition of regulatory duty, etc, then the buyer may default and refuse to accept the cargo. However, as is the normal practice, the Ship Agent files the Import General Manifest (IGM) in buyer's name. The IGM cannot be amended, altered, or changed. In case the buyer declines to accept the cargo, even then the buyer is required to issue a NOC. The detention and demurrage meter continues and the value of the commodity deteriorates until the NOC received.

The buyer, at times, resorts to petty blackmail to extract money from the suppliers. Thus, the supplier is forced to accede to the unjust demands of the buyer. Even if the NOC is received from the buyer, the procedure to amend the IGM is tedious, time consuming and frustrating. The concerned bank has also to prove that no foreign exchange was remitted to the supplier.

This cargo is classified as "frustrated cargo" and the supplier may desire that it be re-exported to another Port/buyer. In this case, the foreign supplier has to submit E Form endorsed by the local Pakistani bank showing proof of export proceeds. The ensuing result is that in the meantime, the containers lie at the port incurring detention and demurrage charges while the quality deteriorates, the value depreciates, and the cargo is deemed "no ownership cargo".

Eventually the cargo is sent to the auction lot, and thus the Ship Agents and Port recover part of the detention and demurrage charges while the supplier and buyer have no recourse but to enter into arbitration that takes ages for a decision. Certain questions need to be addressed:

Who should prepare the E Form? Who would show the export proceeds? Who would remit the export payments? How would the supplier do the remittance through non-banking channels, as there is no other mechanism? There is no provision in the banking sector to tackle this procedure?

This is a double jeopardy. The shipping line is able to prove that the cargo is frustrated since no one is accepting it. Then, why is there a need to file E Form if the cargo is to be re-shipped? The IGM has to be filed at least 48 hours before the arrival of the vessel. The cumbersome re-export procedure in vogue is damaging to the reputation of the genuine Pakistani businessmen as well as impacting negatively on the country's name and prestige. This situation is very prevalent in Pakistan's global trade in oil, wheat, fertilizer, soybean and other commodities and is susceptible to the blackmail of unscrupulous Pakistani importers.


A genuine Pakistani exporter may at times is unable to receive full proceeds of the exported goods as per E Form, due to various reasons such as quality claims, bankruptcy of importer, arbitrary deductions, or for any other reason. In this case, and in order to comply with SBP foreign exchange regulations, the exporter is compelled to remit money through non-banking channels in order to escape penalties or imprisonment.

It is proposed that in this case, SBP should allow the exporter to settle the difference in proceeds in Pakistani rupee with an added penalty equivalent to the premium and charges of non-banking channels. This would enable the exporter and SBP to avoid unnecessary litigation, paperwork, as well as reputation. 

The Pakistani importers and exporters are sanguine that Ashraf Wathra, Governor of SBP would take cognizance of these hindrances and difficulties and issue orders for the desired amendments so that Pakistani businessmen and industrialists are in a position to enhance their exposure in the global marketplace. These have become more crucial especially with the progress of China Pakistan Economic Corridor and the expected maritime traffic in Gwadar.

The writer is former president of KCCI