Worldwide: International Trade & Commodities Newsletter: In-Short - Edition 1

There is no doubt that this is a volatile time for the commodities markets. China's economic slowdown and falling commodities prices are being monitored with concern, while the JCPoA reached in July paves the way for potential easing of sanctions and means Iran is on the verge of becoming one of the hottest investment opportunities globally. These factors together are creating both exciting opportunities and new challenges for players in the market.

Welcome to In-Short, our new international trade & commodities newsletter, which is designed to give you practical advice on the key issues and opportunities facing the global commodities market today.

In this first issue we cover:

  • Commodity trade finance and how the market needs to evolve
  • Iran and what you need to consider when investing
  • Enforcement of arbitral awards in China
  • Facilitation payments in Australia's foreign bribery laws
  • MiFID II and its effects on commodity liquidity

We hope you enjoy reading In-Short.

TRADE FINANCE: TIME TO JOIN THE CLUB?

The results of a trade finance survey by Clyde & Co, in association with Commodities Now Magazine

By Philip Prowse and Laura Hingley

With the world's population predicted by the World Trade Organisation (WTO) to rise to nine billion by 2050, international demand for commodities is likely to significantly increase. Access to funding to support commodity transactions is essential to meet this increased flow.

It is concerning that since the 2008 financial crisis, there has been a dramatic decline in the availability of trade finance. In fact, bank led trade finance has roughly halved from an estimated USD 14 trillion at its peak to near USD 7 trillion today.

Post financial crisis, with banks less focused on risk and trust at a premium – where will the funds come from? How does the commodity trade finance market need to evolve?

We posed these questions to the commodities industry. Working with Commodities Now, we sought the views of finance providers, commodity traders and commodity producers involved in the international trade of multiple commodities.

We asked respondents about their trade finance challenges, in particular the availability of appropriate finance and the willingness of lenders to lend. We also asked what kinds of finance the market was keen to have more readily available.

The results suggest that:

  • Trade finance is more difficult to access than ten years ago, particularly for smaller producers and traders
  • There is a mix of factors which have led to market contraction including a reduction in banks' willingness to lend, greater regulation and costs
  • No single funding solution dominates. Instead, most traders rely on a patchwork of solutions to meet their funding needs
  • Many in the market are not familiar with the LMA suite of trade finance documentation
  • A large proportion of traders are exploring alternative finance solutions
  • There is a strong sense that closer, more responsive and more trade-related club relationships are required

Our report discusses the survey results further, along with the factors behind these findings. We pose recommendations for how we return to an environment where there is sufficient finance to facilitate the trade required to meet the needs of the world's growing population.

IRAN - WHAT YOU NEED TO CONSIDER FOR RE-ENTRY

By Patrick Murphy and Amir Kordvani

After years of economic stagnation Iran is preparing for the post-sanctions era following the historic Joint Comprehensive Plan of Action reached by the P5+1 on 14 July. The deal could result in the lifting of economic sanctions and the Iranian market reopening for international business.

Iran is an exciting environment for foreign investors to operate in with healthy demographics, low debt and one of the largest oil reserves in the world.

At the same time it can be a challenging environment. Investors planning to enter Iran for the first time, or looking to expand an existing presence should prepare themselves for the challenges ahead.

In this article, we discuss the legal factors that investors should take into account when planning a market re-entry strategy.

Take note of sanctions obligations which remain in place

Despite the JCPoA deal, Iran will remain under sanctions until the IAEA verifies Iran's compliance with its nuclear obligations and the necessary legislation has been passed in the relevant jurisdictions. Even after the necessary legislation has been passed there will be residual sanctions applicable to Iran (notably for the US).

Before taking any steps to engage in Iran-related business, investors should identify and comply with sanctions obligations that are still applicable to them.

Be aware of recent legal and regulatory changes

As the next step, investors will need to assess how the recent developments in the local Iranian legal and regulatory environment will affect their business in Iran. For instance, new laws have been introduced where financial incentives (such as tax breaks) are offered to attract private sector investment. By contrast, the law has recently changed to require a higher percentage of local content for investments in the oil and gas sector and auto industry.

Investors returning to Iran after a lengthy absence should make themselves aware of any legal and regulatory changes.

Consider whether pre-sanctions relationships are still valid

Investors should carefully consider the terms of pre-sanctions contracts to determine whether those contacts have expired or been duly terminated. It is also important to determine whether it is possible to work with former partners or to build new relationships. If investors are planning to continue with former relationships, it may be worth carrying out fresh due diligence before resuming business relationships.

Understand the boundaries of your existing business structure

Investors who already have a business vehicle in Iran will need to consider what steps to take to revive and reactivate it. In particular, they should consider if the licence is still valid and if not, what steps are needed to apply for a new licence. In this context, investors should consider if they have any outstanding tax (or other financial liabilities) from past activities before applying for a licence renewal account with Iranian authorities.

Investors planning to expand existing operations in Iran will need to consider whether their existing business structure allows them to engage in their new operations. For instance, under Iranian law, a representative office cannot take part in profit-making activities or receive Iran-sourced income. Steps would therefore have to be taken to obtain the necessary licenses before any expansion of operations.

Register your intellectual property rights promptly

It is advisable for foreign investors intending to do business in Iran to register their intellectual property (IP) rights at the outset. Iranian law allows foreign companies to register patents, trademarks and copyright. If an investor has already registered its IP in Iran, it is important to investigate whether there has been any infringement of the IP in the interim and what enforcement action is appropriate.

Resolve any pending disputes you may have

Many investors were forced to withdraw quickly from the Iranian market. There might therefore be dormant or pending disputes (including labour disputes) against investors. Until those disputes are resolved, they could adversely affect future operations and the ability to obtain the necessary approvals and permits.

Investors planning to return to the market and who cannot afford lengthy litigation should make an immediate assessment of their legal position to determine the best options for settling any disputes (including via alternative dispute resolution mechanisms such as mediation).

Recent developments

There is no doubt the market will be watching the sanctions developments closely. The Swiss government is the first nation to remove sanctions against Iran, although as most commodity houses are still bound by US and European sanctions, this will have little effect on the market. Who will be next?

ENFORCEMENT OF ARBITRAL AWARDS IN CHINA

By Ik Wei Chong and Yong Tong Ang

China as an emerging economic superpower is an active player in the field of arbitration. The enforcement of arbitral awards in China has become an important topic not only in the legal community but also for those looking to do business with Chinese companies.

There are two components of the Chinese Arbitration Law ("the Law") which are critical to the validity of arbitration.

  • Article 16 of the Law provides that an arbitration agreement shall contain a designated arbitration commission.
  • Article 10 of the Law further provides that arbitration commissions may be established in municipalities directly under the Chinese Central Government, and the establishment of an arbitration commission shall be registered with the administrative department of justice of the relevant municipality, directly under the Chinese Central Government.

There are few instances where an arbitration agreement (which provides for the arbitration to be administered by a non-Chinese institution under its own arbitration rules) also provides for the seat of arbitration to be in China. In fact such an agreement will likely be declared invalid by Chinese Courts. This is of vital importance to foreign companies trading with Chinese counterparts.

A recent decision in the BP vs Long Li De case indicates the Chinese judicial position may be changing. We include below details of the case.

BP vs Long Li De decision

In 2010 BP Agnati ("BP") and Anhui Long Li De ("Long Li De") entered into a commercial contract. The contract contained a clause for the disputes to be submitted to the ICC Court of Arbitration. It also stated that "the place of arbitration shall be Shanghai, China" and that any arbitration was to be conducted in English.

A dispute arose between the parties and BP commenced proceedings against Long Li De. Long Li De submitted a jurisdictional challenge to the Intermediate People's Court of Hefei (Hefei Court). The basis of this challenge was that the arbitration clause was invalid and in breach of Article 16 of the Law. Long Li De contended that the arbitration clause did not identify a Chinese arbitration commission. It was further asserted that the appointment of the ICC to administer the arbitration in China violated the judicial sovereignty of China.

The Hefei Court took judicial notice of the provisions of Article 10 of the Law. The Hefei Court then found that as Chinese arbitration was not open to foreign arbitral institutions these institutions (such as the ICC) did not qualify as arbitration commissions for the purposes of Article 10 of the Law. Accordingly, Article 16 of the Law is not satisfied by inclusion of an ICC arbitration clause.

On the basis of these findings the Hefei Court was prepared to find the arbitration clause to be invalid. Under the Chinese judicial reporting system the Hefei Court referred the case to the Anhui Higher People's Court ("AHPC").

The AHPC was divided on the question of the validity of the arbitration clause under Article 16 of the Law. While a minority supported the Hefei Court's reasoning, the majority held that the arbitration clause was valid in accordance with the requirements of Article 16 of the Law. Upon further referral to the Supreme People's Court ("SPC") in 2013, the SPC concurred with the majority decision of the AHPC, and agreed that the requirements of Article 16 of the Law were satisfied. The arbitration clause was accordingly determined to be valid via the reply from the SPC ("the Reply).

Conclusion

The Reply on the Long Li De decision is a positive development and reverses the earlier predominant Chinese judicial position. However, the decision has no binding effect upon Chinese Courts.

To streamline and regulate the position the SPC needs to issue a binding, judicial interpretation on this issue once and for all. Until such time, traders are advised to avoid agreeing to China-seated arbitration which is administered by a foreign arbitral institution.

To read this Newsletter in full, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Christopher D. Keane
Brett Hartley
Patrick Murphy
Amir Kordvani
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.