A study on Wednesday urged the government to sign and ratify the UN Vienna Convention on Contracts for International Sale of Goods (CISG ) to protect the country's exporters.
The study on "Review of the Trade Services of Banks" conducted by Bangladesh Institute of Bank Management said Bangladeshi exporters suffered in the Covid-19 pandemic as a large number of export contracts were cancelled.
The exporters remain unprotected due to the non-signatory status of the county to the Vienna Convention, said Professor Shah Mohammad Ahsan Habib, who led the study.
The paper was presented in an online workshop on trade services operations of the banks organised by BIBM.
Presenting the paper, Professor Habib said the Covid-19 scenario points to the necessity of purchase or sale contracts in international trade transactions.
He said in the context of Bangladesh, in most cases, the purchase or sales contracts have not been legally enforceable for the optimum protection.
The paper said, "For sound purchase or sale agreement, it is essential for having the coverage of a regulatory framework."
Alongside ratifying the UN treaty, there should be clear instructions regarding transactions with other non-ratifying countries, it said.
Mr Habib said this is important in the context of Bangladesh as in several instances back-to-back LCs are opened against contracts. Besides, a set of modified forms of open account transactions has been allowed in recent times, he added.
Moreover, the International Institute for the Unification of Private Law principles should be ratified as the soft law to handle contract-related disputes, he said.
He said most of the trading partners of Bangladesh are the signatories to the UN principles.
The United Nations Convention on Contracts for the International Sale of Goods, also known as the Vienna Convention, is a multilateral treaty that establishes a uniform framework for international commerce.
Professor Habib said banks and traders have become ambiguous and sceptical about their legal liabilities in this evolving and increasingly uncertain environment.
He said the ICC's stand on force majeure does not offer any concrete solution to addressing these uncertainties to banks and traders, and it ultimately suggests resolving most issues through dialogues between the commercial parties.
Ahsan Habib said to handle the scenario, traders and trade associations must be active to reach out to government contacts and stakeholders to stay current and be open to any developing opportunities ; and confer with counsel regarding changes or restrictions that may impact particular business operations.
He said the Covid-19 situation forced many to opt for alternatives.
He said for consolidating and supporting trade services in this complex situation, the BB has issued a good number of circulars.
One example is 'Export under open account credit terms against payment undertaking/payment risk coverage with option of early payment arrangement on non-recourse basis,' which appears to be an approach to the direction of adopting evolving trade finance products in the global market.
About the term 'Open Account' in the circular, he said it is not the 'open account' in its pure form.
He said it is well known that 'open account' means shipment and delivery of goods before payment is due where the exporter is at risk.
Conceptually, 'open account' also has to be characterised by less involvement of banks in the process; greater involvement of the traders; relatively cheap; and is guided by the purchase or sales contract.
But practically, on these considerations, the Bangladesh Bank's circular is not about that form of 'open account,' rather it is a form of 'conditional open account' that essentially takes care of the key issues like the exporters' risks and the country risk, he said.