INTERNATIONAL TRADE

Michael Salmony 0:12

Hello, my name is Michael Salmony and Javier and Ralf and I would like to welcome you to another episode of TPT. And today we're very privileged to have one of the true forces of nature in payments with us. that's Gerard Hartsink, who was the first

Gerard Hartsink 0:22

Okay.

Michael Salmony 0:29

EPC head. where the 4,000 banks get together to agree, for example, on the SEPA rule book before Javier took that role on.

He was the first chairman of GLEIF, which does the legal identifier, which is happening everywhere. He was the editor of JPSS, which

Gerard Hartsink 0:41

Thank you.

Michael Salmony 0:46

in my view is one of the best journals on payment. He is in more boards than you can shake a stick at. So thank you very much, Gerard, for being with us. And maybe tell us a little bit more if I've captured your biography wrong or what else you would like to say about yourself. And then we want to get into international trade, which is now your latest mission.

Gerard Hartsink 1:10

Yes, I'm an economist and a lawyer that started only after 10 years after working first in a factory. And what was very interesting for me when I started

joined ABN in those days. I was very interested in the back office of ABN AMRO, which covered payment, security, foreign exchange, et cetera. And that became part of my life because in the end, that part of the business

Javier 1:32

Okay. you

Gerard Hartsink 1:39

is innovation for the future. You have to do it together with your competitors. And there is a lot of public interest involved. So you are at the crossroad of

several developments and that was very interesting for me still today.

Michael Salmony 1:56

So you were one of the first to discover that the basement in a bank is the sexy part where the payments happen in the back office.

Javier 2:02

You

Gerard Hartsink 2:04

maybe not the first, but at least one of the team that was very ambitious to do so. And yeah, that's how it evolved during my lifetime.

Javier 2:16

.

Michael Salmony 2:16

Perfect.

And now you're working on international trade. Can you tell us about your role in and what

the National Chamber of

Gerard Hartsink 2:21

Yeah.

Michael Salmony 2:23

Commerce does and what that introduced us to?

Gerard Hartsink 2:26

Yeah,

as ABN AMRO guy I was already involved 20 years ago with the International Chamber of Commerce. Today, the ICC has

Javier 2:33

you

Gerard Hartsink 2:35

45 million corporate members around the world. In the Netherlands, the ICC community exists already one in two years, and it is all focused on import, export and direct investment. And they developed over the years many guides, tools.

to help the exporting and importing world. So the last couple of years, I was very much involved in creating a new program under the banner of ICC that was done with four guys. I was one of them, a Swiss guy, a UK guy, and somebody of Canada. And what we try to achieve is clarity on the paper-based world of the...

Javier 2:58

. Okay.

Gerard Hartsink 3:22

the

international trade and why the international trade was still today so paper-based, not only for the financial part of the international trade, but also for the physical part of the international trade. And that became the program ICC Digital Standardization Initiative. I became the first chair of one of the two boards focused on everything about on

Javier 3:27

Okay. Okay.

Gerard Hartsink 3:50

technical standards and legal standards. And another board was focusing on the legislation, the model law, electronic transferable records. I was also part of that board. I decided in 2015 to step down from the board, but I'm still one of the, I was appointed as chairman emeritus and I'm still attending the boards only for advice, et cetera.

So an international trade is very important for any community around the world because there are always needs in any community country for goods that they do not produce themselves. So they have to import or there are goods that they are able to export.

And the Netherlands is very famous historically for export and import. And that's part of my DNA too.

Javier 4:57

So, hit it.

Michael Salmony 4:57

Wonderful. if

I understand you right, or if I understand the topic right, I if somebody, automobile manufacturer in Germany wants to import parts from China, there's a lot of paper, as you said, there are bills of lading and invoices and purchase orders and about 20 documents typically in paper that were involved to make this trade happen. Is that roughly right?

Gerard Hartsink 5:22

It's roughly right, but it depends also on the type of goods. If it are commodities or in the case of Germany, for example, cars, automotive industry, there are a lot of established relations. So some of the documents are a must do, but if the counterparty

the exporter over there and the importer in Germany do know each other and have a stable relation. They do a lot in open accounts, so probably they deliver already the cards from basically from, in your example, China to Germany and the German importer is allowed to pay afterwards. So open account is a very common model for a lot of trades, not only in cars.

automotive but also if you talk about commodities, grains, iron, things like that.

Javier 6:26

And Gerard, how do you see this surge of nationalism, these discussions on sovereignty and even the renewed love for tariffs?

Are they putting at risk international trade or are they not just reacting against globalization, but also I think they are going backwards in some aspects in international trade. Is there a way to deliver the value of international trade while not putting at risk the sovereignty issues?

Gerard Hartsink 7:02

It's

a very good question. Already since David Ricardo, who was a very promoter in the economic theory to promote trade, the comparative advantage, it's for the benefit of both parties. the current environment, basically the liberal

economy promoting international cooperation, international trade started basically after the Second World War and more and more countries became part of that dialogue. as you probably will know, the World Trade Organization was also created, I believe in 1951, and it has a set of rules how countries could cooperate, not only on goods, also on services, on intellectual property rights. There are a lot of

issues over there. So trade agreements are first and foremost between two countries, in some cases like the European Union vis-a-vis the rest of the world. The trade agreements are between the European Union and any country around in the rest of the world. The reality is that in particular the last couple of years the trade is being used as an instrument

for geopolitical agenda. That is not new. When I served in the board of SWIFT, I remember it was also already on the table that SWIFT should take a decision to disconnect the Iranian banks. So that's already more than 10 years ago. So it is a reality that the politics in any country

is always careful how does international trade impact the community. And it can be so for protectionism or of a part of the industry in the country itself or for geopolitical agendas which are happening today. Think about raw materials.

Well, China has a prominent position in that space, but is trying to use also that position in the international political relations. so your key question is how will it evolve? I don't know. I'm, to be honest, worrisome.

the Western world lived more or less after the Second World War under the umbrella of the American pan-American way of working. also the US has taken more and more position which are not in favor of a liberal world with certain

acceptable way of doing business around the world. that's also in international chamber of commerce is that that is really a complex issue because in the end it is a business community with as I mentioned 45 million corporate members around the world but they are coming from different jurisdictions and many of the large firms well

operate in multiple jurisdictions, but in the end their headquarters is somewhere in one of the countries around the world. So how should ICC be careful not to be active in politics, because any sovereign state can set the agenda for themselves, but on the other hand continue to stimulate the international trade.

Michael Salmony 11:20

Yeah, we saw the

Ralf Ohlhausen 11:20

Yeah. And

Michael Salmony 11:21

connection to politics already in SEPA, right? So there's always a connection

Gerard Hartsink 11:26

Yeah, definitely.

Michael Salmony 11:28

between, but maybe to return more to the mundane level of payments and things around there. My understanding is you're trying now to digitize these processes, these paper-based processes, you're developing standards so that Chinese exporters to stay with that model.

can sort of communicate in a digital form with a German importer. Is that the goal, to digitize these 20 plus documents in a global way?

Gerard Hartsink 11:57

Yes, well, there are in the end 36 documents. you wrote an article, you can have a copy of the article and maybe distribute it to your community. That's possible. There are 36 documents and some of them are embedded in legislation. And one of them are these typical are the model law electronic transferable records.

of the UN is trying to solve this issue around the world. So here in the Netherlands, only since the 1st of July, it was possible to have an electronic bill of lading in a digital form accepted by the legislation. The UK adopted that legislation, the model law, for eight documents of title. France

done, Germany I believe currently also ready, Singapore ready, but many countries do not recognize the electronic record as a legal valid record of a piece of paper. In a lot of cases the piece of paper is legally the title, the document of title.

That's not true for all 36 documents, but some of the core documents such as the Bill of Lading or the promissory note, which is also for the banking industry very important, they are embedded in legislation of sometimes 100 years that it's still paper-based. So the legislation should be upgraded. And that's why I see as an advocate.

uses the local communities to lobby vis-à-vis the legislator at local level to upgrade the legislation. And on the other hand, there is also the technical standards and that's a very complex area. Of course, we have a lot of technical standards. They are widely used by different parts of the industry, but they all have a history. So if you use, for instance,

data elements in those 30 documents, are sometimes, sometimes there are different technical standards used for the same phenomena. And that is the complexity. So if you are working in the shipping industry or in, for instance, the harbors or the custom or aircraft industry,

The same phenomena are used but based on different technical standards. And that makes it also for the financial industry or the fintechs very complex to use, to deliver, create services that cover more than one aspect of the industry. Because the data standards are not always the same. The message standards are not always the same. And the security standards are not always

only the same, even if all legal stuff would be solved around the globe.

Ralf Ohlhausen 15:30

Is is there therefore a need for more regulation? As you know, we are here trying to achieve less regulation because we are sort of over regulated, we believe, in payments overall. But what you're saying is there is quite a mixture of reasons like lacking standardization and technology and and geopolitics geopolitics we have as well. So

you have a really a mixed bag there and so would you argue for more regulation and and maybe also with a background of you know creating SEPA at the time.

Gerard Hartsink 16:09

Yeah.

Ralf Ohlhausen 16:10

so is the market regulation approach which is currently being taken in this industrial trade context is is is that better or is the well top down regulation maybe necessary for this case?

Gerard Hartsink 16:30

I

have an answer but it will be a bit complex. Sometimes regulation is unavoidable. SEPA would not have happened if there was not an end date regulation. Because everyone says, okay, yes, I see the value to create SEPA, but should I do it today, tomorrow, etc. So the end date regulation was decisive for the SEPA program. Second,

If you talk about standards, I always distinguish between four types of standards. There are a lot of policies and policies from the public sector perspective or from even the industry perspective have also the connotation of being a standard. Second, a lot of standards are embedded in public legislation. For instance, you mentioned SEPA. That is one of the clear examples.

the PSD1, 2 and now 3. The third type of standardization is the legal private law standardization such as the SEPA rule books or the Nexus scheme or currently what is happening, the Swift cross border payment scheme. Those are typical based on legal foundation in

of one of the jurisdiction, accepted by the market participants who use these type of standards. And there are many of them also in the trade finance space, or in the trade space in general, how containers are being moved from around the world, from harbor to harbor. There are a lot of these private rules.

industry rules used by market participants. And the last category of standards is more the technical standards. They could be of ISO, but not only of ISO, on data elements, on messaging, on security. But in Europe, CEN is also popular at the public sector. But your question was also, should we have more or less regulation? That depends on

If the industry in the end is unable to solve certain logical problems to move

Javier 19:00

Okay.

Gerard Hartsink 19:02

forward for the benefit of society, it makes sense that there is some sort of stick behind the door. But I would be very reluctant to start using the stick to get the mark moving. And second, I could imagine because

Javier 19:19

Okay.

you

Gerard Hartsink 19:20

Also, the public sector is heavily involved in the international trade, for instance, on issues about cross-border payments, on issues on reporting on forex

positions, issues on the customs, on business registers. And it is bizarre to acknowledge that the G20 promoted the LEI program to get a unique identifier of businesses. But look around.

Javier 19:36

you you

Gerard Hartsink 19:50

the globe what is happening, a lot of logical cross-border business are faced with regulation, whatever type of any country, and they do not acknowledge the fact that the lie was created in particular, also for these type of problems to solve. Who is who around the world? And in the case, if you import

For instance, goods from China, you cannot even read in the majority of the Western world what the counterparty is all about because you do not master the Chinese language in general. And these problems could be solved, who is the identity of the legal firm being the exporter or the importer around the world could be solved in this way.

And that is also the recommendation, by the way, of the Financial Stability Board for cross-border payments.

Javier 20:55

Well, I think that, well, regulation in some occasions circumvent the problems of establishing the standards, the network effect,

the high cost of transition, the adjacent issues. In this case, the problem is not regulation, is that we lack a global jurisdiction. So any

Gerard Hartsink 21:15

Yeah.

Javier 21:15

regulation will necessarily be a local regulation and then adding to the fragmentation. So the more regulation we have, the more fragmentation we will have at global level. That's my view. And therefore, together with Gerard, I think we should...

pursue other paths rather than asking for regulation because regulation will only aggravate the problem. And the LEI is a very good example. It has been backed by the G20. There is an organization supporting it, promoting it, looking for ways to implement it. And still it is extremely difficult to get it ahead. regulation here, am afraid, will not only not help

but will be detrimental to the case of international trade.

Gerard Hartsink 22:05

I agree with your statement, Javier. The UN is in the end accepted by all countries around the world. And decisions over there are very important.

The UN is also working on statistics, trade statistics, and they, after a couple of years, they concluded that it would be very helpful to use the LEI to improve the trade statistics around the world. But in the end, as you mentioned, the UN can take a decision, but it should be embedded in local law. That's how the world operates.

any strong recommendation of the UN or one of the bodies of the UN could result in such a movement, but does not guarantee that it will happen. And that's why I believe that large international companies, and there are many of them, should support this development. But I realize also that large international companies that are active

in technology are competing with each other and are not always prepared to adopt international agreed standards. Because it's not in favor of their own business model. If you analyze the large tech firms, I do not want to mention our brand names, but I know they have their own identifier for businesses and

Of course, if you talk with them about identifiers for legal entities, they are very interested. But I don't give up my own identifier in favor of a global identifier, which is of the benefit not only of the firm, but also of other firms. And that is happening in the shipping industry, that's happening in ports. And even worse, that is happening at the public sector side.

involved an international trade. The customs created under the umbrella of the World Custom Organization an identifier, but that identifier can only be used by the customs. And yeah, they are interested in the LEI, but in the end they did not adopt the LEI as the identifier for the customs. So even within

international organisations of the public sector or at local level the different ministries involved with all sorts of business activities, not only economic affairs but also the tax authority and the customs, they are not always aligned for this vision.

Michael Salmony 25:04

Can I just be a bit critical here a moment? Obviously, it's fantastic what you're doing. mean, to digitize these 30 plus documents and get global agreement on standards and on procedures and make sure they're acceptable legislatively with the tax offices, everything. That's exactly what we should be doing, obviously. But if you look at how difficult it is just to get payments digitized end to end.

right? And payments is easy. That's just a payer, a payee, an amount and the currency. And

Gerard Hartsink 25:35

Yep.

Michael Salmony 25:36

if compare that to an invoice or a bill of lading or these other things,

Gerard Hartsink 25:39

Yep.

Michael Salmony 25:40

could be hundreds of fields, super complex and just have all sorts of consequences, and you're doing that across 30 different documents and across 134 geographies, isn't this biting off more than anyone can chew?

Gerard Hartsink 25:55

I

agree, maybe it's a Don Quixote type of exercise, but you can also take the position, okay, if we do not do anything, what will the end result will be? So I hope that the ICC DSI program, when we started the program with the four guys who were the founders, we were quite realistic.

We first like to have an overview. What is the problem anyhow? Is there a problem? And second, what are potential steps to move forward? having several documents to get clarity on the complexity and trying to make the market participants enthusiastic.

to take a step forward. It's not only exporters or importers, but it are also the service providers. That could be banks who are competing. Some of them are very interested. Others are not at all interested because it will harm their business model. That's happening in the shipping industry. In the forwarders, same story. Don't change my business

Javier 27:16

Okay.

Gerard Hartsink 27:18

model.

For physical part of transporting goods around the world, the containers, they do have the BIC register in Paris for containers.

It's a different BIC than the BIC used in the banking industry.

Javier 27:46

.

Gerard Hartsink 27:47

Even there, there are very complex issues of all the containers. They have a unique number to manage that because not all containers are used by the owners. There is a lot of business if there are containers somewhere in the world where goods were delivered

Javier 27:50

.

Gerard Hartsink 28:09

but there is no export of goods from that place where the empty containers are to...

It's a very complex business, but over there, those companies like Maersk, CMA, CMG, there are only probably 10 who have 80 % of the business. They compete and cooperate with each other on certain aspects, but they are very reluctant to change everything because that will hurt their business model.

Ralf Ohlhausen 28:42

But isn't that isn't that ironic that arguably one of the biggest and most successful standardization in the whole world, the con the containers having the same size being fit so so that they fit on the truck on a on a on a truck, on a ship, on whatever, the lifters,

Gerard Hartsink 29:03

Three.

Ralf Ohlhausen 29:04

and etc. So for me, it is fantastic how

This has been standardized around the world and with huge

Gerard Hartsink 29:12

Absolutely.

Ralf Ohlhausen 29:12

success and and and also huge, huge savings. Isn't there there a beaten trail that they could just follow to do the same now for these little piece of papers that go with it?

Gerard Hartsink 29:25

I have still two copies of the book about how the history of the container industry and it's how those guys who started the business, how they took step by step. But apparently those who were in the transport business had a benefit to adhere to this development being not only

Currently in Rotterdam ships are arriving with 20,000 containers on top of it. It's a fact. And they are distributed by a truck and or by train. Currently about 6,000 containers a year arrive in the Netherlands from China. So it is really amazing what has been achieved.

achieved by the transport industry. But I also know they are competing like hell with each other. So I could really imagine the new initiative of SWIFT. Well, Javier and I have been a member of the board of SWIFT. In those days, it was not possible to discuss this point anyhow in the board.

Because in the end, Swift is an interbank. Also, corporates are connected to the network. And it was not possible to have a serious dialogue on the connectivity of customers with the Swift participant. That was only very limited because you entered into the...

the non-cooperative space of the SWIFT community. Apparently, well, based on the FSB initiative to improve cross-border payments, the key players in the SWIFT community accepted that also SWIFT

Javier 31:21

Okay. Okay.

Gerard Hartsink 31:37

can become more forward-looking for end-to-end payments, any currency of any...

Javier 31:41

. Okay.

Gerard Hartsink 31:49

participants around the world. And that is very interesting. Also from an ICC perspective, are all SWIFT members enthusiastic? I don't believe so, based on my knowledge of the 20,000 members of SWIFT. But I understand at least the current key firms who signed up for it.

responded more or less to the FSB recommendation, but see enough business interest to take this step forward for cross-border payments.

Javier 32:31

Gerard I think that we may feel somehow upset because we do not perceive

significant progress. But I also believe that the fact that we are not going backwards can be seen as a progress. And that's thanks to people like you organizations, like the ones you work in. So maybe we are trying to fight windmills in an exotic way, but against, as Michael was saying, tens of documents, hundreds of jurisdictions. But certainly there must be

a path and there must be priorities and next steps and urgent things to do. What are in your view those steps that should be taken first and with highest priority?

Gerard Hartsink 33:20

OK.

Not all 36 documents are relevant for international trade, depends on the type of business or the requirements of the public or the private sector. From my perspective, what are the priorities? The acknowledgement of the legal entities and the LEI program around the world. That is in line also with the requirements of the Financial Stability Board, Recommendation 6.

And probably it makes sense to convince also a lot of institutions of the public sector that they adhere to it because in the end it's also of their benefit. If I would take one document out of the 36 where a lot of progress could be made, it's the invoice. Because the invoice is

necessary for any community. I'm very well aware that the European Commission tries to align on the invoice already for many years. It was there already 15 years ago. And the Peppol program is used as the example. The Peppol program was originally intended for business to government purposes.

But I understand that the program is also business to business. And my understanding is, look at the website of peppol.org, that around, I believe, 40 jurisdictions are interested in the Peppol program. They have a network, they have standards and they have a lot of type of documents. if I watched...

You ask me what are the priorities. Legal entities in the business to business environment of international trade is important for anyone. And if the sales and the delivery of goods also invoices are mission critical around the world. I know of the attempts of UN/CEFACT.

also for invoicing. yeah, my observation is that it's full of technical experts, but many standardization bodies have very qualified engineers in the teams. But in too many cases, neither on the public sector or on the private sector, they have enough empowerment.

to get anything done. So what we did at the time at SEPA, it was also a game of mobilizing the top dogs of the public and the private sector to get the things done. Otherwise you can create whatever type of rule books or set of standards. It does not fly.

Ralf Ohlhausen 36:46

Is there I'm I'm trying to find out if there are maybe specific opportunities for fintechs or innovators, maybe more generally speaking, in this. And well, trade finance I think is is one thing that is related to this, and but it seems and I think the well and the gap is measured in trillions there, supposedly.

And I think it's it's not the biggest companies, it's more the smaller the SME companies which are having the biggest problem. So which could be a good market for like smaller innovators and fintechs as well. But it looks as if there is very high cost, KYC, whatever regulation, and I'm not sure how realistic it is for smaller companies to really get into that. And the second element

now related to maybe stable coins or tokenization of assets and or and all of that. but again, is that is there an opportunity there? Where where would you see opportunities for fintechs?

Gerard Hartsink 37:58

I know that fintechs are involved in delivering services for exporters and importers. And there are many platforms around the world. The problem is they create a rulebook

and make a choice of the technical standards for their customers, their exporters and importers. But they become an island. They are not connected to each other because legislative environment, technical standards are not the same. So if you are a bit familiar, yeah, you are, in the payment industry in Europe, there was an organization, is an organization, EACHA.

And what EACHA did is take the rule books of the EPC and create a world of connecting. That was in those days a fear that SEPA would lead to that some of the financial market infrastructures would become dominant. And that was the fear.

for many local clearinghouses, operators, etc. So the EACHA organization was created to connect those people, but also to take a step forward how those organizations with their own customers could be connected and be compliant with the SEPA rule books, credit transfers in particular, but also direct debit.

Well, looking back, it was a way forward. It started with a threat, but it became an opportunity. Such a development I never noticed in the world of service providers for trade and trade finance, because they compete like hell. They try to get their own customers, have a positive...

in the end, enough revenue to survive, but the coverage in the end is quite limited. Look at the data of those firms.

Michael Salmony 40:24

Okay, I think we're gradually getting towards the end of our time. So unless anybody has any urgent last comments, I would say that was was really fascinating. I particularly liked your sort of instead of maybe boiling the ocean, let's focus on two top topics. First of all, identity is actually talking to who that sounds like a fundament that we need to get sorted globally. And of course,

Gerard Hartsink 40:47

Yeah.

Michael Salmony 40:48

I'm a huge fan of invoicing. spent too many years with the European Commission and the expert group.

helping to pass a new law on invoicing so that the tax authorities would accept it, setting standards and everything. So I saw how hard it is just to do that within Europe. Even 10 years later, we haven't got it. But regulation is now mandating it. So it is finally happening. And maybe we need to do the same exercise globally. We could have talked about other things. Project Aperta from BIS, I think, is also looking at global trade,

Gerard Hartsink 41:18

Yep.

Michael Salmony 41:18

also with fintechs. But I think our time is up.

Thank you so much, Gerard. It was really fascinating to get a view into your latest... You've always been a missionary and a fighter for new topics. And I hope you break this Gordian knot here as you have done in other areas. Thank you very much for sharing your insights.

Gerard Hartsink 41:40

Wish you pleasure. Thanks.

Ralf Ohlhausen 41:41

Thank you, good luck.

Michael Salmony 41:42

Okay. So thanks to everybody and hope you enjoyed it and see you next time.