Applications for SME trade

facilitation beyond single

window and the role of

public‐private sector

partnerships

Perspective from KTNET

Sung Heun HA (Rama)

- 1 -

Korea, Used-to-be One of Poorest Countries

1950’s

ODA Beneficiary Country

- 2 -

1964 1974 1988 2000 2005 2011

Import Source: Korea International Trade Association

Rapid Growth in Trade Volume

Export

100

Million

10

Billion

100

Billion

300

Billion

500

Billion

1.08

Trillion

< Unit : U.S. Dollars >

< World No. 8 >

Trade Facilitation- for Sustainable Economic Growth in Korea

2012

547

Billion

519

Billion

1.07

Trillion

GDP World No. 12 (2012) Source: IMF

Ⅱ. Trade Finance Services

through

Paperless Trade Platform

- 4 -

• National e-Trade Committee

– National e-Trade Committee was established in 2003

– Private e-Trade Committee was established in 2005

– Korea e-Trade Facilitation Center to implement 33 tasks from ‘e-Trade Korea 2007 Plan’

Chair : Vice Minister of MOCIE

Administrative Committee

Chair : Prime Minister

National e-Trade Committee

Chair : Dr. Jung Uck, Seo

Private e-Trade Committee

Korea e-Trade Facilitation Center

Platform

W/G Finance

W/G

Logistics

W/G Marketing

W/G

Global

W/G

Law

W/G

e-TP PM

e-TDR

Law Reform

e-L/C

e-Nego

RFID

e-L/G

e-

D/O

e-MP

e-Catalog

Solutions

e-C/O

e-B/L

APEC,ASEM

Bilateral Networking

Korea Federation of Banks

KTNET

Korea Financial Telecommunications and Cleanings Institute

KITA

Korea Customs Service

Ministry of Knowledge Economy

1. Paperless Trade Platform of Korea

- 5 - [ 5 ]

Goal To cope with Korea’s growing trade volume by upgrading the

Electronic trading system into a single window system

Project Period 2005 ~ 2008

Project Cost About 30 million (USD)

Leading Agencies

Ministry of Knowledge Economy (MKE)

Korea International Trade Association (KITA)

Korea Trade Network (KTNET)

Year1

Building Core

Infrastructure

(2005)

Year 2

Introducing

e-Trade portal

(2006)

Year 3

Realizing uTrade

by e-BL & e-Nego

(2007)

uTradeHub Project

1. Paperless Trade Platform of Korea

- 6 -

(토의주제)개요(토의주제)개요무역포탈(uTrade)

통합포탈Gateway

은행포탈(uBankers) 통관포탈(uCustoms) 마케팅포탈(uTrade Search)

물류포탈(uLogis)uTrade

uBankers uCustoms

uLogis

uTrade

Search

uTradeHub

Gateway

1. Paperless Trade Platform of Korea

- 7 -

Private-Centric Integrated

National Single Window

Trading Co. Declarant Customs-Centric

Single Window

Apply for e-Licensing & Certification

Customs Declaration

OGAs & Regulatory Authorities

Notify the Result

620 types of e-Documents

Notify the Result

Apply for e-Licensing & Certification

Manage and issue the license & Certification in ASPLine

* ASPLine : Electronic licensing & Certification System developed and operated by KTNET

Trading Communities

Forwarders Ocean

Carriers Airlines Bonded

Transportation Bonded

Warehouse

Customs Brokers Banks Insurances Trading Communities in

overseas countries

B2B, B2G, G2B, Global Service

Other Governments Global Service

B2G, G2B G2G

MOTIE, KIS, Quarantines, NTS etc.

1

3

3

4

3 4

5

2

4

6 7

Successful PPP Korean Single Window Model

1. Paperless Trade Platform of Korea

- 8 -

KTNET is a Paperless Trade Platform Operator and a Customs Network Service Provider designated by Korean Government

KTNET services covers the whole cycle of trade process with 585 different kinds of e-documents with over 300 Million transactions per year

Korean Single Window

B2B Commerce, License &

Certification

Trade Finance

Customs Logistics

Cross Border Transaction

P/O, Invoice, P/L Certificates/License C/O, Insurance, Tax Invoice Purchase Certificate of raw

material

e-L/C, e-Local L/C

e-Negotiation Settlement

Export Clearance Import Clearance Duty Draw-back

(Tariff refund)

S/R, e-B/L Master/House

Manifest Consolidation

General Declaration

Cargo Visibility Advanced

Passenger Information

PAA Global e-C/O

Service Advance

Manifest Service

1

2

3 4

5

1. Paperless Trade Platform of Korea

Ⅱ. Trade Finance System

of

Republic of Korea

- 10 -

1. Trade Finance in Korea

Trade Finance in Korea

• In a larger sense, Trade Finance means activates related to raising

fund for international trade (Pre/Post-Shipment Finance)

• In a narrow sense, Trade Finance means a pre-shipment finance

system – a mechanism which mandates a financial support of the

central bank to exporters or indirect exporters (parts/raw material

supplier) by ‘the rules of foreign trade financing program in relation

to the total loan ceiling’ of the Bank of Korea

⇒ The Bank of Korea’s loan program is designed to help small-

and medium-sized companies and to promote balanced regional

development. It sets a maximum amount of loans for this program

in a periodic manner, which is distributed to commercial banks at

a lower (prime) interest rate than the market rate.

- 11 -

Criteria Contents

By

financing

condition

L/C or other documentary

proof base - Production Fund

- Raw materials fund

- Inclusive financing fund

- Finished goods purchasing fund Export record (history)

base

By

manufacturing

capacity

Manufacturer By purpose

Production Fund

Raw materials

Fund

Inclusive financing fund

Non-manufacturer Finished goods purchasing fund

2. Trade Finance by Criteria

Pre-Shipment Finance

- 12 -

Trade Finance Loan types

• Production fund loan: Financing for development or production of

goods

• Law materials fund loan: Financing for law materials production

• Inclusive financing fund loan: total financing to SMEs who’s total

export value is under 50 million dollars / year

• Finished goods purchasing fund loan

2. Trade Finance by Criteria

- 13 -

1. Contract for export of goods

2. Arrival of L/C

3. Purchase finished goods or in-house development of parts/raw materials

In-house manufacturing Inclusive financing loan

Open Local L/C

for finished goods Finished Good loan

4. Secure necessary raw materials

Domestic

raw materials

Take over

goods

Bill of

Exchange

Production loan In-house

Production/Development

Purchase

by Cash

Take over

goods Production loan

Overseas

raw

materials

Open At-Sight L/C

(D/P, COD, CAD) Arrival of Shipping

Documents

Import

Bill Raw materials loan

Take over

goods Open local

L/C Bill of

Exchange Raw materials loan

5. Production / Processing Production fund

6. Shipping Loan repayment Negotiation

3. Trade Finance Process

Open

Local L/C

Bill of

Exchange Raw materials loan Take over

goods

- 14 -

Pre-condition of exporter for Trade Finance

• Appointment of Foreign Exchange Transaction Bank

Beneficiary shall appoint one or more ‘Foreign Exchange

Transaction Bank’s for trade financing service

Inclusive financing beneficiary shall appoint a ‘Main Foreign

Exchange Transaction Bank’ to prove total trade volume

• Appointed Foreign Exchange Transaction Bank shall keep the

record of each export amount of a beneficiary and the accumulated

export record amount shall determine the total ceiling of a loan

4. Pre-condition for Trade Finance

- 15 -

5. Comparison of L/C base with Record base TF

L/C base Loan History base Loan

Beneficiary Exporters(or its suppliers) with L/C or

other form of Guarantee Exporters with export history

when With L/C or other documentary proof

(D/A D/P)

Anytime, regardless of L/C, under the loan

limit set by trade record(history)

Limit of loan Below the amount of L/C or others Below the amount of Loan ceiling

Limit control Balance of Loan Balance of Loan

Term 365 days or less 180 days or less

Convenience Inconvenient as the loan is case by

case Convenient

Special feature

Suit for new-comers or company

with less-dependency on advance

raw materials inventory

Suit for traders with heavy dependency on

advance raw materials inventory

Ⅱ. Trade Finance Services

through

Paperless Trade Platform

- 17 -

Dealer/Branch

PC or Local e-L/C

HMC

KCS

P/O

1

e-L/C

Purchase Certificate or

Local L/C

2

3

Export Declaration

shipment

4

Cargo Insurance

5

C/O

6

7

Documents made by Shipper

Negotiation

Advising bank

Carrier

Nego bank

KCCI

Insurance

1. HMC’s Full Automated Export Process Case

PC or Local e-L/C

- 18 -

Electronic Trade Facilitation Act

(MOTIE)

Export Credit Insurance

Local Letter of Credit

Foreign Trade Act

(MOTIE)

Letter of Credit

Purchase Certificate

Electronic Trade Facilitation Act

(MOTIE)

2. Paperless Trade Finance Services

Paperless Trade Services for Trade Finance

- 19 -

Electronic Trade Facilitation Act – L/C

3. e-Letter of Credit

- 20 -

SWIFT

MT7x

x

Paper L/C

EDI L/C

e-L/C

Exporter

KFTC

(Registry)

Pick Up

EDI

XML uTradeHub

(Registry)

XML

KFTC Message

Broker EDI

Local Bank

Opening Bank

Paper L/C

EDI L/C

Pick up

EDI

Foreign Bank

3. e-Letter of Credit

AS-IS of L/C Notification

• Paper, EDI and XML Letter of Credit

• Difficulties in controlling the trade loan limit & balance

• Documentary proof for issuing Local L/C or Purchase Certification

- 21 -

Electronic Trade Facilitation Act – Local L/C

4. e-Local Letter of Credit

- 22 - [ 22 ]

(1) Offer (DOMOFR)

(2) Application for Local L/C Open (LOCAPP)

(3-1) Local L/C Advice (LOCADV)

(3-2) Local L/C Advice (LOCADV)

(4) VAT bill (VATBIL)

(5) Delivery receipt (LOCRCT)

(6) Application for Local L/C negotiation

(APPSPC)

(7) Bill of Local L/C arrival notice (LDANTC)

(8) Pay order (PAYORD)

(9) Local L/C negotiation result notice (SPCNTC)

(10) Bill (FINBIL)

(11) Credit Advice (CREADV) (12) Debit Advice

(DEBADV)

Supplier

Opening Bank Nego Bank

Purchaser (Exporter)

Korea Financial Telecommunications &

Clearings Institute

Bank Network

4. e-Local Letter of Credit

- 23 -

Foreign Trade Act

5. e-Purchase Certificate

- 24 -

Electronic Trade Facilitation Act – Purchase Certificate

5. e-Purchase Certificate

- 25 -

5. e-Purchase Certificate

Application for Purchase Confirmation

Exporter (Purchaser)

VAT Bill(Zero VAT),

Manufacturer

(Supplier)

Purchase Certificate

Revenue Authority

VAT Bill Report

/Purchase Certificate (X)

Customs

Duty Draw Back Request

Purchase Certificate

Foreign Exchange

Bank

KTNET

KTNET

Duty Draw Back

• Mainly for Local Tax Exemption and Duty draw-back purpose

• Since 2006, Purchase Certificate became a part of trade finance

system

KTNET

- 26 -

Document Process Total

Transaction

e-Transaction

Thru uTradeHub % Note

Letter of

Credit

Notification 400,000 + 100,000~150,000 25% +

Negotiation

(Presentation) 400,000 + 200~ 1,000 0.05% +

Opening 350,000 + 160,000 46%

Local

Letter of

Credit

Opening 250,000 + 250,000 + 100% Mandate use of uTradeHub

Since Feb. 2013

Notification 250,000 + 250,000 + 100% Mandate use of uTradeHub

Since Feb. 2013

Negotiation

(Presentation) 250,000 + 26,000 11%

Mandate use of uTradeHub

from Feb. 2014

Purchase

Certificate

Opening and

notification 1,000,000 + 1,000,000 + 100%

Mandate use of uTradeHub

Since Jul. 2011

Transaction Figures (2012)

6. Benefits

- 27 -

Benefits for traders

• Identification of indirect exporters especially small and medium

sized for trade finance services

• Traders are exempted from submitting documentary proof (Local

L/C or Purchase Certificate) for ‘Duty draw back’ and ‘Local Tax

Exemption’ by ACT on VAT and data/information are reused among

agencies (Beneficiary, Revenue Authority, Customs, Insurance

Company)

• Direct time and cost savings from ‘Duty draw back’ and ‘Local Tax

Exemption’ as well as lower application fee than paper form

• Local L/C and Purchase Confirmation transactions can be certified

as a export records (history) for future trade loan

6. Benefits

- 28 -

Benefits for banks

• More business opportunities of financing service using lower

interest rate from the policy loan of Bank of Korea

• Strengthen Risk Management in Trade Finance Service – Control of

loan ceiling and Prevention of fraud and double loan application to

other different banks

• Reuse of data and less human resources /cost for trade finance

service

6. Benefits

- 29 -

Benefits of Trade Finance System

6. Benefits

Enhanced Export Competitiveness

Price Competitiveness with

Zero Local Tax and Tariff Return

Promotion of local procurement

of law materials

Sustainable supply and

manufacturing of goods for export

- 30 -

• Trade Finance System was a key for sustainable growth

of Korean SMEs

• Legal / financial support is essential for a successful

implementation of Trade Finance System

• Paperless Trade Platform can further facilitate the utility

of Trade Finance System by interconnecting

stakeholders and streamlining the process

7. Lessons

- 31 -