Thailand and China are looking to streamline procedures for letters of credit (L/Cs) as part of their efforts to facilitate trade and reduce trading costs and inefficiencies between the two countries.

Work towards improving trading arrangements between the two countries is in its early stages, but a bilateral agreement due to be finalised this year may well provide a template for a broader range of changes.

Eliminating obstacles

The two countries are currently preparing to sign an agreement that will liberalise trading arrangements for 188 vegetable and fruit categories.

According to Thailand's chief customs officer, the bilateral agreement would help eliminate trade obstacles between the two states, ultimately helping to reduce trading costs and making shipments easier. Customs' director general Chaowalit Sethameteekul said he expected the new agreement to be finalised before October.

Benefits all round

Thailand has requested that China ease restrictions on the distribution of Thai products. Thai exporters want greater flexibility in selecting distributors to help increase competition and thus lead to lower shipping expenses.

Chinese traders want the agreement to address problems in warehousing of products before customs clearance. The authorities and traders in both countries want to see more transparent import-export arrangements.

Trade finance links

The new bilateral agreement will also establish trade finance links to help the authorities keep better track of financial flows between the two countries.

Most trade now is cleared on cash terms with currency exchanged on the black market. Both Thailand and China want to establish settlement procedures for L/Cs to facilitate transactions through the financial system.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.