Con­ven­tion to bol­ster ex­ports and jobs

U.N. pact would in­crease busi­ness loans based on re­ceiv­ables

The Washington Times Daily - - Opinion - By Richard M. Kohn

Our po­lit­i­cal par­ties re­main locked in fierce de­bate over whether the U.S. eco­nomic re­cov­ery should be fi­nanced by in­creased tax rev­enues or cuts in gov­ern­ment spend­ing. With the pres­i­den­tial cam­paign in high gear, there is lit­tle rea­son for op­ti­mism that this ide­o­log­i­cal log­jam will be bro­ken soon. The United States should use this time wisely to im­ple­ment non­con­tro­ver­sial mea­sures that would cre­ate jobs at no cost to any­one. One highly ef­fec­tive move would be rat­i­fi­ca­tion of the United Na­tions Con­ven­tion on the As­sign­ment of Re­ceiv­ables in In­ter­na­tional Trade.

In our in­creas­ingly glob­al­ized econ­omy, ex­ports by U.S. com­pa­nies play a huge role in cre­at­ing and sup­port­ing U.S. jobs. Ac­cord­ing to the U.S. Depart­ment of Com­merce, 1 in 3 man­u­fac­tur­ing jobs and al­most 1 in 5 agri­cul­tural jobs are tied to ex­port­ing in some way.

Ex­ports are not the ex­clu­sive prov­ince of large U.S. cor­po­ra­tions. The Depart­ment of Com­merce also tells us that, in 2009, 97.6 per­cent of all U.S. ex­porters were small- and medi­um­sized en­ter­prises (SMES) with less than 500 work­ers. Ac­cord­ing to a Novem­ber 2010 re­port of the U.S. In­ter­na­tional Trade Com­mis­sion, di­rect and in­di­rect ex­ports by SMES sup­ported about 4 mil­lion jobs in 2007 — ap­prox­i­mately 40 per­cent of the 10 mil­lion jobs sup­ported by all U.S. ex­ports of goods and ser­vices that year.

Help­ing U.S. SMES to in­crease their ex­ports would un­ques­tion­ably cre­ate more U.S. jobs. Un­for­tu­nately, many of these busi­nesses are un­able to grow their ex­ports be­cause the fi­nanc­ing that would al­low their ex­ports to flour­ish is not avail­able from U.S. banks and other lenders.

Here’s why: U.S. SMES of­ten ob­tain nec­es­sary fi­nanc­ing by of­fer­ing their re­ceiv­ables as col­lat­eral for loans and other forms of credit. In the United States, mod­ern laws make it un­com­pli­cated and cost-ef­fi­cient for com­pa­nies to use their re­ceiv­ables owed by cus­tomers lo­cated in the United States as col­lat­eral for loans.

The cur­rent laws in many other coun­tries, how­ever, make it dif­fi­cult or cost-pro­hib­i­tive to use re­ceiv­ables as col­lat­eral. As a re­sult, U.S. lenders of­ten un­der­stand­ably refuse to ex­tend credit to com­pa­nies seek­ing to bor­row against their for­eign re­ceiv­ables. De­prived of vi­tal work­ing cap­i­tal, these com­pa­nies are un­able to grow their cus­tomer base and pro­duce more U.S. jobs.

That’s where the U.N. Con­ven­tion on the As­sign­ment of Re­ceiv­ables comes in.

There has been a grow­ing world­wide recog­ni­tion of the value of re­ceiv­ables fi­nanc­ing as a po­tent way to stim­u­late the growth of SMES. The con­ven­tion, the cul­mi­na­tion of a six-year project by the United Na­tions Com­mis­sion on In­ter­na­tional Trade Law, cod­i­fies mod­ern le­gal prin­ci­ples al­ready widely ac­cepted in the United States and other coun­tries where re­ceiv­ables fi­nanc­ing flour­ishes. By adopt­ing the con­ven­tion, coun­tries can make their laws much more con­ducive to re­ceiv­ables fi­nanc­ing. In turn, lenders in the U.S. and else­where would be much more likely to lend against re­ceiv­ables ow­ing by cus­tomers lo­cated in those coun­tries.

Un­for­tu­nately, the Re­ceiv­ables Con­ven­tion has lan­guished since its adop­tion by the United Na­tions in 2001, de­spite the ab­sence of any plau­si­ble rea­son to op­pose it. Rat­i­fi­ca­tion by at least five coun­tries is re­quired be­fore the con­ven­tion can be­come ef­fec­tive in any coun­try. So far only Liberia has adopted it. The United States, Lux­em­bourg and Mada­gas­car have signed it but have not yet rat­i­fied it.

Rat­i­fi­ca­tion of the con­ven­tion by the United States would not sig­nif­i­cantly change U.S. law, which al­ready re­flects the mod­ern le­gal prin­ci­ples en­vi­sioned by the con­ven­tion. It is, how­ever, widely be­lieved that U.S. rat­i­fi­ca­tion would be the cat­a­lyst that prompts rat­i­fi­ca­tion by other coun­tries. As more coun­tries rat­ify the con­ven­tion, it will be­come eas­ier for U.S. lenders to ac­com­mo­date the in­creas­ingly glob­al­ized fi­nanc­ing needs of U.S. mid­dle­mar­ket com­pa­nies, thereby fos­ter­ing the growth of ex­port rev­enues and jobs that our coun­try so des­per­ately need.

The time has come for the United States to adopt the U.N. Re­ceiv­ables Con­ven­tion. While it will not solve all of our cur­rent eco­nomic woes, rat­i­fi­ca­tion is a sim­ple, cost-free and prac­ti­cal way for the U.S. to stim­u­late our econ­omy and cre­ate jobs, and it would be a strong sig­nal to small- and medium-sized com­pa­nies that our fed­eral gov­ern­ment has their back.

IL­LUS­TRA­TION BY JOHN CAMEJO

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