Chinese embassy plays hardball over payments for contaminated fertilizer
View(s):The Chinese embassy in Colombo which earlier went public calling for international inspection of a shipment of contaminated fertilizer from China Friday went a step further by blacklisting the state owned People’s Bank over failure to honour payments for the shipment.
“This could impact other state banks similarly and the smaller private banks,” an analyst said on Friday.
Fertiliser shipment between China and Sri Lanka is mired in controversy with the state–owned Ceylon Fertiliser Company getting a court order to block the payment of US$4.9 million to Qingdao Seawin Biotech over the fertiliser shipment which was found to be contaminated.
“The Office solemnly reminds all Chinese enterprises to strengthen risk control and avoid accepting letter of credit issued by People’s Bank of
Sri Lanka in international trade with Sri Lanka,” a statement by the Economic and Commercial Office of the Chinese Embassy on Friday said.
PB in a response to this on Friday said that it is bound by an enjoining order issued by the Western Province Commercial High Court of Sri Lanka with regard to the trade transaction in question, which precludes the bank from processing of the payment. “The temporary delay in processing the said payment pertaining to the LC is solely due to the bank’s obligation to be bound by the legal directions of the country as a responsible corporate citizen. Once the legal barriers in effect are removed, the LC payment will be effected promptly as per the usual trade practices,” the PB statement said.
A microorganism identified as ‘Erwinia’ was discovered in samples brought down to Sri Lanka from Qingdao Seawin Biotech Group Co., Ltd. prompting Sri Lanka to suspend organic fertiliser imports from China on September 29.
Analysts also added the looming question now is whether other big and medium sized commercial banks will also get flagged as state controlled banks and have their limits lowered.
He said a situation like this was expected for the past two months despite being unrelated to the fertiliser crisis.
Certain overseas corresponding banks were for months refusing LCs by local banks as was reported by the Business Times on September 26.
Failing to honour commitment under a Letter of credit entered under the Uniform Customs and Practice for Documentary Credits (UCP) developed by the International Chamber of Commerce (ICC) which is a set of rules on the issuance and use of LCs, will no doubt damage the reputation of a bank, a senior commercial banker told the Business Times on Friday.
ICC’s local arm, ICCSL may get caught in the middle of this quagmire in a medley of WTO rules, international trade practices etc., he added. -DEC