New letter of credit norms to help trade

EXIM MATTERS

The new rules of the International Chamber of Commerce for letters of credit make some significant changes that will make life easier for importers and exporters. The 2007 revision of Uniform Customs and Practices for Documentary Credits, ICC publication no 600 (known as UCP 600), will come into effect from July 1, 2007.

Unlike its predecessor, UCP 500, the new rules define a "complying presentation". It means delivery of documents that confirm not only to the terms and conditions of the letters of credit and UCP 600 but also the International Standard Banking Practices (ISBP). The ICC had already published ISBP 645 in 2003 but all banks did not adopt the interpretations given therein. Now, they will have to take into account the provisions of a new ISBP that the ICC will publish before UCP 600 comes into effect.

ISBP 645 does not regard spelling mistakes or typing errors that do not affect the meaning of a word or the sentence in which it occurs as discrepancies.

For example, a description of merchandise as "maschine" instead of "machine" will not be regarded as a discrepancy. Use of internationally accepted abbreviations such as "Ltd" instead of 'Limited' will not make a document discrepant. Bankers who had been ignoring ISBP 645 and treating such minor errors as discrepancies will not be able to do so after UCP 600 comes into effect because of the definition of a "complying presentation".

UCP 600 says data in a document, when read in context with the credit, the document itself and international standard banking practice, need not be identical to but must not be in conflict with data in that document, any other stipulated document or the credit. This is a remarkable change from UCP 500, which did not have similar provisions. Bankers who used to insist on identical wording in the letters of credit and documents will now have to examine the data content. They can reject a document only in case of a conflict and not merely on the grounds of contents not being identical or consistent.

The new rules say when the addresses of the beneficiary and the applicant appear in any stipulated document, they need not be the same as those stated in the credit or in any other stipulated document, but must be within the same country as the respective addresses mentioned in the credit. This will take care of situations where the letter of credit mentions the address of the head office but documents are prepared at the factory address.

UCP 600 allows a l bank issuing letters of credit more options when discrepant documents are received. The bank will have the additional option of informing the presenter that the documents are being held till the applicant grants a waiver of discrepancies or of acting on the earlier instructions of the presenter. Under UCP 500, the options were restricted to informing the presenter that the documents are being held at his disposal or returning the documents to him.

The ICC has taken note that fewer importers and exporters prefer to use letters of credit because the related bank charges are heavy and bankers do not adopt standard practices for determining whether documents presented comply with the letter of credit terms and conditions. Hopefully, UCP 600 will help importers and exporters.

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