Revised rules on letters of credit approved

EXIM MATTERS

The Banking Commission of the International Chamber of Commerce (ICC) has approved the revised rules on letters of credit. The new rules will come into force from July 1, 2007, says the ICC.

The Uniform Customs and Practices (UCP) for Documentary Credits were first issued in 1933 by the ICC with a view to overcome the conflicting laws on letters of credit in different countries. The rules were created to bring uniformity in banking practices worldwide. Since then the rules have been revised many times. The last revision in 1993, the ICC publication no. 500 (known as UCP 500) is used widely by bankers, importers and exporters.

The UCP are the most successful private rules for trade ever developed and they are essential ground rules for billions of dollars of trade every year. The latest revision, referred to as ICC 600 is the result of over three years of extensive work by experts. This is the first revision to the rules since UCP 500, the previous version. The revision, which will come into effect on July 1, 2007, incorporates a number of changes from UCP 500:

A leaner set of rules, with 39 articles rather than 49 articles of UCP 500; · a new section of "Definitions", containing terms such as "honour" and "negotiation" and a section of 'Interpretations' that will clarify meanings of ambiguous terms; · replacement of the term "reasonable time" with a definite number of days (five banking days) for examining and determining compliance of documents; a new provision concerning addresses of the beneficiary and the applicant; an expanded discussion of "original documents"; re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents; new provisions to allow the discounting of deferred payment credits; provisions to allow banks to accept an insurance document that contains reference to any exclusion clause.

The new UCP 600 also contains within the text the 12 articles of the eUCP, ICC's supplement to the UCP governing presentation of documents in electronic or part-electronic form.

These and other changes will have to be carefully studied by bankers, traders, corporations and other practitioners in the seven months remaining before the new rules are implemented. UCP 600 is not yet on sale.

Interested persons can sign up to Business Bookstore mailing list at www.iccbooks.com to be notified by e-mail as soon as the UCP 600 is on sale. The ICC Business Bookstore (www.iccbooks.com ) will offer UCP 600 in several formats - book, leaflet and eBook.

The UCP 600 comes at a time when the use of letter of credit is on the decrease worldwide due to high bank charges associated with documentary credits and divergent interpretations that banks adopt, especially while determining whether the documents presented are in compliance with the terms and conditions of the letter of credit.

The ICC had brought out its publication no.645 on International Standard Banking Practices for Examination of Documents under Documentary Credits (ISBP-645) in the year 2003. Most banks do not adopt the interpretations given in the ISBP-645. So, the uncertainly regarding getting payments under letters of credit does linger. Hopefully, the new set of rules will lead to more order and discipline, especially among banks in Bangladesh, Middle-East and parts of Africa.