Each day TFO Canada publishes a sample of trade news on the Canadian import market along with any new, updated or changed regulations and legislations regarding international trade; countries in which TFO Canada offers services and on the export sectors which it promotes.
UCP 600Thursday, January 25, 2007 > 09:31:32
(CSCB via I.E. Canada's e-Bulletin)
This article is extracted from the “Export ABCs” column published in “The Journal of Commerce” issue of 23 January 2007. The author is Frank Reynolds, president of International Projects, Inc.
Note: Canadian Chamber of Commerce UCP 600 Pre-Order form in .pdf at bottom of article.
The International Chamber of Commerce … has revised its Uniform Customs and Practice for Documentary Credits. The new version, UCP 600, was unanimously approved on Oct. 25, 2006, with an effective date of July 1, 2007.
There are some significant changes from UCP 500, and the net result is a more user-friendly set of rules. This is badly needed, as the discrepancy rate is now about 70 percent. Think this through. The seller requests the buyer to have a letter of credit issued. Since everyone thinks himself or herself to be creditworthy, the buyer considers this request unreasonable.
However, in order to satisfy the "paranoid" seller, a letter of credit is issued. The seller ships, and for whatever of the many possible reasons fails to follow the instructions contained in the credit. A discrepancy is proclaimed, payment is withheld, and the seller must shamefacedly request the buyer to pay anyhow -- a situation that happens an average of seven out of 10 times!
The very first improvement comes in UCP 600 Article One, which clearly indicates that these rules apply only when invoked and only when the credit doesn’t specify otherwise. Any credit can be written contrary to any UCP 600 rule, and when this happens the conditions specified in the credit apply. This concept has been around for a long time but UCP 600 handles it best by mentioning it only once….
Next, Article Two provides some useful definitions to be used throughout the publication's 39 articles. Some seem simplistic in English (an advising bank advises a credit, an issuing bank issues a credit, etc.), but make more sense if you keep in mind that they must also be reasonably clear in a number of other languages. Anyway, not even a lawyer will have a problem with the concept that an issuing bank issues, etc.
These are some really important definitions of terms that are often misunderstood. "Negotiation" is often misused by old timers like me to mean merely examining documents for compliance. UCP 500 defined it as "giving value," but UCP 600 calls it what it is: a bank's purchasing documents. The term "nominated bank" is also clearly defined, and answers the question "Where do I present my documents?" which could be at the issuing bank, a nominated bank, or in some cases any bank. This last possibility is what we old timers called "freely negotiable" but must now say "freely available" in view of negotiation's more precise definition.
Tediously copying foreign addresses, phone and fax numbers from document to document should be a thing of the past once UCP 600 takes effect. Article 14j says that banks will disregard such details except for the consignee and notify fields of a transport document. Getting this information correct there is obviously important to enable the carrier to contact the recipient.
Banks now have five banking days after the day they receive presentations to determine whether the documents are compliant. While this means at least a calendar week, it is an improvement from the seven banking days found in UCP 500.
Like their predecessors, these rules were written by and for bankers and are naturally banker-friendly. However, there were a few non-bankers involved in the revision process who can provide a slightly different perspective, and I'll continue doing so in the next few columns. Meantime, order your copy of "Uniform Customs and Practice for Documentary Credits, 2007 Revision UCP 600" (ISBN: 92-842-1257-x) from the United States Council for International Business ICC Publishing USA at www.iccbooksusa.com. July 1 will be here before you know it. The new rules -- and understanding them -- are major steps towards risk management. …