Traders using letters of credit to arrange their payments are going to have to adapt to a new set of rules during the next year.
The International Chamber of Commerce (ICC) is currently revising Uniform Customs and Practice for Documentary Credits (UCP) 500 to solve several of the specific problems that arise from the current publication. Additionally, they are doing this to reduce the number of discrepancies found by document checkers, thus ensuring that fewer letter of credit (L/C) transactions will fail on account of rejected documents. They propose to approve the revised rules (UCP 600) in October of this year, publish in November and enforce it from 1st July 2007.
UCP, first published in 1933, is the universally recognised set of rules governing the use of letters of credit (also known as documentary credits) in international commerce. It acts as the default position for the majority of standard transactions where the L/C itself does not contain any stated requirements. A popular payment method, in simple terms, a letter of credit is an undertaking by a bank to make a payment to a named beneficiary within a specified time, against the presentation of documents as stated in the terms of the L/C.
The ICC Banking Commission recently held a meeting in Vienna to discuss the revision process, which is entering its fourth and final year, where the delegates, primarily drawn from the banking fraternity, were able to discuss the latest concerns with the text.
This meeting highlighted that the writers of UCP 600 had failed to consider day-to-day working practices, especially in relation to the documentation involved in L/C transactions. Fortunately, they also realised that outside knowledge was necessary and thus, in this concluding stage of the revisions, the focus has now shifted to the transport and insurance articles. Since the meeting, the Drafting Group have liaised with UK experts on these issues and amendments have been made.
Although concerns remain over possible issues regarding interpretation of the articles and there are questions about whether there will be any supporting evidence to UCP 600, the new draft is a significant step forward from previous versions, especially the articles on transport and insurance where many of the suggested changes have been implemented. In the former, for example, important improvements have been made to the definition of transhipment and the reference to Charter Party Bill of Lading. In general, the drafters have responded to issues raised including: greater clarity in key articles; problems arising in the Arab world; and complaints from shippers about having to write "clean" on Bills of Lading.
ICC has conveyed the message that this review of the UCP text will have been the most comprehensive in the entire history of the rules. However, UCP 600 will have significant implications for traders. SITPRO will continue to monitor developments and will be on hand to ensure that traders are aware of their new rights and responsibilities as soon as the final text is agreed.
Return to SITPRO News: Issue 57, Summer 2006
