UCP 600
The Uniform Customs and Practice for Documentary Credits (UCP 600) is an official publication issued by the International Chamber of Commerce (ICC), comprising of a set of 39 Articles, which are applicable on financial institutions which issue Letter of Credit. The Letter of Credit or Credit Letter is a letter issued by a financial institution – like a bank – guaranteeing the on-time payment of the correct amount from the buyer to the seller; in cases where the buyer fails to make the payment of the purchase, the bank stands liable to pay the entire or the remaining amount of the purchase.
UCP 600 is applicable in 175 countries from across the world and constitutes around $1 trillion USD trade per year. With several banks and lenders around the world being subjected to the UCP 600 regulations, it eyes at standardizing international trade, reducing risks of trading goods and services and governing the trade.
After a gap of 14 years, UCP 600 replaced UCP 500 on 1 July 2007, to systemize set of rules for the benefit of all parties in a trade finance transaction. Created by industry experts and mandated by the Banking Commission, the UCP 600 comprises rules which are voluntarily incorporated into contracts. To get applied, the rules should be particularly sketched in trade finance contracts, so that the flexibility for international parties involved is maintained.
The International Standard Banking Practice for Examination of Documents under Documentary Credit (ISBP), ICC Publication 745accompanies UCP 600 and helps to determine whether a document abides by the terms of Letter of Credit.
UCP 600 – comprising of the most successful trade rules ever – was addressed in a special program at the recent ICC UK Winter Trade Finance Conference – in which developments in industry practices & ICC policy and Banking Commission Opinions were discussed.
Why UCP is not likely to be revised any time soon
Market environment and general notes on existing guidelines play a key role in UCP 600. Being a significant proportion in global trade finance transactions, UCP 600 is not likely to be revised any time soon. One of the major reasons behind it is the amount of time and cost required for its revision.
The UCP 600 was unanimously approved in October 2006, after reviewing over 500 comments that were received after its first draft. The consulting committee- comprising of 41 members from 26 countries – held meeting on over 15 occasions to draft the rules. If UCP 600 is revised any time soon the various sanctions operating in the market might get affected. Also, drafting of policy will be required before advancement of documents since there are several regulatory uncertainties in the market.
While UCP 600 is doing relatively well in trade finance, there certainly are a low number of disputes as well. However, it is to be noted that the system – involving over 150 countries – can never be perfect and compromises will always be there, considering the commercial and legal realities.
How UCP 600 defer from UCP 500
Seven key articles were amended in UCP 600. After reviewing and overhauling decision and opinions to revise UCP 500 to UCP 600, new terms were added and new concepts and wording were introduced. Also the rules were re-organized and there were substantive and cosmetic changes. Furthermore, UCP 600 improved the clarity and thereby created new ambiguity.
Articles in UCP 600
Seven key articles were amended in UCP 600. After reviewing and overhauling decision and opinions to revise UCP 500 to UCP 600, new terms were added and new concepts and wording were introduced. Also the rules were re-organized and there were substantive and cosmetic changes. Furthermore, UCP 600 improved the clarity and thereby created new ambiguity.
Summary of the Articles in UCP 600 are:
| Article 1 | Application of UCP | Article 14 | Standard for Examination of Documents | Article 27 | Clean Transport Document |
| Article 2 | Definitions | Article 15 | Complying Presentation | Article 28 | Insurance Document and Coverage |
| Article 3 | Interpretations | Article 16 | Discrepant Documents, Waiver and Notice | Article 29 | Miscellaneous Provisions |
| Article 4 | Credits vs Contracts | Article 17 | Original Documents and Copies | Article 30 | Tolerance in Credit Amount, Quantity and Unit Prices |
| Article 5 | Documents vs Goods, Services or Performance | Article 18 | Commercial Invoice | Article 31 | Partial Drawings or Shipments |
| Article 6 | Availability, Expiry Date and Place for Presentation | Article 19 | Transport Document Covering at Least Two Different Modes of Transport | Article 32 | Installment Drawings or Shipments |
| Article 7 | Issuing Bank Undertaking | Article 20 | Bill of Lading | Article 33 | Hours of Presentation |
| Article 8 | Confirming Bank Undertaking | Article 21 | Non-Negotiable Sea Waybill | Article 34 | Disclaimer on Effectiveness of Documents |
| Article 9 | Advising of Credits and Amendments | Article 22 | Charter Party Bill of Lading | Article 35 | Disclaimer on Transmission and Translation |
| Article 10 | Amendments | Article 23 | Air Transport Document | Article 36 | Force Majeure |
| Article 11 | Teletransmitted and Pre-Advised Credits and Amendments | Article 24 | Road, Rail or Inland Waterway Transport Documents | Article 37 | Disclaimer for Acts of an Instructed Party |
| Article 12 | Nomination | Article 25 | Courier Receipt, Post Receipt or Certificate of Posting | Article 38 | Transferable Credits |
| Article 13 | Bank-to-Bank Reimbursement Arrangements | Article 26 | On Deck", "Shipper's Load and Count", "Said by Shipper to Contain" and Charges Additional to Freight | Article 39 | Assignment of Proceeds |
eRules and eUCP
Eyeing digitalization of the trade finance practices, the International Chamber of Commerce (ICC) issued the electronic rules (eRules) – to monitor and update future technologies and trends in trade finance. To acknowledge the significance of the electronic rules, ICC created full texts of the eUCP.
