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UCP 600

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.

Key elements of UCP 600

  • Definitions of major terms used during international trade

  • The process of signing and acknowledgement of trade documents (Letters of Credit)
  • Difference between documents, goods and services and the parties dealing with it
  • Negotiable and non-negotiable parts of the Letter of Credit
  • How credit works and the procedure of payment
  • Teletransmission – Process of confirmation of goods by banks
  • How goods are transported and the party responsible for it
  • Dealing with discrepancies, waivers and serving notice
  • Bills of Lading
  • Insurance of goods
  • Loss of documents in transit

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.