2. Historically, the commercial parties, particularly banks, have
developed the techniques and methods for handling letters of
credit in international trade finance. This practice has been
standardized by the ICC (International Chamber of Commerce)
by publishing the UCP in 1933 and subsequently updating it
throughout the years.
The ICC has developed and moulded the UCP by regular
revisions, the current version being the UCP600. The result is
the most successful international attempt at unifying rules ever,
as the UCP has substantially universal effect.
3. The Uniform Customs & Practice for Documentary Credits (UCP 600) is a set
of rules agreed by the International Chamber of Commerce, which apply to
finance institutions which issue Letters of Credit – financial instruments
helping companies finance trade.
Many banks and lenders are subject to this regulation, which aims to
standardise international trade, reduce the risks of trading goods and
services, and govern trade.
4. The UCP 600 (“Uniform Customs & Practice for Documentary Credits”) is the
official publication which is issued by the International Chamber of
Commerce (ICC). It is a set of 39 articles on issuing and using Letters of
Credit, which applies to 175 countries around the world, constituting some
$1tn USD of trade per year.
5. ICC and the UCP
A significant function of the ICC is the preparation and promotion of its
uniform rules of practice. The ICC's aim is to provide a codification of
international practice occasionally selecting the best practice after ample
debate and consideration.
The ICC rules of practice are designed by bankers and merchants and
not by legislatures with political and local considerations. The rules
accordingly demonstrate the needs, customs and practices of business.
Because the rules are incorporated voluntarily into contracts, the rules
are flexible while providing a stable base for international review,
including judicial scrutiny. International revision is thus facilitated
permitting the incorporation of the changing practices of the commercial
parties.
6. ICC, which was established in 1919, had as its primary objective
facilitating the flow of international trade at a time when nationalism and
protectionism threatened the easing of world trade. It was in that spirit
that the UCP were first introduced – to alleviate the confusion caused by
individual countries' promoting their own national rules on letter of credit
practice.
The aim was to create a set of contractual rules that would establish
uniformity in practice, so that there would be less need to cope with often
conflicting national regulations. The universal acceptance of the UCP by
practitioners in countries with widely divergent economic and judicial
systems is a testament to the rules' success.
7. Summary of the UCP 600
Here are a few of the key elements which make up the UCP 600:
1.Definition of key terms which are prevalent in international trade (e.g.
honouring [of payments], applicants, banking days, presentation)
2.How international trade documents (Letters of Credit) can be signed and
acknowledged by all parties
3.The difference between documents, goods and services (and which
parties deal with these)
4.Which parts of a Letter of Credit are negotiable and non-negotiable
5.How credit works, and how payment is made
8. 6. How banks can communicate the confirmation of goods (tele
transmission)
7.Transportation of the goods, modes of transport, and who bears
responsibility
8.How to deal with discrepancies, waivers and giving notice
9.The provision of original documents or electronic copies
10.Bills of Lading
11.Insurance and covering the cost of goods
12.Loss of shipping documents in transit
9. Summary of the Key Articles in UCP 600
Articles 1 – 5 – General Provisions and Definitions
Articles 6 – 13 – Liabilities and Responsibilities
Articles 14 – 17 – Examination of Documents
Articles 18 – 28 – Documents
Articles 29 – 33 – Miscellaneous Provisions
Articles 34 – 37 – Disclaimers
Articles 38 – 39 – Transferable Credit & Assignment
