We all know that in the international trade of goods and services transactions takes place between the people belonging to different continents, languages, culture, and laws. Since the language used for communication of terms and conditions of LC may suggest different meaning in different parts of the world, people across the world realised the need of uniform rules with standardised words offering the same meaning everywhere for LC transactions. As a result, international chamber of Commerce (ICC) was created in Paris, France in 1919 and its International Court of Arbitration was formed in 1923 to deal with the difficulties in international trade.
Uniform Customs and Practice (UCP) for Documentary Credits is a publication of International Chamber of Commerce (ICC) which is a voluntary code applied by the banks all over the world. Though the drawn-up rules of UCP do not have the binding of law, they have gained almost universal acceptance and are incorporated as a reference in all documentary credits.
The International Chamber of commerce published the first Uniform Customs and Practice for Documentary Credits in 1933 and same was periodically revised 1951, 1962, 1974, 1983, 1993 & 2007. The latest UCP revision is done in July 2007 under publication Number UCP 600 of ICC.
Some of the important interpretations used in UCPDC – 600 are as under.
- A credit is irrevocable: Even if there is no indication to that effect.
- On or about : An event is to occur during a period of 5 calendar days before until 5 calendar days after the specified date, both start and end dates included. (To, until,)
- From and between: To determine a period of shipment include the date mentioned and the words “before and after” exclude the date mentioned.
- From and after: To determine maturity date exclude the date mentioned.
- First half and second half: Related to 1st to 15th and 16th to the last day of the month, all dates inclusive.
- Beginning, middle and end: Relates to 1st to 10th, 11th to 20th and 21st to last day of month, both dates inclusive.
- Date of issuance of transport document: If the transport document indicates, date of dispatch taking in charge, shipped on board, this date will be deemed to the date of shipment.
- Trans-shipment: Unloading from one means of conveyance and reloading to another means of conveyance during the carriage.
- Clean transport document: Bearing no clause of notation expressly declaring a defective condition of goods or packaging.
- (Please note that documents such as Delivery Order, Forwarder’s Certificate of Receipt, Forwarder’s Certificate of Shipment,Forwarder’s Certificate of Transport, Forwarder’s Cargo Receipt, Mate’s Receipt are not transport documents as per UCP 600.)
- Insurance: If there is no indication, amount of insurance coverage must be at least 110% of CIF/CIP value of goods.
- Commercial invoice: Description of goods must correspond with the credit. In other documents, the goods may be described in general terms.
- Time for scrutiny of documents : The issuing bank, the confirming bank, if any, or a nominated bank shall each have 5 banking days following the day of receipt of the documents, to examine the documents and determine whether to take up or refuse the documents and to inform the party from which it received the documents accordingly
There are different parties involved in LC mechanism viz. LC applicant (on whose behalf LC is issued), LC issuing bank, the beneficiary of the LC, LC advising bank, LC confirming bank, LC negotiating bank, ‘LC paying bank’ or nominated bank, ‘LC reimbursing bank’. The international commercial terms (INCOTERMS) such as ‘partial shipment’ (multiple sets of B/Ls evidencing different voyages), the ‘latest date of shipment’ (date of shipment will apply only to the transport documents), the ‘expiry date of LC’ (the last date to submit the exported documents with bank for negotiation of documents), means of conveyance or mode of transport, FOB value, CIF value etc. All the above terms are interepreted in UCP.
Click the below links to read related articles
(i) Mechanism of letter of Credit transactions (ii) Folks tangled in issuance of a letter of Credit
(iii) Connotations used in Letter of Credit transactions (iv) All about different kinds of letter of credits
(v) Standby Letter of Credits of different types
