Introduction

If you are an exporter and you make use of Letters of Credit (L/Cs), then you will need to familiarise yourself with the UCP 600 set of guidelines. Indeed, if you are anyone involved in international trade, then you should learn more about UCP 600.  UCP stands for Uniform Customs and Practice and the UCP 600 is the latest set of standards that came into effect on 1 July 2007. The official title is: Uniform Customs and Practices for Documentary Credits, ICC Publication Number 600.

UCP 600 provides a set of internationally recognised set of rules for governing the use of documentary credits (L/Cs) and was developed under the auspices of the International Chamber of Commerce (ICC) with input coming from a wide range of stakeholders.

The history of the UCP

UCP 600 is the latest in a long history of sets of guidelines, the first being published in 1933. These rules were then revised by the ICC in 1951, 1962, 1974, 1983 and 1993. The UCP 500, the guidelines preceding the UCP 600, came into effect in 1994. The latest revision took more than three years for the ICC to develop. There were 15 drafts and over 5 000 comments collected from around the world. According to the ICC, the UCP 600 sets out the “modern rules for a changing world”. The UCP is utilized by bankers and commercial parties in more than 175 countries. Currently some 11-15% of international trade utilises L/Cs, totaling more than a trillion US dollars per annum.



Who should know more about UCP 600?

Anyone that is involved in or with international trade transactions, but especially documentary credits (L/Cs) should make the effort to familiarise themselves with UCP 600. These individuals include:

  • Importers (L/C applicants)
  • Exporters (L/C beneficiaries)
  • Freight forwarders
  • Customs brokers
  • International carriers such as shipping lines and airlines
  • International bankers
  • International consultants
  • International trade attorneys
  • Compliance professionals
  • Anyone interested in networking and learning more about UCP 600
Why change?

Historically, the ICC revises the UCP every 10 years or so to incorporate changes in international business practice and global logistics, as well as to incorporate modern technologies such as the Internet. What is more, the UCP 500 still contained various discrepancies that hampered the smooth operation of documentary credit transactions. The problem became so bad with the UCP 500, that between 70% and 80% of L/Cs were being rejected the first time round. Because of various interpretations being applied to the UCP 500 guidelines and given the enquiries being received by the ICC, the numerous lawsuits coming into being, and the practice of including disclaimers in bills of lading in recent years thereby affecting the application of the UCP 500 rules, it become clear that change was necessary.

What are the major changes?

The ICC summarises the UCP 600 changes as:

  • A leaner set of rules, with 39 articles rather than the 49 articles of UCP 500;
  • A new section of “Definitions,” containing terms such as “honour” and negotiation”;
  • A replacement of the term “reasonable time” with a definite number of days for examining and determining compliance of documents;
  • A new provision concerning addresses of the beneficiary and the applicant;
  • An expanded discussion of “original documents”;
  • Re-drafted transport articles aimed as resolving confusion over the identification of carriers and agents.

 

More specifically?

The UCP is commonly viewed from the perspective of how it differs from the previous set of rules, namely the UCP 500. From this perspective, the changes can be described as follows:

Article 2: Definitions
The new definitions section can be found under article 2. This defines terms such as ‘honour’; what it means to honour a letter of credit, ‘confirmation’, and ‘negotiation’. Interpretations can be found under article 3. This deals with issues such as the requirement for a document to be legalised/visaed or certified, what constitutes a valid signature, and seeks to determine how vague terms such as ‘on or about’ and ‘first half’ (of the month) should be uniformly interpreted.
Article 10: Amending or cancelling a letter of credit
The new article 10 sets out the requirements for amending or cancelling a letter of credit. A letter of credit cannot be amended or cancelled without the agreement of the issuing bank, confirming bank (if any) and the beneficiary. The original terms and conditions will remain in force for the beneficiary until the beneficiary communicates acceptance of the amendment to the advising bank. This is designed to prevent the situation where beneficiaries unintentionally accept amendments by default. However, it is possible that a beneficiary may accept an amendment by conduct
Article 14: Reasonable time
Article 14 (previously article 13), has been amended so that the ‘reasonable time’ allowed to each of the various banks (nominating, confirming, issuing) for confirming whether presentation is in compliance with the letter of credit is capped at five banking days following the day of presentation. In addition, documents no longer need to be consistent with one another or the credit itself in order to comply with the letter of credit terms. Under UCP 600 it is sufficient that documents be ‘not conflicting’ with other documents or their description in the credit. This serves to water down the requirement under UCP 500 and provides greater scope for acceptance of documents at presentation. Further, any condition within letter of credit terms which does not stipulate a document necessary to indicate compliance with that condition shall be disregarded. It is noteworthy that article 14 contains a new provision regarding the addresses of applicant and beneficiary appearing in a stipulated document. Under article 14 j the addresses noted in the document need not be the same as those stated in the credit (or other stipulated document) provided they are in the same country. Additional contact details (i.e. phone, email) will be disregarded. The exception to this is transportation documentation. If the address and contact details of the applicant appear as consignee/notify in a transport document (subject to the relevant articles) they must be as stated in the credit. However, a shipper or consignor of goods indicated in a document need not be the beneficiary of the credit. A transport document may (under article 14 l) be issued by any party other than the carrier/owners/master/charterer provided it meets the requirements of the relevant articles under the rules.
Article: 16: Refusal of documents
In addition to the requirements for examination and acceptance of presentation, the procedures for refusal of documents have also been re-drafted and amended and are now included under article 16.
Article: 17: Original documents
The new article 17 deals with original documents. This includes the stipulation that at least one original of each document stipulated in the credit must be presented for the letter of credit requirements to be fulfilled. This article also defines what constitutes an original document.
Articles: 19-24: Transaction documents
The articles dealing with transportation documents, comprising articles 19-24 under the new UCP 600, have been amended to remove confusion over identification of carriers and agents. Article 20 concerning bills of lading has also been re-drafted to make it clearer and easier to follow.
When did the UCP 600 come into effect?

The UCP 600 guidelines came into effect on 1 July 2007.

Getting down to the detail

To help you get to grips with the UCP 600, ExportHelp recommends the following links that you should visit:

Documentary Credits (ExportHelp)
Letters of Credit – An introduction (SITPRO)
Letter of Credit – Best practice (SITPRO)
Letters of Credit Checklist and Guide for Exporters (SITPRO)
Letters of Credit Checklist for Export Sales Executives (SITPRO)

The SITPRO documents provide very useful information from a UCP 600 perspective. If you are interested in the UCP 500 guidelines, you can access some additional reviews of this older set of guidelines on the SITPRO website.