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
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.
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:
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.