Impact of UCP 600 on Banking Practice                   

Restandardization will Improve Examination and Reputation

By Ravi Mehta, Ph.D.

[LC VIEWS Newsletter N0.88; January 2007]

What damages LC reputation

Is controversial examination

What cures damaged reputation

Is examination standardization

Once upon a time old UCPs used to ask bankers to use international standard banking practice (ISBP) for examination of presented documents for determining compliance, without defining and fully exemplifying the standard banking practice. The result?  Controversial interpretations. Controversial rejections. Frequent queries and clarifications. Legal disputes. The decline of trust in LC. The decline of the good reputation of the LC banker.  The emergence of new alternative payment methods. Use of existing alternative payment methods.  Both LC and banker suffered a bad reputation as a result of controversial examination. This time, UCP – UCP 600 - in its article 14 mercifully further elaborates and illustrates standard of document examination. Now it is certain for the banker what to accept, what to disregard. This is good for the exporter that the banker has to follow what is clearly said by the UCP, not what he interprets, what he understands as he used to do in the era of UCP 500. The article 14 though guides the banker, the exporter can use it for pre-presentation document examination for ensuring error-free presentation. He can also use this article for dispute management where he disputes the banker’s examination decision because this article helps him to judge whether the banker’s rejection decision is right or wrong. Gone are the days of confusion and manipulation in examination. Confusion was the mother of manipulation.  The standardization reduces the scope for discrepancy concoction and thus minimizes controversial document rejections. Controversy-free document examination is what the exporter needs and expects. And new UCP meets the expectations of the exporter.  LC is trustable, usable, and helpful if it is honorable.  The standardization will make both LC and banking practice honorable.  It will make the banker honor the term “honor”. The new UCP thus has a great potential for promoting LC and trade. A good UCP is that meets the expectations of both the consumer (beneficiary and applicant) and supplier (banker).   

                                                                 Article 14

                                        A good rule for making  good examination

                                        A new hope for document rejection reduction

                                        A potential solution to salvage LC reputation                                     

                                       A new support for trade promotion

ARTICLE 14 –Solution to LC Reputation Damage Control    

Article 14 says:

Compliance determination only on the basis of presented documents alone

a. A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank must examine a presentation to determine, on the basis of the documents alone, whether not the documents appear on their face to constitute a complying presentation.

5-day period for examination

b. A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank shall each have a maximum of five banking days following the day of presentation to determine if presentation is complying. This period is not curtailed or otherwise affected by the occurrence on or after the date of presentation of any expiry date or last day for presentation.

Presentation time after the shipment 

c. A presentation including one or more original transport documents subject to articles 19, 20, 21, 22, 23, 24 or 25 must be made by or on behalf of the beneficiary not later than 21 calendar days after the date of shipment as described in these rules, but in any event not later than the expiry date of the credit.

Data examination

d. Data in a document, when read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit.

Goods description examination

e. In documents other than the commercial invoice, the description of the goods, services or performance, if states, may be in general terms not conflicting with their description in the credit. 

Other documents

f. If a credit requires  presentation of a document other than a transport document, insurance document or commercial invoice, without stipulating by whom the document is to be issued or its data content, banks will accept the document as presented if its content appears to fulfill the function of the required document and otherwise complies with sub-article 14 (d).

Presented but not required

g. A document presented but not required by the credit will be disregarded and may be presented to the presenter.

Non-documentary condition

h. If a credit contains a condition without stipulating the document to indicate compliance with the condition, banks will deem such condition as not stated and will disregard it.

Pre-dated document

i. A document may be dated prior to the issuance date of the credit, but must not be dated later than its date of presentation.

 Addressing the address problem

j. When the address of the beneficiary and the applicant appear in any stipulated document, they need not be the same as those stated in the credit or in any other stipulated document, but must be within the same country as the respective addresses mentioned in the credit. Contact details (telefax, telephone, email and the like) stated as part of the beneficiary’s and the applicant’s address will be disregarded. However, when the address and contact details of the applicant appear as part of the consignee or notify party details on a transport document subject to articles 19, 20, 21, 22,23, 24 or 25, they must be stated as in the credit.

Shipper vs. beneficiary

k. The shipper or consignor of the goods indicated on any document need not be the beneficiary of the credit.

Transport document issuer

l. A transport document may be issued by any party other than a carrier, owner, master or charterer provided that the transport document meets the requirements of articles 19, 20,21,22,23 0r 24 of these rules.

Must know who can issue a document

Must know what should be data content

Conclusion

Standardization is a risk management mechanism. It reduces the risk of document rejection.  Standardization is a damage control mechanism. It saves the reputation of LC.

New UCP is good. Its article 14 is a solution to document rejection minimization and LC use maximization.                                                    

                                                       Good is UCP

                                                       If it helps in 3P’s 

                                                       Preparation, presentation, and payment