ROLE AND SIGNIFICANCE OF UCP 600 AS INTERNATIONAL TRADE RULES

ROLE AND SIGNIFICANCE OF UCP 600 AS INTERNATIONAL TRADE RULES <!--[if gte mso 10]> ROLE AND SIGNIFICANCE OF UCP 600 AS INTERNATIONAL TRADE RULES By Irfan Munawar Gill, Advocate, Lahore The Commercial Letters of Credit are the lifeblood of the International Trade system and the recent revision of Uniform Customs and Practices for Documentary Credit by International Chamber of Commerce through ICC pub lication number 600 or UCP 600 is an effort to harmonize and change the international trade rules with the changing needs and issues of Commercial world. The last couple of decades has seen a substantial increase in cross-border trade and particularly with the transformation of this world into global village in 21st Century, the cross-jurisdictional trade has touched new record heights in terms of volume as well as value. This increased cross-border trade forced parties to look for more secure avenues that not only guarantee fulfilment of obligations on' the part of each party to international trade but also provide a complete mechanism of resolution of conflicts. This space was successfully filled by Uniform Customs and Practices for Documentary Credits issued by International Chamber of Commerce. The UCP provides a complete mechanism from the stage of issuance of Letter of Credit to payment and the responsibility of each of party such as applicant, beneficiary and most importantly the banks has been fixed in more clear terms which is one of the main factors in their global acceptance as the preferable rules of trade. The distinguishes of UCP from other trade rules lies in the fact that they are voluntary codes and do not beg from states for their recognition or ask them to make UCP a part of their domestic law instead they are being enforced as part of contract, in fact, this is also one of the major factors in pushing them to the forefront of international trade rules. Although Uniform Customs and Practices ICC Publication number 500 was a comprehensive document that provided a complete system to regulate and manage the international trade but since the human behaviour and trade techniques change with the passage of time, the rules and codes of conduct also needs a continuous upgradation and development to fit them well with the exigencies of time and also to save them from becoming outdated and unworkable. Similarly, the recent version of Uniform Customs and Practices commonly called UCP 600 is an effort on the part of the world business community to remove the issues and lacunas in the previous version of Uniform Customs and Practices and move towards a more certain and workable rules of international trade. Since these rules deal with commercial letters of credit i.e. money and everything revolves around economics in today's commercial world, therefore, best endeavors have been made from all concerned stakeholders to make these rules as much certain and specific as is possible so that all roads to controversial constructions of these rules can be closed to maximum possible extent. A simple reading of UCP 600 makes it clear that the major part of the rules is the same as used to be in UCP 500 while only few but purpose oriented changes have been introduced to add more specificity and clarity of understanding. One prominent departure from the previous rules is the definition of Credit in UCP 600. It provides that the credit means any arrangement whether named or described that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation. Therefore, the definition of credit in UCP 600 clearly provides that it is an irrevocable arrangement and then it went on to define the terms honour, complying presentation and negotiation so that no stone can be left unturned in adding certainty and specificity to the meaning of term credit in UCP 600. A new interpretation clause has been added in UCP 600 to ensure the consistency in interpretation of terms used in these rules and specifically the terms on, about, similar, to, until, till, from, between, from and after used in credit arrangement have been given specific interpretation such as the words, "from" and "after" when used to determine a maturity date exclude the date mentioned. I think this is an important addition as it would work to resolve most of the controversies that used to be in ensuring the exact maturity and payment dates of commercial letters of credit under UCP 500. In Credits v. Contracts principle, one more clause has been added to assert the independence principle that the credit is an independent transaction from the sale or other contract and the banks have been obliged to discourage any attempt on the part of applicant to make copies of contract, pro forma invoice and like an integral part of credit and in Documents v. Goods principle, it has been specifically added that the banks deal with documents not with goods, services and like. The combined effect of these new clauses is to assert that the banks as compared to other parties only deal with credit documents and where the documents confirm with the credit arrangement, the banks are under an obligation to ensure the smooth flow of funds to the beneficiary without taking into account the nature of relationship between parties and any underlying contracts. Then a number of new provisions have been added to section dealing with availability, expiry date and place of presentation such as according to UCP 600, the credit should state how is it available and the place and expiry date of credit should be clearly stated so that accuracy and certainty in whole credit arrangement can be ensured to a maximum extent. The UCP 600 places the, confirming bank on the same footing if it adds its confirmation to credit and both issuing and confirming bank would be liable to reimburse the nominated bank if it has honoured or negotiated a complying presentation therefore, the safe harbour has been provided to nominated bank and the basic philosophy behind this is to ensure that the credit arrangements should work smoothly and independently and the banks who act in accordance with credit should feel secure and comfortable. Although the UCP 600 has incorporated most of the provisions of UCP 500 dealing with amendments in credit but at the same time, it adds two small but significant clauses, one that the bank who advises an amendment should inform the bank from which it received the amendment of any notification of acceptance or rejection and second, that any provision in amendment fixing the time of rejection of amendment by the beneficiary shall be disregarded. Another substantial change in UCP 600 is about the standard for examination of documents. The standards to be followed by banks while examining the documents have been provided in detail and the time for examination of documents has been reduced from 7 (reasonable time) to definite 5 working days plus no presentation could be made after 21 days of expiry date of credit or the date of shipment. Further to address the issues faced by parties on examination of documents, two new clauses have been added, one that the addresses of the beneficiary and applicant need not be same in stipulated documents and the credit, second that the shipper and consignee of the goods need not be beneficiary of the credit. The UCP 500 was mum on most of these issues that led to problems and the banks were always reluctant to honour payments if there was any difference of address and the beneficiary and the consignee were different persons. The UCP 600 by addition of these clauses has not only eased the conditions for parties but has also placed the banks in a more comfortable position and these new rules would work towards greater acceptability and reliability of commercial letters of credit as the parties would be confident that if they deal through commercial letters of credit then they would not be knocked out on technical grounds. In addition to these prominent changes, a number of vital changes has been introduced in UCP 600 such as notice period in case of discrepant documents has been reduced from 7 to 5 working days and its contents have been elaborated, guidance about when and what documents can be treated as original, definition of transshipment has been added, the charter party bill of lading can also be signed by charter or a named agent and etc. UCP 600 is a step ahead of UCP 500 in making the credit arrangements more definite since it goes to delineate and fix the responsibility of each of party to a commercial letter of credit in more eloquent and clear terms. UCP 600 is a concise and brief document with 39 articles rather than 491 articles of UCP 500. To say in simple words, UCP 600 is an expression of sincerity and commitment on the part of ICC to obtain optimum level of certainty and expediency in cross jurisdictional trades. Since the UCP 600 is a relatively new document therefore, much of its benefits and fruits will be unfolded with the passage of time.