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by Frank Reynolds and Donald Smith

We recently completed a series of 36 public seminars on UCP 600 for ICC's US affiliate, the United States Council for International Business (USCIB). Don Smith is an experienced international banker who represented the US during the UCP 600 revision as Chair of the USCIB Banking Committee. Frank Reynolds is an experienced exporter-importer who represented the US during the Incoterms 2000 revision. Both have instructed on letters of credit and related topics for years.

While it is too early for transactionbased feedback, the areas of interest and/or concern expressed by seminar attendees may be an indication of what is to come. However, there are some caveats that must be kept in mind when considering this. Americans may have some special interests that are not necessarily shared in other countries. Attendance varied widely, from 70+ at one location to only nine at another. Attendee composition was also mixed and included bankers, users of credits, transportation service providers, customs brokers, insurers and lawyers in different percentages for each location. As local non-profit organizations frequently co-sponsored in their cities, their membership mix (credit, forwarders, traders, etc.) influenced seminar attendance. Finally, whenever people from different disciplines instruct, there are bound to be differences in which points are and are not stressed.

As we weren't taking notes on opinion frequency by topic, we are listing them in the order they appear in UCP 600.

Everyone liked article 1's stating only once that a credit may overrule any UCP provision as opposed to repeating this concept in different articles. The phrase "to the extent to which they may be applicable" relating to standbys was seen as problematic to standby users. When a standby credit is issued subject to UCP 600, who decides to what extent which articles are applicable to the credit? Experienced users of standby credits frequently mentioned their preference for ISP98, as it was written specifically for standbys. No attendees noted using ICC's Uniform Rules for Demand Guarantees.

Definitions

Article 2 was well received, particularly by users who are not acquainted with banker jargon. Using defined words within definitions (i.e., "Advising bank means the bank that advises the credit ... ") raised some eyebrows until the goal of limiting vocabulary to words that translate well into many languages was explained.

The definition of "Honour" of a sight credit in sub-article 2(a) ("to pay at sight if the credit is available by sight payment"), read in context with the responsibilities of an issuing and confirming bank in sub-articles 7(a)(i) and 8(a)(i), and sub-articles 15(a) and 15(b) ("when an issuing bank determines that a presentation is complying, it must honour", and "when a confirming bank determines that a presentation is complying, it must honour or negotiate and forward the documents to the issuing bank"), led participants to understand that issuing and confirming banks are not entitled to delay payment until the close of the fifth banking day (sub-article 14(b)). Once the bank has determined the documents comply, they must THEN honour - i.e., make payment in the normal course of banking operations.

"Availability" (sub-article 6(d)(ii)) and "Nomination" as defined in article 12 also raised some eyebrows and immediately brought us back to the ever-popular "Negotiation" as in the phrase "freely negotiable". The fact that only confirming banks are required to negotiate without recourse brought us back a second time.

Beneficiaries liked the definition of "Negotiation", while bankers disliked it in general, until they understood they are not forced to advance funds to beneficiaries who are not their customers. Beneficiaries noted they will likely send even more documents to their own bankers instead of automatically returning them to the advising bank if they do not have a credit relationship with that bank.

Amendments and data

Sub-article 10(c) concerning amendments bothered everyone, including these authors. No one understands how a beneficiary who presents documents that conform to the original credit AND to an amendment they may not yet have accepted or even received could possibly be considered to be bound by such an amendment.

Data in a document (subarticles 14(d) and (e)) raised several questions. Credit users are concerned about just what is considered "data". All data? Required data? Is punctuation to be compared symbol-tosymbol? For their part, bankers are concerned about the apparent increased responsibility for examiners to know the meaning of words to determine whether they are in "conflict". It seems as though banks would like to compare words as if they were symbols, while users would like examiners to consult dictionaries for synonyms. Beneficiaries in particular are concerned that random marks made on one document may be misconstrued as "data" by prickly bankers if the same random marks are not replicated on other documents.

Conflicts and addresses

Some bankers believed the choice of language of sub-article 14(e): "In documents other than the commercial invoice, the description of the goods, services or performance, if stated, may be in general terms not conflicting with their description in the credit" when compared with subarticle 18(c): "The description of the goods, services or performance in a commercial invoice must correspond with that appearing in the credit" meant that the intention of the UCP Drafting Group in 18(c) was to mandate a "mirror image" of the merchandise description in the commercial invoice. They were relieved to learn that "correspond" does not mean mirror image.

Sub-article 14(j) concerning the address of the applicant and beneficiary not having to be the same as those in the credit or any stipulated document actually received applause in several locations. And the broad definition of "original" as "any document bearing an apparently original signature, mark, stamp, or label of the issuer of the document" in article 17 was generally well received.

Article 19 defining transhipment from anything to anything and consistent with the new definition permitting all transhipments makes this issue very clear. However, there still are the usual problems with places and notations when credits impose "on board" requirements for multimodal transportation documents used for shipments involving vessels.

Many attendees required help untying the concepts of "negotiability" and "on board". This is probably an issue only for Americans, and comes from carriers using the term "non-negotiable bill of lading" instead of "sea waybill" for cargo liability limitation reasons.

Article 35 requiring issuing banks to honour missing documents that nominated banks deem compliant was obviously appreciated by users in view of 9/11. It takes some of the sting out of article 36, Force Majeure. Bankers would have preferred article 35 to explicitly state that a set of documents (albeit not originals) must still be produced in order to trigger payment. Article 38 received general appreciation for clarity and the placing of definitions of "Transferable credit" and other terms within the article rather than in article 2. Most attendees felt the article was an improvement over UCP 500.

As a general conclusion, most attendees believe that the elimination of ten articles and some 1,500 words plus the obvious attempt to make the document more reader friendly were significant improvements.

Frank Reynolds is President of International Projects, Inc. in Ohio (US). His email is fjr24@aol.com.

Donald Smith is Vice President, Client Services at Norman Technologies in North Carolina (US). His email is don.smith@normantech.com