Article

Bulgaria

After having read the article "Master air waybill vs. house air waybill: two views" in the October-December 2007 issue of DCInsight, I would like to add some comments of my own.

At the present time, international transport (statute) law concerning the contract of carriage is based on three main "pillars".

The first pillar concerns the nature of the contract. The contract of carriage of goods is a legal contract, not a consensual one. In a consensual contract, there can be legal consequences, but these arise from an agreement based on the will of the parties as expressed in the agreement. In a legal contract, by contrast, reaching agreement between the contracting parties alone is not sufficient. In addition, for the contract of carriage to become effective, it is of vital importance that there be a real handing over of the goods (in the form of cargo) to be effected from the holder to the carrier.

The second pillar concerns the nature of the transport document. The transport document, in itself, does not constitute a contract of carriage of goods. In all of the international transport conventions, the transport document is treated as prima facie evidence of the conclusion of the contract. Moreover, even if the transport document is absent, irregular or lost, the contract of carriage still exists and is valid.

The third pillar concerns changes and amendments. Unlike the L/C, the contract of carriage is not irrevocable. The consignor is entitled to make amendments to it by giving subsequent orders to the carrier, and is even entitled to name a completely new consignee. In this respect, the consignor must produce for the carrier an original sheet from the set of transport documents, which is based on the nature of the transport: in marine transport, a full original set of B/ Ls; in air transport, original no. 3 for the shipper; in road transport, one of the three original copies and in rail transport, a genuine duplicate of the consignment note.

With the entering into force of UCP 500, the banking industry built a virtually new "fourth pillar", which, until now, has not been fully recognized by the international transport industry and freight forwarding societies. This pillar is based on the idea that the transport document must clearly indicate the name of the actual carrier. Since that time, "the name of the actual carrier" has been a causus belli in arguments concerning the compliance of the transport document.

As to the HAWB, my view is that by virtue of the adoption of "Convention for the Unifications of Certain Rules For International Carriage by Air" (Montreal, 28 May 1999), a considerable new phenomenon in international transport law has arisen for the first time - an air waybill may now be substituted for another equivalent document named a "cargo receipt", whereby the latter is given the legal force of a true transport document. This means that an HAWB implemented in practice and regulated by IATA resolutions represents the cargo receipt in question.

Therefore, unlike a mate's receipt, a freight forwarders' certificate of receipt (FCR), a freight forwarding certificate of transport (FCT) and similar types of documents, which I would call "quasi transport documents", the HAWB must be fully acceptable under L/Cs as a true transport document, provided, of course, it meets the requirement stemming from the aforesaid "fourth pillar".

Ivan Simeonov
Chief Expert, International Payments Division
Central Cooperative Bank, Sofia
E-mail: isimeonov@ccbank.bg

Canada

Recognizing that transport of goods by sea shipment only is the exception rather than the norm in today's transport, the UCP 600 Drafting Group placed article 19, which covers transport of goods by more than one mode of transport, as the first of the transport document articles.

The Drafting Group also made a clear distinction between a transport document that covers more than one mode of transport by naming article 19 "Transport Document Covering at Least Two Different Modes of Transport". A transport document covering sea shipment only (article 20) is entitled "Bill of Lading". In describing the requirements of a bill of lading, the Drafting Group did not incorporate the following sections of UCP 500 in article 20.

- UCP 500 sub-article 23(a)(ii): "... If the bill of lading indicates a place of receipt or taking in charge different from the port of loading, the on board notation must also include the port of loading stipulated in the Credit ... ";

- UCP 500 sub-article 23(a)(iii): "iii. indicates the port of loading and the port of discharge stipulated in the Credit, notwithstanding that it: (a) indicates a place of taking in charge different from the port of loading, and/or a place of final destination different from the port of discharge ... ".

It is my view that removing the above wording from article 20 of UCP 600 gave the impression that a place of receipt or a place of final destination is not envisaged in a bill of lading, as the nature of a bill of lading is for sea shipments only and should not include any pre-carriage information on the goods to the port of loading. Paragraphs 68, 91 and 92 of the revised ISBP (ICC Publication 681) seem to support this interpretation as well.

For ease of reference, I quote below paragraph 68, 91 and 92 of the ISBP:

- Paragraph 68 of the revised ISBP: "If a credit requires presentation of a transport document covering transportation utilizing at least two modes of transport (multimodal or combined transport document), and if the transport document clearly shows that it covers a shipment from the place of taking in charge or port, airport or place of loading to the place of final destination mentioned in the credit, UCP 600 article 19 is applicable. In such circumstances, the transport document must not indicate that shipment or dispatch has been effected by only one mode of transport, but it may be silent regarding the modes of transport utilized."

- Paragraph 91 of the revised ISBP: "If a credit requires presentation of a bill of lading ('marine', 'ocean' or 'port-to-port' or similar) covering sea shipment only, UCP 600 article 20 is applicable ... ".

- Paragraph 92 of the revised ISBP: "To comply with UCP 600 article 20, a bill of lading must appear to cover a port-to-port shipment but need not be titled 'marine bill of lading', 'ocean bill of lading', 'port-to-port bill of lading' or similar."

The above references seem to suggest that a transport document presented under a letter of credit specifying a port of loading in field 44E and a port of discharge in field 44F of a MT700, and calling for a bill of lading, should not indicate a place of receipt different from the port of loading, and/or a place of final destination different from the port of discharge. The rationale for this interpretation is that if a bill of lading shows a place of receipt different from the port of loading, and/or a place of final destination different from the port of discharge, the letter of credit should have required the presentation of a transport document covering at least two different modes of transport, unless it is clear from the bill of lading that only sea shipments have been effected.

As per a recent Opinion from the Banking Commission on a query submitted by a national committee on this issue (unpublished ICC Document 470/TA.635 Query 3), exclusion of the provision of UCP 500 sub-article 23(a) in article 20 of UCP 600 was not intended to disallow the indication of a place of receipt different from the port of loading, and/or a place of final destination different from the port of discharge on a bill of lading, i.e., an article 20 document. The query was discussed extensively during the Banking Commission meeting in Paris in October, and the Commission's technical adviser confirmed that there has been no change in UCP 600 regarding the possibility of a place of receipt different from the port of loading and/or a place of final destination different from the port of discharge to be shown on a bill of lading, as permitted in UCP 500. This opinion is further confirmed by the UCP 600 Drafting Group in the Commentary on UCP 600, ICC Publication No. 680.

It would have been clearer if the language in sub-article 23(a) of UCP 500 had been included in article 20 of UCP 600. However, as a separate issue, I believe it is each issuing bank's responsibility to guide L/C applicants to require the type of transport document that reflects the underlying shipping arrangements. With the understanding of the nature of a transport document covering at least two different modes of transport on the one hand, and a bill of lading on the other, issuing banks should identify situations in which the shipment routing provided in an L/C application does not correspond with the transport document requirement. For example, I believe they should enquire of the applicant if it indicates a shipment routing of two seaports while stipulating a multimodal transport document, i.e., an article 19 transport document. Likewise, they should enquire of the applicant if, while stipulating a bill of lading, it indicates a shipment routing of two inland points when pre-carriage is envisaged prior to any loading port.

If we issue an L/C requiring a transport document that is not consistent with the shipment routing information, a document checker will not be able to determine which transport article of the UCP he is to apply. The result will be an increased risk of disputes with applicants, beneficiaries, nominated banks, etc., which costs time and money and undermines the benefits of using an L/C.

Helena Kwok
Risk Consultant, Trade Finance Operations
Canadian Imperial Bank of Commerce
Toronto
E-mail: Helena.Kwok@cibc.ca

China

Chinese banks and other financial companies have been rapidly expanding their businesses overseas in recent years, seeking to tap into the world's vast natural resource and capital markets - from oil to metals, minerals and IPOs. Perhaps the most far-reaching of the recent changes has been the move to allow Chinese banks and financial companies to expand their business overseas by acquiring overseas banks and assets in certain countries.

For example, on 22 October 2007, CITIC Securities Co., China's top broker, agreed to swap stakes with Wall Street firm Bear Stearns, with the Beijing-based firm paying USD 1 billion for bonds that will convert to about 6 per cent of Bear Stearns' shares.

On 25 October, 2007, Industrial and Commercial Bank of China, the world's largest bank by market capitalization, agreed to pay USD 5.56 billion for a 20 per cent stake in South Africa's Standard Bank. This was the largest overseas acquisition by a Chinese bank.

In the meantime, Bank of China, the world's sixth-biggest bank by market capitalization, denied a rumour that it is in talks with UK-based lender Standard Chartered PLC, which derives over 90 percent of its profits from Asia, Africa and the Middle East.

These moves, along with China Development Bank's USD 3.14 billion investment in Barclays Bank and China's state investment agency's USD 3 billion stake in Blackstone Group USA, amount to around USD 12 billion worth of Chinese investments in overseas financial assets this year.

Clearly, these banks and financial companies have responded to the fastgrowing economy by expanding aggressively through the acquisition of foreign assets and by engaging in bilateral trades in several important countries, especially in international trade and finance. They have also established a range of branches abroad. Chinese banks have overcome a series of obstacles to adhere to international banking practices, particularly the current UCP 600.

Recent economic data further demonstrate that the expansion is on target to meet China's need for rapid economic growth. China's economy, the largest contributor to global growth, expanded 11.5 per cent in the third quarter, adding to pressures for currency appreciation and higher borrowing costs to curb inflation. The increase in gross domestic product from a year earlier compared with an 11.9 per cent gain in the second quarter, the fastest pace in 12 years.

However, there are many problems associated with rapid economic growth. For example, the Chinese yuan (renminbi) is substantially undervalued against the US dollar. The renminbi, in my view, should be re-valued over the next two years to RMB 5.75 against the dollar from its current RMB 7.49. The imbalance of the renminbi against the dollar may result in an over-expansion of investment in industrial capacity, increased industrial production, higher inflation and rising housing prices, creating higher interest rates. These developments, in turn, could lead to severe overcapacity problems, excessive inventory, unemployment, an increasing number of non-performing loans and sharp declines in corporate earnings.

The Central Bank recently raised the benchmark one-year lending rate to a nine-year high of 7.29 per cent. The government has ordered lenders to set aside larger reserves. It has also sold bills to soak up cash and eased capital controls to allow more money to flow abroad.

Although monetary policy tightening has slowed the economy a bit, it hasn't solved the root problem. It is a structural problem: China's economy is too reliant on external demand and investment and not enough on domestic consumption.

Simon Jian
Chief Executive Officer And President
Edward Trading LLC
E-mail: simonjian@edwardtrading.com

Sweden

One wonders why it takes so long to understand and fully implement the rules of the UCP. The following familiar examples of conditions incorporated in letters of credit issued under UCP 500 and still under UCP 600 make my point clear:

- "The amount of each drawing must be endorsed on the reverse of the credit."

This requirement became meaningless when letters of credit were no longer issued in letter form. Documentary credit computer systems have made old-fashioned L/Cs invisible.

- "Third party documents acceptable".

This is still found in some L/Cs in spite of wording in article 23 of UCP 400, article 21 of UCP 500, sub-article 14(f ) in UCP 600 and ISBP (2007) paragraph 21.

- "Shipment on deck not acceptable" is still found despite sub-article 28(a) of UCP 400, sub-article 31(i) of UCP 500 and article 26 of UCP 600.

- "If discrepancy/ies noted, we place documents at the risk and disposal of presenter ... " still exists in some L/Cs in spite of sub-article 16(c)(iii) of UCP 600.

In Opinions of the ICC Banking Commission 1984-1986, ICC Publication No. 434, we read often about the importance of "education" of all parties concerned. This remark, as far as I know, does not appear in subsequent publications, not because education was no longer necessary but perhaps out of politeness. Education, of course, is a key factor, but where does one find a reliable and impartial source of information?

Most vocations have their own schooling. Trade finance is one of the exceptions. Here in-house training seems to be the main source of education, though on-line training is now becoming more important. But inhouse training does not always happen regularly, because many banks do not feel it is of pressing importance. Therefore, a would-be L/C practitioner is left at the mercy of senior colleagues and their generosity to share their know-how. Consequently, obsolete routines are passed on from one generation to another. That is one reason why, for more than a half a century, old rules have not yet been fully understood and why the problems still persist. Not all financial institutions can afford staff training costs, including expensive ICC literature and seminars, let alone smalland medium-size companies that frown upon buying even the latest version of UCP.

On the Wikipedia web site (www. wikipedia.org), one reads: "The International Chamber of Commerce (ICC)... works to promote and support global trade ..." (emphasis added). Trade finance is one of the main ingredients of global trade, and education is certainly a key instrument in promoting it. But it should be affordable for all. Imagine if ICC were to open its knowledge base to the public gratis just as Wikipedia does. Also imagine that if it arranged a chat room for whoever wanted to exchange views or to put questions to a think tank, as Kim Christensen proposed, and received an answer within 24 hours. Wouldn't that help improve our understanding of the rules and reasons behind them? The result, I believe, would be fewer discrepancies and less poor wording in letters of credit. As a by-product, it would also improve the bank/customer relationship that promotes global trade.

Hossein Moezzi
Certified Documentary Credit Specialist
Nordea Bank AB (publ), Gothenburg
Email: hossein.moezzifard@nordea.com