Article

China

To conduct business in accordance with international rules and practices is common in Chinese business circles. In recent years, the Chinese banking system has been undertaking a systematic and thorough study of the UCP and other international practices related to the international settlement business.

As the national committee of ICC in China, ICC China plays an important role in the rollout of international practice in China. For a long time, ICC China has been active in organizing Chinese banks' participation in the use and revision of ICC rules and regulations. Meanwhile, ICC China has been devoted to the introduction and popularization of international rules and practice by translating ICC publications into Chinese, as well as inviting experts from home and abroad to speak as part of its training courses and seminars on these rules and practices.

In 2008, ICC China organized 19 training courses on UCP with nearly 2000 trainees. In the first half of 2009, it translated three ICC latest publications on international practice into Chinese and plans to introduce and translate at least four more next year.

Since 2008, Chinese banking circles, through ICC China, have submitted their suggestions and advice four times to ICC concerning the revision of ICC's Uniform Rules for Demand Guarantees (URDG). Many of these suggestions have been accepted by ICC. All of these efforts play an important role in the promotion of international rules and practice for Chinese business, especially banking, making international settlement practice formulated by ICC widely understood and implemented by Chinese banks.

The Chinese banking community attaches great importance to the study of these rules and practices. The major Chinese banks comply with international practice in their business operations and make adjustments to L/C operations or formulate new ones in accordance with it. For example, after UCP 600 was adopted, Chinese banks encouraged their employees to systematically study the revised rules. Chinese banks also provided incentives to encourage their L/C staff to take the CDCS - Certified Documentary Credit Specialist Examinations - launched by the Institute of Financial Services in the UK in cooperation with ICC. Thanks to the incentives, the number of L/C practitioners taking the exam and the success rate in China in passing the exam rank first in the world. This reflects Chinese banks' positive attitude concerning the implementation of these rules.

As further evidence of progress, China's Supreme People's Court in 2006 issued Provisions of the Supreme People's Court on Some Issues in the Adjudication of Letter-of-Creditrelated Cases, which ensured the universal application of the UCP and ISBP in China.

After years of improvement, China now has a good market environment and the institutional basis to make international rules and practice better understood, strictly complied with and formally implemented. China has trained a considerable number of professionals with rich experience in this field.

In the context of the financial crisis, rules for international trade and regulatory authorities are being confronted with new challenges. It has been reported to ICC China that L/C refusals by foreign importers and banks for unreasonable discrepancies have dramatically increased since 2008. ICC China believes that when the global market environment worsens, banking circles worldwide should, more than ever, energize internal management, exercise self-discipline, enhance the study of international rules and practice and conduct business in accordance with these rules and practices. ICC China urges global banking circles to share information extensively, strengthen cooperation and thereby to further promote the development of international trade.

China Chamber of International Commerce/ICC China Beijing
E-mail: intlgj@ccpit.org

Mauritius

Mauritius has been an independent member of the British Commonwealth since 1968 and became a republic in 1992. Strong political stability since 1968 has made the country a gateway to the African region for investment and trade from Asia and Europe. This is the reason Mauritius today is ranked among the top nations of Africa meeting international standards.

Many factors have contributed to Mauritius becoming the banking capital of Africa. As an independent island republic in the western Indian Ocean east of Madagascar, it is geographically well located as an entrance to Africa for the world's great economies such as China and India.

The Mauritian population - bilingual, educated, multi-cultural and hard working - has been one reason for its success. The official language is English; the dominant ethnic group is Indo- Mauritian and the most popular religion Hindu. The legal system reflects mixed French and British ancestry, and the administration can be bureaucratic in the French style.

Mauritius is well-served by a business and communications infrastructure. It has a dynamic economy, and the government actively encourages foreign investment and offshore activity through its Board of Investment. The republic also has a good labour-relations record, and productivity has shown a five per cent annual increase since 1994. Training and service quality are regarded as important; many Mauritian firms have adopted ISO 9000. The airport has good connections with a wide range of countries. With the latest information and communication technology, Mauritius is said to be as competitive as European and American counterparts.

Taking a lead over other African nations, the government passed the Stock Exchange Act in 1988 and now has a small but thriving exchange run by the Stock Exchange of Mauritius Ltd (SEM), a private limited company. The Act also established the Stock Exchange Commission (SEC), which controls and supervises stock exchange operations. The Official Market started operations in 1989 with only five listed companies and a market capitalization of around US$92 million. At the end of 2005, there were 41 companies listed, representing a market capitalization of almost US$2.6 bn. The stock market was opened to foreign investors following the lifting of exchange controls in 1994.

From 1992, offshore business activities became a significant sector in Mauritius, when the Mauritian Offshore Business Activities Act (MOBA Act 1992) came into force. Non-bank financial services legislation was updated and modernized in 2007. Along with these initiatives, the country began to offer a range of attractive investment incentives. Until 1998, the Offshore Company and the International Company (equivalent to an IBC) allowed zero taxation for a range of offshore activities, including banking, shipping, insurance and fund management, as well as in the free trade zones. But the country has decided to be a "respectable" International Offshore Financial Centre (IOFC), and now applies a flat tax rate of 15 per cent across almost all sectors. Mauritius was one of six offshore jurisdictions that in May 2000 wrote "'commitment letters" to the OECD in order to avoid being included on the OECD's list of jurisdictions offering unfair tax competition. The country has tax treaties with more than 30 countries, and they can be combined with the offshore regime to give good results, especially for trade and investment in Africa and Asia.

There are a wide range of investment incentives for inward investment. Free Trade Zones and a Freeport were established in 1992, providing for up 100 per cent foreign ownership of enterprises. Money laundering is prohibited by the government, as is any trade in guns or drugs.

During this period of world recession, Mauritius has proved itself a self-sustaining island. The government's budget 2009 has managed shelter the country from the worst effects of the downturn.

Rakesh Chouhan
Managing Director
Marylebone International Limited , Port Louis
E-mail: marylebone@orange.mu

Russian Federation

On 26 June, the Duma (the lower chamber of the Russian parliament) adopted on first reading a legislative draft modifying articles 867-873 of the Civil Code of the Russian Federation related to letter of credit operations. In comparison with the text of these articles in force (1996), there is a clear provision that, in the part not legislated by law, letter of credit settlements are to be regulated by international banking customs for documentary credits if a text of a letter of credit includes a reference to them.

Consequently, the links between the internal Russian L/C regulations and the provisions of UCP were strengthened with the use of a terminology identical to that of the official UCP translation into Russian. Some UCP provisions, previously absent in Russian law and regulations, found their place in proposed modified articles of the Civil Code, among them:

- issue of a letter of credit by the issuing bank on its own behalf;

- detailed definition of a standby letter of credit;

- clear distinction between a revocable and an irrevocable letter of credit (reference to a revocable credit should be made in the text of a credit);

- joint liability of a confirming bank and an issuing bank towards a beneficiary;

- detailed definition of a transferable letter of credit;

- five working days period of examination of the documents by each bank (nominated, confirming and issuing);

- general principles concerning banks' examination of documents;

- definition of an assignment of proceeds under a letter of credit;

- introduction of the notion of an advising bank;

- limitation of responsibilities of a nominated bank toward an issuing bank;

- disclaimer on transmission (delay and/or loss of any messages, letters or documents as well as their mutilation or other errors arising in their transmission by "third" persons, including postal services);

- disclaimer on effectiveness of documents, through an abridged version of article 34 of UCP 600;

- closing of a letter of credit at the nominated bank following a beneficiary's demand in the event of an agreement between the issuing bank and the confirming bank, if any, and the applicant.

An explanatory note to the legislative draft says these changes are aimed at promoting the letter of credit as the most impartial mode of settlement, one equally useful for commercial counterparties as well for optimizing the national payments system by increasing the volume of letters of credit in Russian rubles.

After being almost exclusively utilized in sanctioning "bad payers" in the Sovietera internal payment systems, the letter of credit, during the last 20 years, has become one of the dominant means of settlement between Russians business partners. Until recently, Russian internal L/C regulations differed significantly from the UCP provisions that Russian banks and companies followed in their international transactions. This proposed modification of the Civil Code creates the possibility of a further rapprochement between both texts, which is of great interest to Russian commercial and banking practitioners.

It is worth noting that the Civil Code of the Russian Federation legislates L/C settlements and does not contain any provision relating to the L/C as a financing mechanism. For this reason, perhaps, there is no reference in the legislative draft to credits available by negotiation (which are unknown in Russian internal practice), nor to the possibility of prepayment or purchase by a nominated bank of a deferred payment undertaking incurred by it (UCP 600 sub-article 12 (b)). This option is not utilized by Russian nominated banks, even in their international operations.

The present modification of the Civil Code One was elaborated with fruitful participation by the members of ICC's Russian National Committee. This was accomplished in the framework of a working group supervised by the Association of Russian Banks. It is expected that, after comments and remarks are considered, the law will be signed and will come into force in a few months.

G. Kobakhidzé
Directeur
VTB Bank (France) SA, Paris
E-mail: kobakhidze@vtb-bank-france.fr

Sweden

I have been thinking about the Banking Commission Opinion 470/TA 668rev (a counterpart of Opinion TA 654rev) ever since I read it a couple of months ago. It deals with an unsigned courier receipt presented under a letter of credit stipulating "Beneficiary's certificate along with relevant courier receipt ... ". A courier receipt, according to the analysis, had to be original and signed. Nevertheless, the one in question was accepted because there was no space for a signature. The Banking Commission clarified that "The structure of a courier receipt is not governed by the UCP; this is for each courier company to determine. The ICC Banking Commission cannot dictate that a signature is required where the courier company's document does not require such evidence."

Even though I wholeheartedly agree with the conclusion, I respectfully disagree with the analysis. Why is it that a courier receipt should be original? The Banking Commission bases its reasoning on UCP 600 sub-article 17 (a). Once upon a time, beneficiaries had difficulty making extra originals of a document. What they could easily prepare, however, was an unlimited number of copies. But this is a relic of the 20th century. Nowadays, thanks to advanced technology in every field, particularly electronic printers, it is the other way around. Practitioners can produce as many originals of a document as they wish, but may have difficulty making a copy! Consequently, emphasis, I believe, should be placed on a signed versus an unsigned (document) rather than on original versus a copy.

But why should a courier receipt be signed? The Banking Commission offers no explanation. A packing list needs no signature. The most important document under a documentary credit, namely the invoice, need not be signed (sub-article 18 (a) (iv)), then why a courier receipt? What value, commercial and/or legal, would a signature give to a courier receipt? I cannot think of any. Neither can the Banking Commission, because if they could then they would have said that the courier receipt had to be signed regardless of whether or not there was a place for a signature! If there is a purpose for a document to be signed, then it must be signed. One can place a signature anywhere on a document. It needs no specific space or place.

My understanding is that whether a courier receipt is an original or a copy, signed or unsigned is, in fact, insignificant. What is important is its tracking number or bar code. I wish the Banking Commission had ruled that a courier receipt need neither be original nor signed (full stop). This would have been very much in line with the view of the Commercial Law and Practice Commission given on another issue in Banking Commission Opinion 470/TA.625rev2: "the CLP Commission regards letters of credit as instruments of payment and would favour interpretations of the UCP which facilitate rather than hinder payment." Unfortunately, that didn't happen, and I'll be surprised if the following question does not follow soon: What if the credit had stipulated a SIGNED courier receipt? (Remember, the courier receipt had no space for a signature.) l


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