6. COMPARING PAYMENT TERMS METHOD OF PAYMENT TIMING OF PAYMENT GOODS AVAILABILITY SELLERS’ RISK BUYERS’ RISK Advance Before Shipment At Destination Arrival None 100% Reliance on Seller Sight L/C Presentation of Docs after shipment When L/C is paid Minimal issuing / confirming bank obligation to pay if docs conform to L/C Assurance of Shipment, but depends on seller to supply goods ordered Usance L/C Maturity date or at discount of the draft At acceptance of draft drawn under the L/C Minimal bank obligation to pay if docs conform to L/C terms Regardless of product quality, payment due at maturity Collection Demand Bills When docs received are presented to the drawee When payment is made Non-payment of draft Assurance of shipment, but depends on seller to supply goods ordered Usance bills on D/A basis When accepted B/E matures At time B/E is accepted Non-payment of B/E, even though buyer has the merchandise Minimal, may refuse to pay at maturity Open A/c As per the arrangement Upon arrival Reliance on buyer Zero

7. UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS UCP – 600

13. TRIANGULAR CONTRACTUAL ARRANGEMENT EXPORTER SALE CONTRACT DEFINING TERMS IMPORTER ISSUING BANK ADVISING BANK L/C APPLICATION ISSUANCE OF THE LETTER OF CREDIT ADVICE OF OPENING LETTER OF CREDIT

14. Letter Of Credit

25. Basic Documents used in International Trade

66. INCOTERMS 2000

74. GROUPING ‘ E’ DEPARTURE TERM EXW ‘ F’ MAIN CARRIAGE UNPAID FCA FAS FOB ‘ C’ MAIN CARRIAGE PAID CFR CIF CPT CIP ‘ D’ ARRIVAL AT DESTINATION DAF DES DEQ DDU DDP

84. FOB - FREE ON BOARD … NAMED PORT OF SHIPMENT Monomodal Deliver Goods On Board Cost From Seller To Buyer When Goods Pass The Ship’s Rail Seller’s Obligations Buyer’s Obligations Seller To Clear The Goods For Export Carriage Insurance Risk Transfers When Goods Pass The Ship’s Rail

94. UCP 600 – Effective from 1 st July 2007 An OVERVIEW

131. UCP 600 - an overview 1 JULY 2007

132. UCP 600 Revision overview Commenced in May 2003 with ICC banking Commission approval Drafting Group – 9 members – Chair – Gary Collyer, Technical Advisor to ICC Banking Commission Consulting Group – 41 members from 26 countries 15 meetings by Drafting Group Over 5000 individual comments received and reviewed National Committees voted on various key issues specifically UCP 600 approved on 25 October 2006 at the Paris meeting by 91-0 votes to come into force w. e. f. 1 July 2007

133. National committees asked to comment on the following issues- Negotiation On its face Reasonable time Parties or banks Relationship between ISBP and UCP 600 Discounting Deferred Payment undertakings Whether to split Article – 28 of UCP 500 Relevance of Article -30 of UCP 500 Capitalisation of defined terms in Article – 2 of UCP 600 Requirement for any new articles

134. Key issues of interest to Letters of credit practitioners in UCP 600 UCP 500 articles omitted in UCP 600 Availability Standard for examination of documents Discrepant documents, waiver and notice Bill of lading Air transport documents Insurance documents

135. UCP 500 Articles not incorporated in UCP 600 article 5 Instructions to Issue/amend credits article 8 Revocation article 12 Incomplete or Unclear instructions article 38 Other documents sub-article 6 (b) Revocable sub-article 14 (f) Payment under reserve/Indemnity sub-article 33 (a) (b-part) (c) (d-part) Freight Payable/prepaid sub-article 42 (c) Expiry date sub-article 46 (a) Expression of “shipment” UCP 500 articles 2,6,9,10,20,21,22,30,31,33,35,36,46 & 47 merged or provided for in other ways within the text of UCP 600.

136. New UCP 600 articles not reflected in UCP 500 article 2 definitions article 3 interpretations article 9 advising of credits & amendments article 12 nomination article 15 complying presentation article 17 original documents & copies

138. Examples of Exclusion/Modification Insurance- sub-article 28 (c) “Cover notes will not be accepted” By stating “sub-article 28 (c) does not apply” UCP 600 sub-article 14 (i) “A document may be dated prior to the date of the credit, but must not be dated later than the date of its presentation” By stating “documents dated prior to credit date not acceptable” Applicability of SB LC issued subject to UCP 600 retained due to lack of global usage of the International Standby Practices (ISP98)

139. Article 2 - Definitions (new) Concept of definitions - new to the UCP & avoids repetitive text. For example, by using the term “Complying presentation” , no need to repeat “that is in accordance with the terms and conditions of the credit, the applicable provisions of these rules and international standard banking practice” at each place “ Honour” - means “to pay at sight”, “to incur a deferred payment undertaking and pay at maturity” or “to accept a bill of exchange (“draft”) drawn by the beneficiary and pay at maturity” . The letter of credit (LC), when issued, should actually state how it is available i.e., by payment, acceptance or deferred payment and not state “by Honour”.

140. “ Negotiation” always carried confusion in its meaning. Under UCP 500, the ICC Position Paper (No. 2) attempted to explain its correct application and the concept of ‘giving value’ UCP 600 defines it as the advancing (immediate settlement - usually less interest) or agreeing to advance funds (settlement at a future date which is on or before the due date calculated according to the terms of the credit) issues such as with or without recourse are outside UCP scope and are for agreement between the nominated bank and the beneficiary “ Nominated bank” definition widens UCP 500 concept of “freely negotiable credits”. Under UCP 600, a credit could be available with any bank by payment, acceptance, deferred payment or negotiation, by use of the words “a credit available with any bank”. Hence, a nominated bank may or may not be a confirming bank

141. Article 3 – Interpretations (new) new article to UCP UCP 600 does not recognise revocable credits - interpretation highlights this principle that a credit is irrevocable even if silent Branches of banks in different countries are considered to be separate banks to create a clear distinction in roles for the application of UCP 600 Usage of the words ‘prompt’, ‘immediately’ and ‘as soon as possible’ would be disregarded and now covers all areas in a credit except when required to be used as part of the wording on any document

142. UCP 600 interprets the use of the words “from” and “after” In ‘after’ (and ‘before’) the date mentioned are considered to be excluded and ‘ from’ includes the date or dates mentioned, when used to determine a period for shipment. For example, if a credit states shipment to be effected from December 10, it would include December 10. If a credit states shipment to be effected after or before December 10, it would not include December 10 the use of ‘from’ and ‘after’ in respect of maturity dates follows the ISBP principle that in either event it excludes the date mentioned

143. Article 4 - Credits v. Contracts A new rule to deter banks from allowing applicant to incorporate excessive goods descriptions, by attaching pro-forma invoices or contracts to LC or sending them to advising Bank after issuance by making it an integral part of LC banks forced to review line by line goods detail to determine compliance as a result - not in line with international standard banking practice

144. Article 5 - Documents v. Goods, Services or Performance The essence of dealing with documentary credits - documents contain data and assessment of that data is the means by which banks determine compliance i t is the banks that make a decision based on the documents and have no concern as to the goods, services or performance to which they may relate ( as opposed to the UCP 500 wording “In Credit operations all parties concerned deal with documents )

145. Article 6 - Availability, Expiry Date and Place for Presentation a credit to specify a named bank with whom it is available or that it is available with any bank (freely available) beneficiary may present documents to a nominated bank or issuing bank (new) a place for presentation stated in the credit which is other than that of issuing bank includes the offices of issuing bank . B eneficiary may present directly to issuing bank, but within the expiry of credit

146. Article 7 - Issuing Bank Undertaking an issuing bank honours i.e., it pays at sight, incurs a deferred payment undertaking or accepts a draft. It does not negotiate. Negotiation is an act carried out by a confirming bank or nominated bank issuing bank responsible for reimbursement under an acceptance or deferred payment credit irrespective of whether a nominated bank has purchased or prepaid thereunder. Also, an issuing bank’s undertaking to a nominated bank is independent of its undertaking to the beneficiary

147. Article 8 - Confirming Bank Undertaking confirming bank honours i.e., it pays at sight, incurs a deferred payment undertaking or accepts a draft OR negotiates Negotiation by a confirming bank ( if available by negotiation with the confirming bank) or nominated bank confirming bank responsible for reimbursement under an acceptance or deferred payment credit irrespective of whether another nominated bank has purchased or prepaid thereunder. Also, a confirming bank’s undertaking to another nominated bank is independent of its undertaking to the beneficiary

148. Article 9 - Advising of Credits and Amendments (new) New - deals with advising bank’s responsibilities in advising a credit and any amendment thereto. Introduces the role of a second advising bank Scope of ‘reasonable care’, now expanded to include., “and that the advice accurately reflects the terms and conditions of the credit or amendment received”. Advising bank to take due care to pass on all the relevant information received under a credit or amendment to the beneficiary or second advising bank

149. Article 10 – Amendments If beneficiary notifies acceptance or rejection prior to presentation date, it follows this route - from second advising bank to advising bank or from advising bank to issuing bank . If no notification given before presentation - nominated bank and the issuing bank to judge on their own and determine whether beneficiary had accepted/ rejected one or more amendments. partial acceptance of an amendment is deemed to be notification of rejection. imposing time limits for acceptance/ rejection of amendments –wording like “unless beneficiary rejects this amendment within 7 days of this amendment date, it will be deemed to have been accepted” would be disregarded

150. Article 11 - Teletransmitted and Pre-Advised Credits and Amendments No major changes Article 12 – Nomination (New) Unless a nominated bank has confirmed the credit it has no obligation to honour or negotiate. A nominated bank may commit beyond what is requested by the issuing bank but must communicate this fact to beneficiary in their advice of the credit/ amendment or separate communication. By issuing a credit available with a nominated bank or any bank, by deferred payment or acceptance of a draft, the issuing bank is explicit authorising a nominated bank to prepay/ purchase the deferred payment undertaking incurred, or draft that has been accepted . Onus on applicant to ensure KYC

151. Article 13 - Bank-to-Bank Reimbursement Arrangements ( UCP 500 Article – 19) credit (and associated reimbursement authorisation, if any) to indicate the applicable bank-to-bank reimbursement rules (currently URR 525). there should be no expiry date in a reimbursement authorisation

152. Article 14 - Standard for Examination of Documents sub-article 14 (a) contains the only reference in UCP 600 to “appear on their face”. Reference to ‘reasonable time’ has been removed from UCP. Time limit for a bank to determine a complying presentation reduced from seven to five banking days following the day of receipt of the documents. An original transport document subject to UCP 600 articles 19-25 must be presented no later than 21 days after the shipment date. copy transport document would not be subject to this rule.

153. data linkage (14 (d)) - No mirror images required but it should not conflict. Banks to look at data in relation to the credit, the document and international standard banking practice (not just the ISBP) Addresses of the beneficiary and applicant – Under UCP 600 any address of the applicant or beneficiary will be acceptable provided it is in their respective countries. shipper or consignor on a transport document being different from beneficiary - UCP 600 widens the scope beyond a transport document to any document with a shipper or consignor field. The UCP 600 has no equivalent article of UCP 500 article 30 (Transport Documents issued by Freight Forwarders). It allows any party i.e., a freight forwarder, NVOCC, etc. to issue a transport document if it meets the requirements of UCP 600 articles 19-25 .

154. Article 15 - Complying Presentation (new) When a bank ( nominated/confirming/issuing) determines a presentation as complying it should honour or negotiate. Due to removal of ‘reasonable time’ in UCP 600, banks having determined compliance, the process of honour or negotiation should commence.

155. Article 16 - Discrepant Documents, Waiver and Notice UCP 500 article 14 attracted maximum requests for ICC opinions UCP 600 article 16 is the equivalent with revised text. ICC 2002 document on “Examination of Documents, Waiver of Discrepancies and Notice under UCP 500 helped in its drafting advice of discrepancies must be given in a single notice of refusal within 5 banking days UCP 600 provides 4 alternative courses of action as opposed to 2 in UCP 500 . In addition to returning the documents or holding them pending further instructions (no requirement to hold the documents at the disposal of the presenter), it provides two further options

157. Article 17 - Original Documents and Copies (new) Mostly taken from the ICC Decision “The determination of an "Original" document Maintains the principle of ‘at least one original and the remaining number in copies’.

158. Article 18 - Commercial Invoice beneficiary must present invoices in the currency of the credit. a nominated bank may accept invoices for an amount in excess of the credit provided it has not honoured or negotiated for an amount in excess of that permitted by the credit. UCP 500 sub-article 37 (c) wording has been removed and placed as a rule under UCP600 sub-article 14 (e) as it deals with a goods description appearing on documents other than a commercial invoice.

159. Article 19 - Transport Document Covering at Least Two Different Modes of Transport A transport document covering at least two different modes of transport defined in UCP 600 article 19 as a multimodal or combined transport document. When an agent signs ‘for or on behalf of the master’ there is no longer a need for the name of the master to be quoted (common for all transport articles) . date of shipment - date of issuance of the transport document - unless, the transport document indicates, by stamp or notation, a date of dispatch, taking in charge or shipped on board, then, this date (common for all transport articles) .

160. should not contain any indication that it is subject to a charter party (common for all transport articles except Article – 22 Charter party) . Reference to propelled by sail in UCP 500 dropped as it is considered an outdated practice in the present day context (common for all transport articles) . transhipment - “unloading from one means of conveyance and reloading to another means of conveyance (whether or not in different modes of transport) during the carriage from the place of dispatch, taking in charge or shipment to the place of final destination stated in the credit” in the context of a shipment involving at least two different modes of transport.

161. Article 20 - Bill of Lading No specific reference to a bill of lading “covering a port-to-port shipment” (to create awareness to call for a multimodal or combined transport document per UCP 600 article 19 where goods are to be carried from an Inland location) “ date of shipment” -The date of issuance of bill of lading unless it contains an on board notation indicating the date of shipment, in which case, the on board notation date is the date of shipment Covers “intended port of loading” or where the port of loading stated in the credit does not appear in the corresponding box on the bill of lading and is quoted as the place of receipt or similar - There is a requirement for a suitable on board notation . ‘ Transhipment’ - position like UCP 500 Article 21 - Non-Negotiable Sea Waybill - No major changes

162. Article 22 - Charter Party Bill of Lading A new rule for UCP 600 is the signing of a charter party bill of lading by the charterer or a named agent on behalf of the charterer . Charter party bills of lading seldom show the name of a carrier , hence, reference to the same is omitted in UCP 600. date of shipment -“The date of issuance of the charter party bill of lading unless it contains an on board notation indicating the date of shipment, in which case on board notation date will be the date of shipment” introduces a rule only applicable to charter party bills of lading that it may indicate a discharge port within a range or geographical area of ports as stated in the credit

163. Article 23 - Air Transport Document The date of shipment will be considered to be the date of issuance unless the air transport document contains a specific notation of the actual date of shipment, in which case the date stated in the notation will be deemed to be the date of shipment “ Any other information appearing on the air transport document relative to the flight number and date will not be considered in determining the date of shipment”. A major change in UCP 600 is now in line with the other transport documents. If there is a notation indicating a flight date, then this date will be considered as the date of shipment, even if such notation was not required by the credit. Transhipment - position remains the same

164. Article 24 - Road, Rail or Inland Waterway Transport Documents (UCP 500 Article 28) signature by the carrier or a named agent for or on behalf of the carrier, or indication of receipt of goods by signature, stamp or notation by the carrier or a named agent for or on behalf of the carrier would complete authentication “ In a rail transport document, as any signature or stamp of the railway company will be accepted as that of the carrier”. a rail transport document may be marked ‘duplicate’ as opposed to ‘original’

165. date of shipment i.e., the road, rail or inland waterway transport document must indicate the date of shipment or the date the goods have been received for shipment, dispatch or carriage at the place stated in the credit. Unless the transport document contains a dated reception stamp, an indication of the date of receipt or a date of shipment , the date of issuance of the transport document will be deemed to be the date of shipment. Transhipment - unloading from one means of conveyance and reloading to another occurs within the same mode of transport . Under UCP 500, it was within different modes of transport.

166. Article 25 - Courier Receipt, Post Receipt or Certificate of Posting UCP 600 rule covers the issuance of courier receipts where there is a shipment of goods involved . This rule does not cover situations where a courier receipt is required by the credit as evidence of having sent copy or original documents to the applicant or issuing bank. date of shipment i.e., in respect of a courier receipt “indicate the name of the courier service and be stamped or signed by the named courier service at the place from which the credit states the goods are to be shipped” and for a post receipt or certificate of posting a document that appears “to be stamped or signed and dated at the place from which the credit states the goods are to be shipped. This date will be deemed to be the date of shipment”.

167. Article 26 - "On Deck", "Shipper's Load and Count", “Said by Shipper to Contain” and Charges Additional to Freight Provides a definitive rule “A transport document must not indicate that the goods are or will be loaded on deck” as compared to the wording of UCP 500 sub-article 31 (i). Under UCP 500, a transport document evidencing as consignor of the goods a party other than the beneficiary was acceptable. Under UCP 600 sub-article 14 (k) any document that evidences a consignor or shipper different to that of the beneficiary will be acceptable.

168. Article 27 - Clean Transport Document (UCP 500 article 32 ) a transport document need not bear the word “clean” in order for it to be acceptable under a credit that requires the presentation of a “clean” transport document

169. Article 28 - Insurance Document and Coverage UCP 600 article 28 combines articles 34, 35 and 36 of UCP 500. UCP 600 brings in the concept of the signing of the insurance documents by a proxy (as opposed to an agent) on behalf of an insurance company or underwriter. widened the scope of not allowing cover notes. Cover notes issued by any entity will not be allowed.

170. The requirements for the currency of the insurance document, the amount of the coverage and the means to calculate the same, if not evident from the documents or the credit, is given in UCP 600 basing on the ISBP. 110% of the invoice value", is considered the minimum unless LC insists on exact %. risks are to be covered at least between the place of taking in charge or shipment and the place of discharge or final destination as stated in the credit. creates a rule that even where the credit may specify the insurance clauses that are to be covered and the insurance document covers those clauses it may evidence exclusions thereto.

171. Article 29 - Extension of Expiry Date or Last Day for Presentation No major changes Article 30 - Tolerance in Credit Amount, Quantity and Unit Prices word ‘circa’ removed due to the limited usage – no major changes. Article 31 - Partial Drawings or Shipments multiple transport documents evidencing shipment on the same means of conveyance, for the same journey and same destination not be considered to be a partial shipment. Multiple transport documents evidencing shipment on more than one means of conveyance within the same mode of transport even though they depart from the same place, for the same destination, on the same date, is a partial shipment.

172. Article 32 - Instalment Drawings or Shipments (UCP 500 article 41) No Changes Article 33 - Hours of Presentation Banking hours are not defined in the rules but banking day is Article 34 - Disclaimer on Effectiveness of Documents No major Changes

173. Article 35 - Disclaimer on Transmission and Translation Provides protection where a nominated bank that acts in accordance with its nomination, honours or negotiates but documents are lost in transit between them and an issuing or confirming bank Article 36 - Force Majeure ( UCP 500 Article – 17) ‘ acts of terrorism’ added as a force majeure event. Article 37 - Disclaimer for Acts of an Instructed Party Emphasises that the issuing bank remains liable for payment of charges”. Under UCP 500 banks, often, included a clause that the advising bank must collect their fees prior to advising to the beneficiary or the issuing bank would not pay them. UCP 600 seeks to stop issuing banks from inserting such clauses in their credit

174. Article 38 - Transferable Credits under a ‘transferable’ credit, no bank, including a confirming bank or an issuing bank , is under any obligation to transfer Defines Transferable credit, Transferring bank and Transferred credit. Even if a credit names a transferring bank, it does not stop an issuing bank, that is willing to transfer, from transferring in the event that the named transferring bank declines to transfer UCP 600 refers to the transferred credit accurately reflecting the terms and conditions of the credit i.e., including the confirmation . new rule under UCP 600 is that documents of the second beneficiary must be routed through the transferring bank . Restricts the documents by-passing transferring bank and directly delivered to issuing bank denying substitution for first beneficiary

175. Article 39 - Assignment of Proceeds There is no change to the position given in UCP 500 article 49.

176. THANK YOU