The
UCP 600 — the latest amended version of the Uniform
Customs and Practices for Documentary Credits —
which came into effect on July 1, 2007, will affect
not only how banks will determine compliance but also
how contracts for sales utilizing letters of credit
should be drafted. The International Chamber of Commerce
first issued the UCP for Documentary Credits in 1933.
Its main purpose was to overcome the conflicting national
laws on letters of credit as well as to bring about
uniformity in banking practices. The rules have been
revised a number of times. It is now recognized as
a standard practice by 38,000 banks in over 196 countries.
The
UCP 600 does not apply by default to letters of credit
issued after July 1, 2007. A statement has to be incorporated
into the Letter of Credit (LC), preferably into the
sales contract that states it is subject to these
rules. Article 1 of the UCP 600 also leaves open the
possibility for either party to exclude the application
of any part of the UCP 600 as long as the exclusion
is stipulated in the credit.
One
of the most important changes in the UCP 600 is the
exclusion of revocable letters of credit, which can
be amended or canceled at any time without any notice
to the seller. Actually, Article 2 explicitly
defines a credit as "any arrangement, however
named or described, that is irrevocable and thereby
constitutes a definite undertaking of the issuing
bank to honor a complying presentation."
Article 3 states that "a credit is irrevocable
even if there is no indication to that effect"
and Article 10 makes it clear that "a credit
can neither be amended nor cancelled without the agreement
of the issuing bank, the confirming bank, if any,
and the beneficiary" (seller).
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