Exporters who utilize letters of credit (LCs) for their overseas sales should be aware of changes in the regulations that pertain to them. Those that attended a recent CMA webinar got the opportunity to learn of some of the major changes likely to take place in how letters of credit are processed. Buddy Baker, of Attradius Trade Credit Insurance, who has many years of experience with letters of credit and other export trade issues, presented the teleconference.
Baker said that rules governing letters of credit are being revised under the proposed Uniform Customs and Practice for Documentary Credits, ICC Publication No.600 or UCP 600. Changes under UCP 600 will likely go into effect around mid-2007. They are being drafted by the banking committee of the ICC, or International Chamber of Commerce. The current rules for letters of credit are under UCP 500, which Baker said have been in existence—with some modifications along the way—for 13 years. He pointed out these rules are not law, but to the extent they are incorporated in legal documents involved in letters of credit, they have the force of law. “Because it’s not a law, its possible banks may continue to use UCP 500; but those who use it will be out of step with those who use UCP 600.”
The proposed changes in UCP 600 are designed to improve the letter of credit process, Baker said. “There are continuing problems with UCP 500: however, LCs continue to get paid and they serve their creditors well.” He noted that there are three major changes proposed under UCP 600. The first one is that “reasonable time” and “without delay” have been deleted, and banks will simply be allowed five days to examine documents and assert any discrepancies. The second one pertains to addresses of the applicant and beneficiary in the LC. “Companies have multiple addresses and this has created a lot of confusion,” Baker said. Under UCP 600, “It can be a different address as long as it’s in the same country. The name has to be the same, though.” The third major change relates to issuing banks being allowed to refuse documents and then release them, upon obtaining a waiver of discrepancies. “The issuing bank can’t release documents unless they receive counter documents by the presenter.”
Regarding electronic documents, Baker said, “There’s still a question if original documents can be electronic documents with electronic signatures. Generally speaking, banks are accepting this; the UCP 600 doesn’t address them—but that is the practice.”