It is now over one year since UCP 600 was implemented and is an opportune time to take a brief look at where we are with the implementation, issues, perceptions and usage of letters of credit. 

From an ICC perspective, 2008 has seen three requests for DOCDEX decisions relating to credits issued subject to UCP 600. The first was in respect of a credit that was issued on 24 July 2007. The underlying issue related to the actions of a bank when refusing documents where that bank was not the issuing bank, but the bank to which the issuing bank had outsourced their processing. The issues in this case would equally have arisen if the credit had been subject to UCP 500.

The second also related to whether a party had refused the documents in a timely manner. In this case, the issuer of the credit was a non-bank who took longer than the maximum of five banking days to provide their refusal. In fact, their refusal was sent on the 11th banking [business] day. Again, the issues in this case would equally have arisen under UCP 500.

The third related to a case where the issuing bank required presentation of an "arrival advising report" in relation to the vessel. The beneficiary presented a document so titled but the issuing bank refused on the basis that it should have been issued after the vessel's arrival - although this was not stated in the credit. The issuing bank also took 12 calendar days following the day of presentation to issue their refusal, whilst they waited for what they thought would be the correct document under the credit. Once again, these issues could equally have applied if the credit had been subject to UCP 500.

So, from a DOCDEX viewpoint, there has not been much activity that can be linked to the rules themselves. In addition to the three UCP 600 DOCDEX cases, so far this year there have been eight other DOCDEX cases relating to credits subject to UCP 500.

During the course of the two ICC Banking Commission meetings that have been held since the implementation date (meetings in October 2007 and April 2008), around 30 requests for opinions have been submitted, opinions drafted and then approved. Of these, 20 related to UCP 600 of which 14 could equally have applied to transactions subject to UCP 500. The content of these UCP 600 opinions has been discussed in previous newsletters. For the ICC Banking Commission in October, we have a total of 19 opinions to discuss of which 17 are in respect of UCP 600 transactions. These will be discussed in the next newsletters.

I would now like to share with you some comments that have been made during my discussions with corporates and banks from around the world. You will note that there is some commonality in the comments made by both, which in fact is a good thing as it would seem to indicate that they are on the same wavelength with regard to applying the rules.

Corporate views of UCP 600:

- Easier to read, follow and apply;

- Clearer rules that leave little room for banks to "manipulate" or interpret to their liking; 

- There is widespread adoption by banks together with greater application of the ISBP publication;

- A recognition that there is a need for an applicant to grasp that UCP 600 does not only benefit the beneficiary; 

- The content and structure of UCP 600 should encourage more usage of the documentary credit as a means of payment ; 

- An opportune time for corporates to review their current practices and look for better documentary credit structures; 

- Use the impetus of UCP 600 to seek out new buyers and suppliers; and 

- There appears to be a reduction in discrepancy rates seen in many countries.

Bank views of UCP 600: 

- Easier to read, follow and apply [note the similar comment from the corporates];

- Clearer rules that leave little room for issuing banks to "manipulate" or interpret to their liking [note the similar comment from the corporates, but in this respect banks are referring to where they are the nominated bank and are subject to the determination of compliance by the issuing bank]; 

- Increased application of the ISBP publication [This was a problem under UCP 500. Some banks took the view that they would adopt the practices outlined in ISBP publication 645; others decided they would not, and some applied the practices when it suited them and did not apply them when it worked against them. There was no common adoption globally. The cross referencing of the publications in the introductions to UCP 600 and ISBP 681 seems to be working];

- Increased usage of documentary credits already seen in markets such as Asia and Middle East. For example, China is the number 1 issuer of documentary credits globally and various countries in the Middle East are projecting increases in volume of around 15-20% per annum;

- Banks are now promoting documentary credits as an offering whereas in the past it was not a 'priority' product;

- Banks have identified that this is an opportune time to review current practices and look for better documentary credit structures and guidelines; [ The introduction of UCP 600 was not just an exercise to change '500' to '600' on the LC application form or online application service. Banks are now looking to re-address their offerings and look at new offerings];

- Individual banks have stated that their discrepancy rates have dropped.

My view of UCP 600:

- To make the rules easier to read, follow and apply was in the top 2 or 3 goals of the drafting group;

- It was hoped that clearer rules would leave little room for banks to "manipulate" or interpret to their liking;

- With UCP 600 and ISBP publication 681 issued at the same time and directly linked with each other, common standards are being achieved;

- It is an opportune time for corporates and banks to review their current practices and look for better documentary credit structures and guidelines. The world has moved on since UCP 500 was implemented and letter of credit structures and offerings should also reflect this movement; 

- A reduction in discrepancy rates has been seen in many countries. However, the rules by themselves will not have a significant impact on the percentage of refusals. Rules cannot stop a beneficiary shipping late, presenting late, adding data that creates a conflict between data on other documents, etc. 

- There has been no need to issue any form of Position Papers as was the case under UCP 500; and 

- The majority of ICC Opinions issued to date could have equally applied under UCP 500.

The UCP 600 looks to be in fairly good shape. There will always be teething problems and there has been, but hopefully the correct messages have reached or are reaching the banks that misinterpreted the rules originally. There are still individuals that have their own views on what should have been included in the rules and what should not. At the end of the day, the UCP 600 reflects the agreement of the ICC national committees as of October 2006, when the rules were approved. For the continuing benefit and success of UCP 600, it relies upon the banks to adopt the rules in the spirit and intent in which they were written and not to look at ways to circumvent the rules by trying to impose impossible or ambiguous conditions on the beneficiary nor to look to refuse documents for reasons that do not exist.