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  • 10.9.5-RISK AND THE RELATION TO TRADE CREDIT-UNIFORM CUSTOM AND PRACTICE FOR DOCUMENTARY CREDITS – UCP 600

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  • Uniform Custom and Practice for documentary credits – UCP 600

     
     
    Terms and conditions governing the issuance and execution by banks of letters of credit are laid down in what is known as the Uniform Custom and Practice for Documentary Credits, issued by the International Chamber of Commerce. Matters of particular interest to the commodity trade include the basic responsibilities of banks when examining documents tendered for payment under letters of credit governed by the UCP 600, and the requirements pertaining to different types of documents that may be tendered under letters of credit. However, UCP 600 only applies when the text of the credit expressly indicates that it is subject to these rules.

    For a buyer to be under an obligation to open a letter of credit governed by the UCP 600, the sales contract needs to include an express condition imposing such an obligation on the buyer. Only with such a condition in place can the seller object if the buyer were to open a letter of credit that is not governed by the UCP, e.g. 'Payment by irrevocable letter of credit, incorporating UCP 600'. However, buyers may still stipulate in the credit that certain aspects of the UCP rules are excluded, provided of course this was laid down in the sales contract.

    The major advantage of incorporating UCP 600 in the sales contract for a seller is that, where the UCP 600 rules are incorporated, he will know in advance the criteria against which the banks will examine the shipping documents in deciding whether or not to pay under the credit. The major advantage for a buyer is that he will know in advance the criteria against which the price for the goods will be paid against tender of documents.

    For a more detailed overview see Chapter 4 - Contracts, section 04.06.