Current Date:

Monday, 08 January 2018

Legal Viewpoint: What is UCP 600

The UCP 600 is the latest revision of the ICC “Uniform Customs and Practice” that regulates and govern the operation of letters of credit

, in all its different types, issued by commercial licensed banks to finance international trade different transactions upon request from their clients (including other banks \ correspondent banks) ...
The UCP 600 comes into effect since 2007, whereas the work for it started since 2003. In this connection, it would be very important to mention that, the provisions of the UCP 600 constitute a comprehensive guide and most practical assistance to bankers working in this area, lawyers and legal advisors, importers, exporters, transporters and every person or profession involved in the different types of letters of credit transactions worldwide.
The implementation of UCP 500 and before, had given a negative effect on the letters of credit being seen as a means of payment and could have serious implications for maintaining or increasing its market share as a recognized means of settlement in international trade. The introduction by banks of a discrepancy fee or otherwise, has highlighted the importance of issuing a new issue, especially when the underlying discrepancies have been found to be dubious or unsound practice..  
This situation and the bad effects in the letters of credit transactions, took the ICC to look for new rules. The UCP 600 is the sixth revision of the rules since they were first promulgated in 1933. The last one was UCP 500, wherein many changes were made to overcome the practical problems and issues that came up as a consequence to the application and implementation of UCP 500. The present UCP 600, is the outcome of the work of the International Chamber of Commerce (ICC) Commission on Banking Technique and Practice. This Commission is still in work looking into almost all technical issues that may come up every now & then while applying the current rules.. I am pleased to say that, I am a member of the Legal Committee in this ICC Commission and we meet regularly to discuss, study, analyze, follow such tasks and give necessary suggestions and recommendations to the ICC Commission. The volatility and vividness of the banking industry and related international trade issues require continuous professional work in an endless process. Fortunately, this is the intention and clear mission of the ICC.
As a matter of law and fact, the primary objective of the ICC (International Chamber of Commerce - Paris), is to promote, enhance and facilitate the flow of international trade within uniform international standards. In this respect, it was in that spirit, the UCP were first and ever introduced with the main objective to alleviate the confusion caused by individual countries promoting their own national rules on letters of credit practices.
The objective, since attained, was to create a set of contractual rules that would establish uniformity in that practice applied by banks on letters of credit \ documentary credits. By applying this concept the practitioners would not have to cope with situations that may be causing difficulties or conflicting with national regulations. The universal clear acceptance of the UCP by practitioners in countries with divergent economic and judicial systems is a testament to the rules success as uniform international standard rules to serve all equally and in justice.
It is important to recall that the UCP represent the work of a private international organization, not a governmental body. Since its inception, the ICC has insisted on the central role of self-regulation that is needed for such tasks in business practice. These rules, formulated entirely by experts in the private sector, have validated that approach of international standardization.. The UCP rules, as a fact, remain the most successful set of private rules for international trade finance ever developed by any organization.. As a result, all are benefiting and the process is going on and achieves all best results.