Users’ Handbook for Documentary Credits under UCP 600 ...

1 Users Handbook for Documentar y Credits under ucp 600 WALTER(BUDDY) BAKER ANDJOHNF. DOLANF oreword by Donald R. SmithUICC Publication No. 694 ISBN: 978-92-842-0043-6 ICC Business Handbook for Documentary Credits under ucp 600 Users Handbook for Documentary Credits under UCP 600is designed to serve as an introduction to users of Documentary Credits , that is, to sellers and buyers whoseek to increase their access to cross-border markets. It strives to demonstrate the waycommercial parties and bankers have used this remarkable commercial device, thedocumentary credit, to achieve their objectives.

2 Users Handbookis in five parts:vPart Oneis a brief discussion of international sales and Twoexplains the banking industry s crucial role in Documentary credittransactions and illustrates many of the transactions in which commercial partiesutilize the Documentary Threeexplains the way documents control the payment function of thedocumentary Fourintroduces the all-important feature of the Documentary credit the ways it opens financing options to sellers, which can then extend credit to buyers. vPart Fiveintroduces the standby credit and illustrates its role in Handbookalso contains a handy glossary of international trade terms for easy reference.

3 ucp 600 , the latest version of ICC s universally used rules ondocumentary Credits , Uniform Customs and Practice for Documentary Credits , is included as an International Chamber of Commerce, the World Business Organization, based in Paris, is the global leader in the development of standards, rules and reference guides for international ICC PublicationsuUniform Customs and Practice for Documentary CreditsuInternational Standard Banking Practice (ISBP)uCommentary on UCP 600uThe Complete UCP: Text, Rules and History 1920 to 2007uInsights into ucp 600 : Collected Articles from DCI 2003 to 2008 International Chamber of CommerceThe world business organizationInternational Chamber of CommerceThe world business organizationUser'Hnbk 694 17:21 Page 1 Users Handbook forDocumentary Creditsunder ucp 600 WALTER(BUDDY) BAKER ANDJOHNF.

4 DOLANF oreword by Donald R. Smith694 text 15:14 Page 1 Copyright 2008 International Chamber of CommerceAll rights reserved. No part of this work may be reproduced or copied in any form or byany means graphic, electronic, or mechanical, including photocopying, scanning,recording, taping, or information retrieval systems without written permission of ICCSERVICES Publications .ICC ServicesPublications 38 Cours Albert 1er75008 ParisFranceICC Publication No. 694 ISBN: 978-92-842-0043-6 The contents of this book represent the personal views of the authors and not necessarily those of text 15:14 Page 23 Table of ContentsForeword.

5 5 Preface .. 7 Part OneInternational Sales and Transport .. 13 Chapter IThe International Sale .. 15 Chapter IIInternational Transport (Delivery) .. 19 Part TwoThe Role of the Banks .. 23 Chapter IIII nternational Payments.. 25 Chapter IVCash and Open Account Sales .. 31 Chapter VForfaiting .. 35 Chapter VIThe Documentary Draft Transaction .. 37 Chapter VIII ntroducing the Commercial Letter of Credit .. 43 Chapter VIIIA dvising the Credit .. 51 Chapter IXThe Nominated Bank .. 55 Chapter XConfirming the Credit .. 59 PartThreeHonouring the Credit Obligation .. 63 Chapter XIDocuments and Documentary Compliance.

6 65 Chapter XIIH onour and Dishonour.. 67 Chapter XIIIR eimbursement .. 71 Part FourFinancing the Transactions .. 73 Chapter XIVD ocumentary Credits and Papers Presented under Them as Financing Devices .. 75 Chapter XVUsing the Credit to Pay Suppliers by Transfer .. 79 Chapter XVIP aying the Seller s Supplier .. 81 Chapter XVIID iscounting .. 87 Part FiveThe Standby Credit in International Trade .. 91 Chapter XVIIII nternational Standby Credit Transactions.. 93 Uniform Customs and Practices for Documentary Credits 2007 Revision .. 99 International Trade Glossary .. 135 About the Authors.

7 151 Index .. 153694 text 15:14 Page 35 Forewordby Donald SmithThe collaboration of an interesting authoring team, consisting of a distinguishedprofessor of law, John Dolan, and an accomplished former international banker andcurrent trade credit insurance executive, Buddy Baker, has resulted in a readableintroduction to a sometimes complex and often confusing product the letter of principle of letters of credit, based on a neutral paymaster, has been around forthousands of years, yet is as modern as the most technologically advanced text and diagrams.

8 This Handbook explains concepts that have frightened awayprospective will form a welcome addition to the library of all engaged in international trade!694 text 15:14 Page 57 PrefaceThis is a Handbook to introduce Documentary Credits (also known as letters of credit ) tosellers and buyers (commercial parties) who seek to increase their access to cross-bordermarkets. Above all, it is an introduction. It does not make readers experts on documentarycredit transactions. Rather, it strives to demonstrate the way commercial parties andbankers have used this remarkable commercial device, the Documentary credit, to achievetheir this Handbook demonstrates again and again, Documentary credit transactions aredocument driven.

9 An essential part of this remarkable story are the efforts of theInternational Chamber of Commerce (ICC) and its Commission on Banking Techniqueand Practice (the Banking Commission ) to develop practical rules for those practical rules are the Uniform Customs and Practice for Documentary Credits (UCP). The current version of those rules, implemented on July 1, 2007, is ucp 600 . UCP600 appears as an appendix to this Handbook , which refers to UCP articles Handbook is divided into five parts: Part Oneprovides a brief discussion of international sales and Two explains the banking industry s crucial role in Documentary credit transactionsand illustrates many of the transactions in which commercial parties utilize thedocumentary Three explains the way documents control the payment function of the documentarycredit.

10 It is here that we discuss the strict compliance rule and the way this rule preservesthe credit as an inexpensive banking product that can protect both sellers and Fourintroduces the all-important feature of the Documentary credit the ways inwhich it opens financing options to sellers, who can then extend credit to buyers. Criticalto cross-border sales, these financing features often save the commercial parties far morethan the Documentary credit costs and are an added benefit, supplementing those featuresof the credit that protect the seller s payment expectations and the buyer s , Part Fiveintroduces the standby credit and illustrates its role in cross-bordertransactions.