The Uniform Customs and Practice for Documentary Credits ("UCP") are a set of rules which govern the use of letters of credit in international commerce. They were first formulated by the International Chamber of Commerce ("ICC") in 1933 and were designed to establish consistency in the way in which different jurisdictions applied varying sets of national rules to letter of credit practice. UCP 600, which came into force on 1 July 2007, is the latest in a series of six revisions of these rules.
Today, letters of credit are used in about 175 countries, facilitate approximately 10 per cent of cross-border international trade and account for an annual value of US$1 trillion in transactions1. Bearing in mind that the ICC is not a government body, this widespread acceptance of UCP is a clear indication of how well these rules have worked. However, in the 14 or so years since the last UCP revision2, a growing number of concerns have arisen as illustrated both by various well publicised cases in the courts as well as by an indication that approximately 70 per cent of documents presented under documentary credits were rejected3 in 2003 owing to discrepancies.
UCP 600 represents a comprehensive modification, clarification and updating of the rules by the ICC in response not only to the increase in the number of discrepancies but also to continuing developments in banking, insurance and transport. The rules have been pared down from 49 to 39 articles, and the language has been simplified. Unnecessary phrases such as "unless otherwise agreed" have been removed and replaced by general statements of principle. As part of this slimming-down process, any rules which did not impose a duty or prohibition have been taken out. While this has led to one or two casualties (for example, the demise of the useful Article 5 in UCP 500 which advised buyers to give complete and precise instructions to the issuing bank when opening letters of credit), it has generally resulted in a leaner, more elegantly drafted text with less scope for confusion.
To read BLG's full briefing note on UCP 600, please visit http://www.blg.co.uk//pdf/5996212.pdf
Footnotes:
1 The Role of the Letter of Credit in the Financing of International Trade (2007) Pinn, Barclays
2 UCP 500 introduced in 1993
3 ICC Documentary Credits 2007 Revision: Introduction
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