1: The LC must state how it is available
UCP 600 sub-article 6(b) reads:
A credit must state whether it is available by sight payment, deferred payment, acceptance or negotiation.
This means that there are four ways by which an LC can be made available:
1. Sight payment,
2. Deferred payment,
3. Acceptance
4. Negotiation.
In addition to the above an LC can be made available with one or more banks in 3 different ways.
1. With the issuing bank In which case presentation of documents must be made to the issuing bank.
2. With a named bank (nominated bank). An LC available with a nominated bank is also available with the issuing bank, in which case presentation of documents must be made to either the nominated bank or the issuing bank.
3. With any bank (nominated bank) An LC available with a nominated bank is also available with the issuing bank, in which case presentation of documents must be made to either the nominated bank (which in this case may be any bank that acts upon the nomination given by the issuing bank) or the issuing bank.
2: Availability defined
UCP 600 defines “Honour” and “Negotiation” as follows:
Honour means:
a. to pay at sight if the credit is available by sight payment.
b. to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment.
c. to accept a bill of exchange (“draft”) drawn by the beneficiary and pay at maturity if the credit is available by acceptance.
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank.
The UCP 600 distinguishes between Honour and Negotiation. A main principle is that issuing banks do not “Negotiate” – only a bank nominated by the issuing bank to negotiate can negotiate. The issuing bank honours.
3: Nomination
The concept of nomination is important in the context of availability. UCP 600 article 2 defines a “Nominated bank” as follows:
Nominated bank means the bank with which the credit is available or any bank in the case of a credit available with any bank.
In general terms a “nominated bank” acting upon its nomination is “protected” by the UCP 600. This means e.g. that a negotiating bank that has advanced funds to the beneficiary – and is subsequently not reimbursed by the issuing bank e.g. due to an injunction or stop payment order – would at the outset be able to successfully file a claim against the issuing bank. This is however outside the UCP 600 – hence subject to local law.
The obligation of the nominated bank depends on the agreement made between the nominated bank and the beneficiary. UCP 600 sub-article 12(a) reads:
Unless a nominated bank is the confirming bank, an authorization to honour or negotiate does not impose any obligation on that nominated bank to honour or negotiate, except when expressly agreed to by that nominated bank and so communicated to the beneficiary.
This provision may in fact be rather wide – and it is up to the nominated bank to decide what it is willing to do. This provision does not address the issue of “with or without recourse” – and such will also be subject to the agreement made with the beneficiary.
4: Availability described
Sight payment
An LC available by “sight payment” with a nominated bank is one where the nominated bank pays the beneficiary when a complying presentation is made.
The “classical” LC available by sight payment will grant the nominated bank access to the funds, either via an instruction to the nominated bank to debit the account of the issuing bank – or via a reimbursement instruction.
The principle is that the nominated bank does not assume any payment risk, as payment to the beneficiary is done simultaneously with the payment from the issuing bank to the nominated bank.
However, the nominated still bear the risk of document examination (provided it pays of course) – i.e. must return the funds to the issuing bank if the issuing bank refuses to honour based on valid discrepancies.
Deferred payment
An LC available by “deferred payment” with a nominated bank is one where the beneficiary will receive funds after a fixed period of time (e.g. 60 days from shipment) or on a fixed date. According to UCP600 sub-article 7(c), an issuing bank undertakes to reimburse a nominated bank that has honoured a complying presentation and forwarded the documents to the issuing bank. The reimbursement is due at maturity, whether or not the nominated bank has prepaid before maturity.
No drafts (bills of exchange) are to be used in deferred payment LCs. Only the bank nominated in the LC can prepay the funds to the beneficiary. Technically this can be “any bank” but normally it will be a bank named in the LC.
Acceptance
An LC available by “acceptance” with a nominated bank is one where the beneficiary will receive funds after a fixed period of time (e.g. 60 days from shipment) or on a fixed date. According to UCP600 sub-article 7(c), an issuing bank undertakes to reimburse a nominated bank that has honoured a complying presentation and forwarded the documents to the issuing bank. The reimbursement is due at maturity, whether or not the nominated bank has purchased before maturity.
The LC will call for a time draft presented together with the documents. Such draft will normally be drawn by the beneficiary on the nominated bank that is to accept it (a non-confirming nominated bank is not obligated to do so).
Consequently only the bank nominated in the LC can prepay the funds to the beneficiary. Technically this can be “any bank” but normally it will be a bank named in the LC.
The fact that the nominated bank does not accept the draft – does not change the issuing banks obligation to honour at maturity (see UCP 600 sub-article 7(a)(iv)).
Negotiation
An LC available by “negotiation” is one where an issuing bank nominates another bank to negotiate. Such nominated (also termed “negotiating”) bank is not obliged to negotiate unless it has confirmed the LC. When a bank negotiates then it purchases the complying documents and/or drafti presented by the beneficiary from their own funds, i.e. they do not collect the funds from the account of the issuing bank before paying the beneficiary.
The “classical” negotiation LC would therefore not include any reference to claiming reimbursement from a reimbursing bank or a reference to the debiting of the issuing banks account. The LC would merely specify that the nominated bank must forward the documents to the issuing bank and upon the issuing bank ascertaining that the presentation is complying it will reimburse in accordance with the instructions received.
The UCP 600 does not distinguish between negotiation with or without recourse – except where it is a confirming bank – in which case the negotiation must be without recourse (UCP 600 sub-article 8(a)(ii). The obligation of a non-confirming negotiating bank is based on UCP 600 sub-article 12(a) saying that:
“.. an authorization to … negotiate does not impose any obligation on that nominated bank to … negotiate, except when expressly agreed to by that nominated bank and so communicated to the beneficiary”
The above analysis attempts to follow the take on this by the ICC Banking Commission.
In practical terms many variations of the “negotiation LC” are identified. E.g. what is referred to as “negotiation” – which normally is an LC available by negotiation, providing a reimbursing bank – i.e. allowing the negotiating bank to collect the funds from a third bank – as soon as the documents have been approved by the negotiating bank. This would mean that the negotiating bank has the option to pay the beneficiary at the same time they are collecting the funds from the issuing bank.
Although this may not be fully categorized as “advancing funds” – this is still within framework of negotiation, i.e. meaning that the issuing bank is obligated to honour a complying presentation.
Tuesday, January 18, 2011
Sunday, January 16, 2011
The International Chamber of Commerce - ICC PARIS
ICC is the world business organization, a representative body that speaks with authority on behalf of enterprises from all sectors in every part of the world.
The fundamental mission of ICC is to promote an open international trade and investment across frontiers and help business corporations meet the challenges and opportunities of globalization. Its conviction that trade is a powerful force for peace and prosperity dates from the organization’s origins early in the 20th century.
The small group of far-sighted business leaders who founded ICC called themselves “the merchants of peace”.
ICC has three main activities: rule setting, arbitration, and policy. Because its member companies and associations are themselves engaged in international business, ICC has unrivalled authority in making rules that govern the conduct of business across borders. Although these rules are voluntary, they are observed in countless thousands of transactions every day and have become part of the fabric of international trade.
ICC also provides essential services, foremost among them the ICC International Court of Arbitration, the world’s leading arbitral institution. Another service is the World Chambers Federation, ICC’s worldwide network of chambers of commerce, fostering interaction and exchange of chamber best practice. Business leaders and experts drawn from the ICC membership establish the business stance on broad issues of trade and investment policy as well as on vital technical and sectoral subjects. These include financial services, information technologies, telecommunications, marketing ethics, the environment, transportation, competition
law and intellectual property, among others.
ICC enjoys a close working relationship with the United Nations and other intergovernmental organizations, including the World Trade Organization, the G20 and the G8.
ICC was founded in 1919. Today it groups hundreds of thousands of member companies and associations from over 120 countries. National committees work with their members to address the concerns of the business in their countries and convey to their governments the business views formulated by ICC.
The ICC national committee network
ICC’s influence around the world is due in large part to its global network of national committees and groups.
Located in more than 90 countries, it is the job of regional representatives to voice the interests of business
to their national governments, and also to provide input to ICC’s policy work.
In countries where a national committee has yet to be formed, companies can join ICC individually by becoming a direct member. ICC membership is currently bolstered by direct members in some 37 additional countries.
ICC Algeria
ICC Argentina
ICC Australia
ICC Austria
ICC Bahrain
ICC Bangladesh
ICC Belgium
ICC Bolivia
ICC Brazil
ICC Bulgaria
ICC Burkina Faso
ICC Cameroon
ICC Canada
ICC Caribbean
ICC Chile
ICC China
Chinese Taipei Business Council of ICC
ICC Colombia
ICC Costa Rica
ICC Croatia
ICC Cuba
ICC Cyprus
ICC Czech Republic
ICC Denmark
ICC Dominican Republic
ICC Ecuador
ICC Egypt
ICC El Salvador
ICC Finland
ICC France
ICC Georgia
ICC Germany
ICC Ghana
ICC Greece
ICC Guatemala
ICC Hong Kong, China
ICC Hungary
ICC Iceland
ICC India
ICC Indonesia
ICC Iran (Islamic Republic)
ICC Ireland
ICC Israel
ICC Italy
ICC Japan
ICC Jordan
Contact details for all ICC offices are available at www.iccwbo.org/worldwide
The fundamental mission of ICC is to promote an open international trade and investment across frontiers and help business corporations meet the challenges and opportunities of globalization. Its conviction that trade is a powerful force for peace and prosperity dates from the organization’s origins early in the 20th century.
The small group of far-sighted business leaders who founded ICC called themselves “the merchants of peace”.
ICC has three main activities: rule setting, arbitration, and policy. Because its member companies and associations are themselves engaged in international business, ICC has unrivalled authority in making rules that govern the conduct of business across borders. Although these rules are voluntary, they are observed in countless thousands of transactions every day and have become part of the fabric of international trade.
ICC also provides essential services, foremost among them the ICC International Court of Arbitration, the world’s leading arbitral institution. Another service is the World Chambers Federation, ICC’s worldwide network of chambers of commerce, fostering interaction and exchange of chamber best practice. Business leaders and experts drawn from the ICC membership establish the business stance on broad issues of trade and investment policy as well as on vital technical and sectoral subjects. These include financial services, information technologies, telecommunications, marketing ethics, the environment, transportation, competition
law and intellectual property, among others.
ICC enjoys a close working relationship with the United Nations and other intergovernmental organizations, including the World Trade Organization, the G20 and the G8.
ICC was founded in 1919. Today it groups hundreds of thousands of member companies and associations from over 120 countries. National committees work with their members to address the concerns of the business in their countries and convey to their governments the business views formulated by ICC.
The ICC national committee network
ICC’s influence around the world is due in large part to its global network of national committees and groups.
Located in more than 90 countries, it is the job of regional representatives to voice the interests of business
to their national governments, and also to provide input to ICC’s policy work.
In countries where a national committee has yet to be formed, companies can join ICC individually by becoming a direct member. ICC membership is currently bolstered by direct members in some 37 additional countries.
ICC Algeria
ICC Argentina
ICC Australia
ICC Austria
ICC Bahrain
ICC Bangladesh
ICC Belgium
ICC Bolivia
ICC Brazil
ICC Bulgaria
ICC Burkina Faso
ICC Cameroon
ICC Canada
ICC Caribbean
ICC Chile
ICC China
Chinese Taipei Business Council of ICC
ICC Colombia
ICC Costa Rica
ICC Croatia
ICC Cuba
ICC Cyprus
ICC Czech Republic
ICC Denmark
ICC Dominican Republic
ICC Ecuador
ICC Egypt
ICC El Salvador
ICC Finland
ICC France
ICC Georgia
ICC Germany
ICC Ghana
ICC Greece
ICC Guatemala
ICC Hong Kong, China
ICC Hungary
ICC Iceland
ICC India
ICC Indonesia
ICC Iran (Islamic Republic)
ICC Ireland
ICC Israel
ICC Italy
ICC Japan
ICC Jordan
ICC Korea
ICC Kuwait
ICC Lebanon
ICC Lithuania
ICC Luxembourg
ICC Madagascar
ICC Malaysia
ICC Mexico
ICC Monaco
ICC Morocco
ICC Nepal
ICC Netherlands
ICC New Zealand
ICC Nigeria
ICC Norway
ICC Pakistan
ICC Panama
ICC Philippines
ICC Poland
ICC Portugal
ICC Qatar
ICC Romania
ICC Russia
ICC Saudi Arabia
ICC Senegal
ICC Serbia
ICC Singapore
ICC Slovakia
ICC Slovenia
ICC South Africa
ICC Spain
ICC Sri Lanka
ICC Sweden
ICC Switzerland
ICC Syria
ICC Tanzania
ICC Thailand
ICC Togo
ICC Tunisia
ICC Turkey
ICC Ukraine
ICC United Arab Emirates
ICC United Kingdom
ICC United States
ICC Uruguay
ICC Venezuela
Direct members:
Afghanistan
Albania
Andorra
Anguilla
Antigua & Barbuda
Armenia
Belarus
Belize
Bermuda
Bosnia & Herzegovina
Brunei Darussalam
Cape Verde
Côte d’Ivoire
Eritrea
Estonia
Gibraltar
Kazakhstan
Korea (Dem. People’s Rep. of)
Kyrgyzstan
Latvia
Liberia
Macau
Macedonia (FYROM)
Maldives
Malta
Mauritius
Moldova
Mongolia
Montenegro
Mozambique
Oman
Palestine
Peru
San Marino
Tajikistan
Uzbekistan
Vietnam
Contact details for all ICC offices are available at www.iccwbo.org/worldwide
Letter of Credit Discrepancies
15 MOST COMMON DISCREPANCIES
1. Letter of credit has expired
2. Late presentation of documents
3. Late shipment of goods
4. Inconsistent spelling of parties’ names in documents
5. Terms of sale not complied with
6. Merchandise description not strictly as per L/C term
7. Partial shipment or transshipment effected despite L/C terms
8. Foreign language documents must be exactly as per L/C
9. Documents are not consistent with one another
10. Ocean Bill of Lading issued by forwarding agent unacceptable
11. Bills of Lading not clean
12. Insurance does not cover risks stipulated in L/C
13. Insurance issued after shipment date
14. Bills of Lading and Drafts not properly endorsed
15. Drafts not completed properly
1. Letter of credit has expired
2. Late presentation of documents
3. Late shipment of goods
4. Inconsistent spelling of parties’ names in documents
5. Terms of sale not complied with
6. Merchandise description not strictly as per L/C term
7. Partial shipment or transshipment effected despite L/C terms
8. Foreign language documents must be exactly as per L/C
9. Documents are not consistent with one another
10. Ocean Bill of Lading issued by forwarding agent unacceptable
11. Bills of Lading not clean
12. Insurance does not cover risks stipulated in L/C
13. Insurance issued after shipment date
14. Bills of Lading and Drafts not properly endorsed
15. Drafts not completed properly
CORRECTABLE DISCRPANCIES
1. Draft not in accordance with L/C terms
2. Amount of draft does not agree with invoice total
3. Invoice incorrectly addressed to the account party
4. Description of goods in invoice does not correspond with description in L/C
5. Invoice omits shipping terms
6. Commercial invoice not signed
7. Bill of Lading not endorsed
8. Inconsistencies found in documents presented
1. Draft not in accordance with L/C terms
2. Amount of draft does not agree with invoice total
3. Invoice incorrectly addressed to the account party
4. Description of goods in invoice does not correspond with description in L/C
5. Invoice omits shipping terms
6. Commercial invoice not signed
7. Bill of Lading not endorsed
8. Inconsistencies found in documents presented
MAJOR DISCRPANCIES
1. Late shipment
2. Late presentation
3. L/C expired
4. Draft in excess of amount permitted in L/C
5. Bills of Lading incorrectly issued
6. Insurance policy bears a date later than the date of shipment shown on Bill of Lading
1. Late shipment
2. Late presentation
3. L/C expired
4. Draft in excess of amount permitted in L/C
5. Bills of Lading incorrectly issued
6. Insurance policy bears a date later than the date of shipment shown on Bill of Lading
Brief Introduction of Incoterms 2010
The International Chamber of Commerce (ICC) announced that Incoterms® 2010 launched in September 2010, come into effect on 1 January, 2011.
To keep up with the rapid expansion of world trade and globalization, the Incoterms rules are revised about once a decade. Since the last revision in 2000, much has changed in global trade and the current revision will take into account issues such as developments in cargo security and the need to replace paper documents with electronic ones.
Get familiar with the New Incoterms® 2010. You may need to renegotiate any of your contracts that may be affected by the changes.
The 2010 edition includes 11 terms instead of the 13 in the previous edition.
DELETION
The following terms from Incoterms 2000 have been deleted from the list: DAF, DES, DEQ and DDU.
The following terms from Incoterms 2000 have been deleted from the list: DAF, DES, DEQ and DDU.
NEW ADDITION
Two new terms have been added to the list: DAT and DAP. DAT replaces Incoterms 2000 rule DEQ. DAP replaces Incoterms 2000 rules DAF, DES and DDU.
Two new terms have been added to the list: DAT and DAP. DAT replaces Incoterms 2000 rule DEQ. DAP replaces Incoterms 2000 rules DAF, DES and DDU.
Whilst Incoterms 2000 had four categories, Incoterms® 2010 only has two categories. The Incoterms® 2010 are arranged in two categories as follows:
RULES FOR ANY MODE OF TRANSPORT
CIP – Carriage and Insurance Paid
CPT – Carriage Paid To
DAP – Delivered At Place
DAT – Delivered At Terminal
DDP – Delivered Duty Paid
EXW – Ex Works
FCA – Free Carrier
CIP – Carriage and Insurance Paid
CPT – Carriage Paid To
DAP – Delivered At Place
DAT – Delivered At Terminal
DDP – Delivered Duty Paid
EXW – Ex Works
FCA – Free Carrier
RULES FOR SEA AND INLAND WATERWAY TRANSPORT ONLY
CFR – Cost and Freight
CIF – Cost, Insurance and Freight
FAS – Free Alongside Ship
FOB – Free On Board
CFR – Cost and Freight
CIF – Cost, Insurance and Freight
FAS – Free Alongside Ship
FOB – Free On Board
In addition to the 11 rules, Incoterms® 2010 includes:
• Extensive guidance notes and illustrative graphics to help users efficiently choose the right rule for each transaction;
• New classifications to help choosing the most suitable rule in relation to the mode of transport;
• Advice for the use of electronic procedures;
• Information on security-related clearances for shipments;
• Advice for the use of Incoterms® 2010 in domestic trade.
• Extensive guidance notes and illustrative graphics to help users efficiently choose the right rule for each transaction;
• New classifications to help choosing the most suitable rule in relation to the mode of transport;
• Advice for the use of electronic procedures;
• Information on security-related clearances for shipments;
• Advice for the use of Incoterms® 2010 in domestic trade.
Used in international and domestic contracts for the sale of goods, Incoterms help parties avoid misunderstandings by clearly identifying the obligations of the buyer and seller.
WORLD'S BEST TRADE FINANCE BANKS
WORLD'S BEST TRADE FINANCE BANKS
Trade Finance is the science that describes the management of money, banking, credit, investments, and assets for international trade transactions. Companies involved with trade finance include importers and exporters, financiers, insurers, and other service providers.
Global Finance selects the leaders in a specialized area of finance that is changing rapidly.
Global trade finance has become an extremely competitive business, mainly suitable for financial institutions with economies of scale or special expertise. Most international trade is now done on an open-account basis, as corporations have come to know their suppliers better and are less willing to pay the fees associated with letters of credit (LCs) and other forms of bank guarantees.
The list below describes the banks which are awarded the BEST TRADE FINANCE BANKS in different regions;
Global Finance selects the leaders in a specialized area of finance that is changing rapidly.
Global trade finance has become an extremely competitive business, mainly suitable for financial institutions with economies of scale or special expertise. Most international trade is now done on an open-account basis, as corporations have come to know their suppliers better and are less willing to pay the fees associated with letters of credit (LCs) and other forms of bank guarantees.
The list below describes the banks which are awarded the BEST TRADE FINANCE BANKS in different regions;
 Americas | Citigroup |
| Europe | ABN Amro |
| Central and Eastern Europe | RZB |
| Middle East | National Bank of Kuwait |
| Asia | HSBC |
| Argentina | Citigroup |
| Australia | ANZ |
| Austria | RZB |
| Bahrain | Arab Banking Corporation |
| Belgium | Fortis Bank |
| Brazil | Banco do Brasil |
| Canada | Scotiabank |
| China | Bank of China |
| Colombia | Banco de Bogotá |
| Egypt | Commercial International Bank (CIB) |
| Finland | Nordea |
| France | BNP Paribas |
| Germany | Deutsche Bank |
| Greece | EFG Eurobank |
| Hong Kong | HSBC Holdings |
| India | ICICI Bank |
| Indonesia | Bank Danamon Indonesia |
| Italy | Banca Intesa |
| Japan | Mitsubishi UFJ Financial Group |
| Jordan | Jordan Kuwait Bank |
| Kazakhstan | Kazkommertsbank |
| Kuwait | National Bank of Kuwait |
| Mexico | Banamex |
| Netherlands | ABN Amro |
| Nigeria | First Bank of Nigeria |
| Norway | DnB NOR |
| Oman | BankMuscat |
| Pakistan | MCB |
| Poland | Bank BPH |
| Portugal | Millennium bcp |
| Qatar | Qatar National Bank |
| Russia | International Moscow Bank |
| Saudi Arabia | Arab National Bank |
| Singapore | DBS |
| South Africa | Standard Bank |
| South Korea | Korea Exchange Bank |
| Spain | Grupo Santander |
| Sweden | Svenska Handelsbanken |
| Switzerland | Credit Suisse Group |
| Taiwan | Chinatrust Commercial Bank |
| Turkey | Akbank |
| United Kingdom | HSBC |
| United States | Citigroup |
| Us (Honorable Mention) | Bank of America |
| Us (Honorable Mention) | JPMorgan Chase |
| Venezuela | Banco Mercantil |
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