The role of the ICC and the development of the UCP
What is the role of the ICC? Learning objectives This chapter provides an outline of the activities undertaken by the International Chamber of Commerce (ICC) and an overview of how the text of the Uniform Customs and Practice for Documentary Credits (UCP) has developed across the six revisions that have occurred since the first UCP was implemented in 1933. In addition, some background information is provided to the rules that existed prior to the development of the first UCP. By the end of this chapter, you should be able to: • describe the function and reach of the ICC; and • understand the origins of the UCP and the development of its text.
2.1 The role of the International Chamber of Commerce (ICC)
The International Chamber of Commerce (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 ICC was founded in 1919. Today, its global network comprises more than 6 million companies, chambers of commerce and business associations in more than 130 countries and territories. National committees, in more than 90 countries, work with ICC members in their countries to address concerns and to convey to the government the business views formulated by the ICC.
2: The role of the 1CC and the development of the UCP
The fundamental mission of the ICC is to promote open international trade and investment and to help business to meet the challenges and opportunities of globalization. The ICC has three main activities: rule setting; dispute resolution; and policy advocacy. Because its member companies and associations are also engaged in international business, the ICC has unrivaled authority in making rules that govern the conduct of business across borders. Although these rules are voluntary, they are observed in thousands of transactions every day and have become part of the fabric of international trade.
The ICC works closely with the United Nations, the World Trade Organization (WTO) and intergovernmental forums, including the G20.
In its function as a rule-setting organization, the ICC Banking Commission produces universally accepted rules for different forms of trade settlement and guidelines for international banking practice.
2.1.1 The development of rules for documentary credits and the documenting of practices
In order to obtain global understanding, and a common interpretation and application, of documentary credits, the ICC developed and published its first version of the Uniform Customs and Practice for Documentary Credits
(more commonly known as the UCP) in 1933 (UCP 82). subsequent revisions occurred in 1951 (UCP 151), 1962 (UCP 222), 1974 (UCP 290), 1983 (UCP 400), 1993 (IJCP 500) and 2007 (UCP 600). UCP 600 is the current version and came into effect on 1 July 2007.
These rules are supplemented by:
- the ICC Uniform Rules for Bank-to-Bank Reimbursements under Documentary Credits (URR 725);
- the ICC Supplement to the Uniform Customs and Practice for Documentary Credits for Electronic Presentation (eUCP) version 1 .1; and
- the International Standard Banking Practice for the Examination of Documents under UCP 600 (ISBP 745).
The UCP rules are the most successful privately drafted trade rules ever developed and today serve as the basis for the USD2 trillion in trade transactions a year.
In addition to UCP 600, this study text will cover all of the publications noted above in some detail.
2.2 Before the UCP
The origins of the UCP can be traced back to the publication of the Regulations Affecting Export Commercial Credits adopted at the New York Bankers Commercial Credit Conference in 1 920. More than 30 banks contributed to the creation of this document, and- each indicated to its overseas correspondent banks that it would apply the regulations to the handling of its documentary credits. More than 1 5,000 copies of the
regulations were distributed globally.
By the mid-to-late 1 920s, Argentina, Czechoslovakia, Denmark, France, Germany, Italy, Norway,and Sweden had created rules for handling export commercial credits. For example, in 1928, several banks in Copenhagen,
Denmark, produced the Joint Regulations• Governing the Handling of Documentary Credits Opened with the Principal Copenhagen Banks.
In 1929, ICC national committees discussed a draft document titled ‘Uniform Regulations for Commercial Documentary Credits’. It seems that this document became the forerunner for the development and publication
ofthefirstUCP in 1933, as ICC Publication No.82 (UCP 82).
2.3 The main changes to the UCP text across each revision
In this section, we highlight six of the main changes that were introduced into each revision. Each development led to the wording that appears in UCP 600 today, and it may come as a surprise to many that a number of
the positions taken in UCP 600 are the result of changes made over 50 years ago.
Although UCP 82 was the first document to be issued under the title of ‘Uniform Customs and Practice’, a number of significant changes had been made since a draft version had been circulated to ICC national committees in1929.
These changes included:
• the stipulation that ‘[blanks must examine all documents and papers with care so as to ascertain that on their face they appear to be in order’;
• introduction of the term ‘honour’;
• detailed requirements for transport and insurance documents;
• the provision that when a documentary credit stipulates ‘insurance against all risks’, banks cannot be held responsible for any particular risk that is not covered;
• the provision that when a documentary credit requires the presentation of other documents, without further definition, banks will accept such documents as tendered without any responsibility on their part; and
• the stipulation that when the expiry date of a documentary credit falls on a Sunday, or a legal or local holiday, the period of validity will be extended to the next following business day. (This extension was stated
not to apply to the latest shipment date.)
In addition, UCP 82, article 11, which is the disclaimer article regarding the effectiveness of documents,is almost identical to the wording that appears today in UCP 600, article 34.
Similarly, UCP 82, article 12, contains largely the same requirements as those in the first and third paragraphs of (ICI’ 600, article 35.
Other articles regarding date terms (that is, ‘first half’, ‘second half’, ‘beginning’, ‘middle’ and ‘end’ of a month) have thé same meaning as that mentioned in UCP 600, article 3.
Because this publication represented the first revision of the UCP rules, a number of changes occurred in the text. These included:
• introduction of methods of settlement – that is, payment, acceptance, negotiation and purchase;
• use of the term ‘applicant’ instead õf ‘principal’;
• the addition of the statement that, [i]n documentary credit operations, all parties concerned deal in documents and not in goods’;
• a statement that, in addition to the wording used in UCP 82 relating to the examination of documents on their face, ‘banks must determine compliance on the basis of the documents alone’;
• a provision that the issuing bank had a ‘reasonable time in which to examine the documents; and
• the stipulation that the description of the goods on the commercial invoice ‘must correspond with the description in the credit’.
The 1 962 revision saw the UK and the Commonwealth banks adopt the UCP for the first time. This resulted from the ICC’s concerted effort to gain greater acceptance of the rules among its member countries. The changes
made in this round included:
• the provision that a documentary credit is binding on all parties;
• a rule that a credit is separate from the sales or other contracts on which it may be based;
• the stipulation that a confirming bank negotiates without recourse;
• the requirement that a notice of refusal must be given ‘by cable or other expeditious means’, and that it must state that the documents are being held at the disposal of the bank or are being returned;
• the provision that terms such as ‘divisible’, ‘fractionabie’, ‘assignable’ and ‘transmissible’ should not be used in the context of a credit that is to be transferable, and shall not be so used; and
• details of how to handle the documents of the second beneficiary should the first beneficiary fails to substitute its own.
Compared to other revisions, very few changes were made to the text during the 1 974 round. The changes included:
• the introduction of the term ‘nomination’ and its use;
• the addition of details regarding inconsistency between documents;
• the addition of the concept of preclusion to the requirements for refusal of documents;
• a new article to cover combined transport;
• a new article indicating the default position of presentation within 21 days after the date of issuance of the bill of lading or other transport doçument; and
• a new article covering assignment of proceeds.
2.3.5 UCP 400(1983)
The 1 983 revision resulted in a large amount of restructuring of the text and effectively established the layout of the UCP as we know it today. The main changes included:
• a requirement that an advising bank is to take reasonable care to check the authenticity of a credit;
• the addition of a deferred payment undertaking as a settlement means;
• a new separate article covering bank-to-bank reimbursements;
• a new article covering original documents;
• a change of tolerance for goods that are not described as a number of packing units or individual items, from 3 to 5 percent and
• the addition of a definition of ‘transhipment’.
2.3.6 UCP 500 (1993)
For the vast majority of current documentary credit practitioners, UCP 500 is the first UCP that they will have experienced. This revision involved two drafting groups: one to look at the transport documents; and one for all
other issues. This revision contained by far the largest number of changes.
• a changed presumption that a credit is irrevocable if a documentary credit is silent on this issue (instead of being revocable);
• the granting to banks of permission to advise a credit that could not be authenticated;
• the prohibition of partial acceptance of amendments;
• the provision to banks of a reasonable time, not to exceed seven banking days following the day of presentation of the documents, in which to determine compliance or non-compliance;
• the requirement that non-documentary conditions were to be disregarded; and
- for transport documents, the introduction of the term ‘however named’ and an indication of who can sign transport documents (‘Transhiprnent’
was also redefined in the context of containerized shipments.)
2.3.7 Between UCP 400 and UCP 600
Following the revision of UCP 400 and leading up to the revision of UCP 500, the ICC was instrumental in the issuance of a number of papers and two new sets of rules.
On 1 September 1994, the 1CC issued a set of four position papers relating to the application of UCP 500. These papers were deemed necessary because some banks were not applying the content of UCP 500 in the manner intended.
These position papers covered:
• banks wrongly inserting clauses into an amendment to the effect that it would become effective were the beneficiary not to refuse it within a specific period of time;
• the definition of ‘negotiation’, explaining that negotiation not only means the immediate payment of funds to the beneficiary less a charge for interest but also can mean agreeing to pay on a future date or event
(and mentioning the concept of ‘giving value’);
• the process of examining documents when a documentary credit contains one or more non-documentary conditions; and
• the naming of the carrier on transport documents and the signing thereof.
In 1998, the ICC approved a set of rules relating to standby letters of credit,known as the International Standby Practices (1SP98). Although the UCP had made reference to standby letters of credit since their incorporation
into UCP 400, article 1, it was not felt that the UCP adequately reflected standby letter of credit practice. The 1SP98 is covered in Chapter 21.
In January 1 999, when the Euro replaced the legacy currency of a number of European countries, the ICC was required to issue guidelines relating to documentary credits issued in those legacy currencies that would remain
valid beyond January 1 999. To explain the acceptable process, the ICC issued a decision on 6 April 1998 on The Impact of the European Single Currency (Euro) on Monetary Obligations Related to Transactions Subject
to ICC Rules.
Following a couple of controversial court decisions with regard to what constituted an original document for the purpose of UCP 500, on 12 July 1 999 the ICC issued a paper entitled The determination of an ‘Original’
document in the context of UCP 500 sub-article 20(b). This paper sought to dispel the idea that the only way in which a document could be determined to be an original was if it was manually signed and / or marked ‘original’,
offering instead other possible scenarios. Following the implementation of UCP 600, this paper remained valid and continued to be referred to by many documentary credit practitioners — but it has since been superseded
by the content of ISBP 745, paragraph A27.
The next document to be issued by the ICC was actually a set of rules:
the first rules covering electronic presentations under a documentary credit, known as the eUCP. Version 1 .0 of the eUCP was implemented in January 2002; the revised eUCP, version 1 .1, is covered in more detail in
The final document to be issued prior to the implementation of UCP 600 was the first version of the International Standard Banking Practice for the Examination of Documents under Documentary Credits (ISBP 645).
Issued in 2003, it represented the first collation of practices that were deemed acceptable by the membership of the ICC Banking Commission.
The implementation of this publication also helped to explain the concept of ‘international standard banking practice, which had been introduced into the text of IJCP 500, sub-article 13(a) (‘Standard for Examination of
Documents). 2.3.8 UCP 600 (2007) UCP 600 represents the latest version of UCP. A number of changes were
made to the text to align it with some of the principles established in ISP98 and to create a standardized format that could be used in other revisions of ICC rules. The changes included:
• new articles covering definitions and interpretations;
• the removal of reference to revocable credits;
• a new sub-article covering documents lost in transit;
• the setting of the maximum examination period as five banking days following the day of presentation;
• the stipulation that documents are to appear to fulfill their function where the credit is silent with regard to their data content; and
• additional possibilities for the handling of discrepant documents -that is, contacting the applicant for a waiver and acting according to instructions previously provided by the presenter.
The implementation of UCP 600, in July 2007, also saw the release of an updated ISBP publication reflecting the changes made in UCP 600 (in the context of content and changes to UCP article references), under the cover of Publication No. 681. Since then, a complete revision of lSBP has been undertaken, and in July 2013 Publication No. 745 was released.
1. Which of the following is not an activity performed by the International Chamber of Commerce?
A. Rule setting
B. Dispute resolution
C. Signing of certificates of origin
D. Policy advocacy
The correct answer is C. The ICC does not become involved in signing documents that are traditionally presented under documentary credits.
2. How many revisions of the UCP have there been since 1933?
The correct answer is C. The first UCP was issued in 1933, and revisions were made in 1951, 1962, 1974, 1983, 1993 and 2007 (totalling six revisions).
3. Today, the UCP serves as the basis for what value of trade transactions per year?
A. USD20 billion
B. USD2 trillion
C. USD200 billion
D. USD20 trillion
The correct answer is B. The 2014 ICC Trade Finance Survey estimated that documentary credits issued subject to UCP 600 amounted to some USD2 tfl per year.
4. What is the current publication number of the International Standard Banking Practice for the Examination of Documents (ISBP) under UCP 600?
The correct answer is C. The most recent revision of the ISBP is provided in ICC Publication No. 745.
5. The first eUCP set of rules, version 1.0k, was implemented during the lifetime of which revision of the UCP?
The correct answer is C. eUCP version 1 .0 came into effect during the lifetime of UCP 500.
1. ‘A bank guarantee can be issued subject to UCP 600.’ Is this statement
true or false?
The correct answer is A. Any undertaking that is subject to the presentation of one or more documents can be made subject to UCP 600. This will include a bank guarantee.
2. ‘The issuance of a bank guarantee offers an applicant little risk, because it covers only the non-payment of an open account or documentary collection transaction.’ Is this statement true or false?
The correct answer is B. There is the risk that the beneficiary may draw under the guarantee even if there has been no default under the open account arrangement or documentary collection.
3. Under a sight documentary collection, for what reason is the buyer exposed to only minimal risk?
A. Because it need only pay when it has received and reviewed the original shipping documents.
B. Because it need only pay when it has reviewed the original shipping documents at the counters of the collecting bank.
C. Because it need only pay when it has reviewed the original shipping documents at the counters of the remitting bank.
The correct answer is B. The buyer agrees to pay once it has seen the documents at the counters of the collecting bank.
A. Documentary credit
B. Documentary collection
C. Open account
The correct answer is A. Only under a documentary credit is there a guarantee of payment on the due date. For an acceptance under open account trading or documentary collection, the buyer (as acceptor) may or
may not effect the settlement on the due date.
5. ‘In terms of the type, number, and form of documents that will be received, the buyer has the same protection under an open account transaction as it does under a documentary credit.’ Is this statement true or false?
The correct answer is B. In an open account transaction, there are no predefined documents that the seller must present to the buyer.
Guide to Documentary Credits by Gary Collyer, Chapter- Two, page # 7-15