Uniform Customs and Practice (UCP) Definition
The Uniform Customs and Practice for Documentary Credits (UCP), also referred to as the Uniform Commercial Code (UCC), is a set of clearly-defined rules developed by the International Chamber of Commerce (ICC) for governing the issuance and applications of letters of credit (LCs) on an international scale. Ever since the first UCP was issued in 1933, bankers as well as commercial entities from over 175 nations have been employing UCPs during trade finance, amounting to over a trillion US dollars worth of trade transactions each year.
A Little More on the Uniform Customs and Practice
The International Chamber of Commerce (ICC) published the Uniform Customs and Practice (UCP) in 1933 in an effort to standardize the practice of handling letters of credit in international trade finance. Over the years, ICC has implemented several revisions to these sets of rules to keep it up to date. The current version of UCP is UCP600, which has been in force since July 1, 2007.
The Chamber of Commerce and the UCP
The ICC is primarily concerned with preparing and promoting its uniform rules of practice. The Chamber strives to codify international practices by periodically handpicking best practices by way of scrutiny and discourse. The history of letters of credit (LCs) dates back several centuries with banks issuing documentary letters of credit to traders. So, it is hardly a surprise that ICC got its rules of practice formulated by bankers and merchants, instead of legislatures with political and local considerations. Naturally, these rules of practice effectively represent the requirements, traditions and principles of business.
The voluntary incorporation of ICC rules into contracts lends them a certain degree of flexibility. It also provides a strong foundation for international review as well as judicial scrutiny. The ICC was founded with the primary objective of facilitating free trade on a global scale while countering nationalistic as well as protectionist forces. ICC rules brought about an uniformity in practice as a means to tackle trade obstructions created by conflicting national regulations.
What is UCP600?
The Uniform Customs and Practice for Documentary Credits, Publication 600, also known as UCP600 is the latest revision of Uniform Customs and Practice that came into effect on July 1, 2007, replacing the UCP500 after a gap of 14 years. UCP600 was the result of three years of extensive research and analysis by the Commission on Banking Technique and Practice – a body within the International Chamber of Commerce.
The drafting process of UCP600 involved the services of the UCP Drafting Group, who based the revision on feedback received from thousands of individuals. The UCP Drafting group was formed as an advisory body with experts drawn from over 25 countries. Besides the 5000 or more individual comments, the Drafting Group also incorporated into the UCP600 draft suggestions that it handpicked from over 400 members of the ICC Commission on Banking Technique and Practice. With such a meticulous drafting process in place, it is hardly a surprise that the UCP has enjoyed phenomenal as well as unprecedented success in international trade.
UCP600 goes hand in hand with the International Standard Banking Practice for the Examination of Documents under Documentary Credits (ISBP), ICC Publication 745, which assists in comprehending if a document complies with the terms of Letters of Credit.
UCP600 contains a set of 39 articles that helps interpret credits that are issued and governed by it. Nevertheless, there are certain exceptions to these rules that can be brought about by express modification or exclusion.
Future Revisions of UCP
Although there have been rumors with respect to a potential UCP700 version, there has been no official communication from any of the ICC National Committees or the Banking Commission Executive Committee regarding the possibility or even a requirement for a revision of UCP 600. Even unofficial comments coming from an ICC advisor (who was speaking on an individual capacity) have strongly rejected the need for any revisions to UCP as of April, 2017. There are several reasons why a revision of UCP600 is unlikely:
- The drafting process calls for the meticulous expertise of a large group of dedicated specialists.
- Any such revision involves a considerable investment of both time and money.
- A lot of regulatory uncertainties still exist in global markets.
- The fate of the various sanctions that are operating in the market is as yet unknown.
- The sheer number of trading countries involves would certainly make it a herculean task to replicate the success of UCP600.
References for Uniform Customs and Practice
Academic Research on Uniform Customs and Practice (UCP)
Letters of Credit: A Comparison of Article 5 of the Uniform Commercial Code and the Uniform Customs and Practice for Documentary Credits, Barski, K. A. (1995). Loy. L. Rev., 41, 735. This paper scrutinizes the phenomenal increase in the use of letters of credit for commercial transactions. In fact, the United States contributes approximately half of all standby letters of credit used annually worldwide. The author performs a comparative analysis of Article 5 of the Uniform Commercial Code (UCC) and the Uniform Customs and Practice for Documentary Credits (UCP).
Letters of Credit: UCC Article 5 and the Uniform Customs and Practice, Funk, C. W. (1965). Howard LJ, 11, 88. The purpose of this paper is to introduce the Uniform Commercial Code to lawyers who are deemed to be unfamiliar with the concept. The author also elaborates the theory of the letter of credit, with a particular emphasis on the Uniform Customs and Practice (UCP).
Payment and transfer in documentary Letters of Credit: Interaction between the French general law of obligations and the Uniform Customs and Practice, Stoufflet, J. (1982). Ariz. L. Rev., 24, 267. This paper scrutinizes the characteristics of letters of credit in French law, especially beginning with its role as a payment system employed in international commercial transactions in the period following the end of World War II. The first primary characteristic that the author identifies pertains to the judicial process employed in enforcing the bank’s promise. A second characteristic can be identified in the source of the judicial statutes that regulate the letter of credit translation.
Uniform Customs and Practice for Documentary Credits 1971 Revision, Wheble, B. S. (1970). Cornell Int’l LJ, 4, 97. This paper describes the various amendments to the Uniform Customs and Practice for Documentary Credits that were brought into effect by its 1971 revision. The author contends that such amendments were made on the basis of several suggested alterations, taking into account the business usage and the prevailing practices of inland, railway and naval transporters and insurers.
The 1983 Revision of the Uniform Customs and Practice for Documentary Credits, Byrne, J. E. (1985). Banking LJ, 102, 151. This paper scrutinizes the various alterations made in the 1983 revision of the Uniform Customs and Practice (UCP) with reference to the adoption of certain advanced processes in lieu of the traditional paper format. These processes include electronic data transmission, advanced transportation systems and changes to the letter of credit itself. The author inspects the new responsibilities of banks outlined by the 1983 revision and provides a synopsis of the major advantages as well as disadvantages of this revision.
Destructive Rules of Certainty and Efficiency: A Study in the Context of Summary Judgment Procedure and the Uniform Customs and Practice for Documentary Credits, Ronner, A. D. (1994). Loy. LAL Rev., 28, 619. This paper concentrates on two separate doctrines that are built into the Uniform Customs and Practice (UCP); they are 1) Strict compliance: This doctrine interdicts a bank from honoring a letter of credit even in the case of the slightest inconsistency that might exist between the documents and the letter. 2) Automated preclusion: The doctrine of automated preclusion is in essence a sanction provision. The UCP offers a bank a stipulated period of time to inspect documents and decide their future course of action.
The Uniform Customs and Practice as a Source of Documentary Credit Law in the United States, Canada and Great Britain: A Comparison of Application and …, Wayne, M. A. (1989). Ariz. J. Int’l & Comp. L., 7, 147. Almost all trading nations use letters of credit in their domestic and international commercial transactions. This is because a letter of credit secures payment for a seller. Such security is absent in a traditional documentary sale. This paper scrutinizes Uniform Customs and Practice (UCP) as a source of documentary credit law in the United States, Canada and Great Britain and performs comparisons of the various applications of the doctrine in the three nations. The author also elaborates how UCP is variously interpreted in the US, Canada and Great Britain.
Letters of Credit and the Uniform Customs and Practice for Documentary Credits: The Negotiating Bank and the Fraud Rule in Korea Supreme Court Case 96 DA …, Chae, D. H. (1998). Fla. J. Int’l L., 12, 23. This paper provides an overview of the letter of credit and the Uniform Customs and Practice for Documentary Credits (UCP) from the point of view of the judicial system of South Korea. The author performs a thorough analysis of Korea Supreme Court Case 96 DA 43713, starting with an overview of the circumstances that led to the litigation, followed by a scrutiny of the factual basis of the famous fraud.
Interpretation and Analysis on the New Uniform Customs and Practice for Documentary Credit——UCP600 [J], Ying, W. A. N. G. (2007). Journal of Guangdong University of Business Studies, 6, 016. This article compares UCP600 with UCP500 and highlights the noticeable enhancements brought about by the former with regard to framework, content and diction. The author highlights the simplified language used in UCP600, besides the omission of irrelevant or obsolete clauses, rectification of certain loopholes present in the previous version as well as the introduction of a few new concepts and regulations. The UCP600 doctrine is not perfect, but it has been able to fulfill its intended purpose, which is to not only sustain the market share of Credit, but also extend it in the settlement of international trade.
Weakening the Letter of Credit Product: The New Uniform Customs and Practice for Documentary Credits, Dolan, J. F. (1994). Int’l Bus. LJ, 149. The author scrutinizes four provisions in the current version of the Uniform Customs and Practice for Documentary Credits (UCP). The paper concludes that this version of the UCP may contain unwarranted attempts to shield banks from certain anomalies in the letter of credit transactions that they are well equipped to confront.