Table Bibliography. 11 1. Introduction 1.1. Introduction to E-

Table of
Contents
 
 
1. Introduction. 3
1.1. Introduction to E- Commerce. 3
1.2. Introduction to UCP 600. 4
1.3. Reciprocal Relationship between the UCP 600 and the
Successful Facilitation of Electronic Commerce  6
2. Analysis. 7
2.1. UCP 600has the Capability of Facilitating International
Transactions Effectively and Efficiently in an International Sphere which
Consequently Foster International Trade and Economic Performance. 7
a. Major changes in the UCP 600 that Will Consequently
Contribute to the Effective Use of Trade Related Instruments in International
Trade. 7
2.2. Negative Aspects of UCP 600 Will Consequently Pave the
Way to Inconsistencies which Breaches the Confidence Put on it by Actors of
International Transactions. 9
a. Banco Santander vs
Banque Paribas case. 9
b. Drafting Related Loopholes and Related Inconsistencies
may render Provisions under UCP 600 unimportant specifically with Reference to
a Number of Subject Areas. 9
3. Conclusion. 10
Bibliography. 11
 

1. Introduction

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1.1. Introduction to E- Commerce

E commerce is a new
method and new technological way of conducting business in the field of
international trade and the emergence of E commerce and the use of electronic
documents has presented dilemmas requiring due attention and consideration by
bankers, merchants and law makers. Moreover, in international trade, letter of
credits has an important role with regards to the trade related activities by
providing electronic records. On the other hand, numerous risks have been
arisen, bankers in handling of documents in international trade and therefore
practice of electronic commerce has applied in to the international trade law
and trade financing. Letter of credits or the documentary credits can be
identified as the credits that are issued by a bank on behalf of the customer
and it has guaranteed the credit of the customer1. On
the other hand, it is one of the old and well appreciated existing instruments
for financing the international trade. There are many scholars have made their
scholarly ideas regarding the effectiveness and advantage of letter of credits
in international trade. According to the idea of Professor Roy Goode, he has
defined Documentary Letters of Credits as: “A money promise which is
independent of the transaction that gives it birth and which is considered
binding when received by the beneficiary without acceptance, consideration,
reliance, or execution of solemn form”2.
Moreover, it should be noted that, international bankers in more than 70
countries has been operating latter of credit under the Uniform customs and
practice for documentary credits (UCP) sponsored by the International Chamber
of Commerce (ICC). 

1.2. Introduction to UCP 600

UCP or the Uniform
Customs and Practice for Commercial Documentary Credits” can be identified as
the main mechanism in international trade which sponsored by International
Chamber of Commerce. When considering the historical overview of UCP in
international trade it can be recognized the fact that, in 1933 the ICC issued
the ‘Uniform Customs and Practice for Commercial Documentary Credits’ and this
set of rules received formal acceptance in some 40 countries. Moreover, the
1951 Revision doubled the acceptance of these rules, it was not until the issue
of the Uniform Customs and Practice for Documentary Credits in 1962 that global
acceptance took place3.
Moreover, these rules have been updated in 1974, 1983 and 1993 and UCP 400, UCP
500 and current 2007 commonly referred to as the UCP 600. On the other hand,
The UCP 600 applies to Letter of Credits transactions in accordance with
Article 1 of UCP 600 in International Chamber of Commerce that makes the UCP
‘rules’ for the first time in their life. Whilst this article states that the
rules are ‘binding on all parties’ to the Letter of Credits transaction, it
also states ‘unless expressly modified or excluded by the credit’4. UCP
600 has contained 39 Articles and it has provide the importance provisions for
international trade through letter of credits. On the other hand, the UCP 600
has not altered the long established ‘principle of independence’, that is, the
separation of the Letter of Credits from the underlying contract, insofar as
banking operations are concerned, and this is reflected in Article 4. On the
other hand, Article 5 also reinforced that separation by specifying that “banks
deal with document and not with goods, service or performance to which the
document may relate5.
Although, UCP 600 has provided both positive and negative aspects to the letter
of credit transactions and E Commerce by overcoming the issues of UCP 500.
Therefore following advantages can be recognized as valid developments under
UCP 600.

·        
An attempt to reduce discrepancies by
not demanding exact data content, following the principles of the doctrine of
materiality – except for the commercial invoices.

·        
A reduction in the maximum time allowed
to a bank for acceptance of the documents to a maximum of five banking days.

·        
Allowing the presenter of the documents
to instruct the issuing bank to hold the documents and not seek a waiver from
the applicant.

·        
Continuing to uphold the principle of
independence.

·        
Clarifying and strengthening the
responsibility of the advising bank in advising the credit to the beneficiary.

·        
The abolition of revocable credits from
the application of the rules6.

On the other hand, there
are negative issues that has been identified in UCP 600 new version. ; The lack
of authority of the ISBP; The possibility of different sets of international
standard banking practices evolving; The confusion over what constitutes
international standard banking practices; The lack of clarity over ‘all-risks’
insurance; The continuing requirement for commercial invoices to show an exact
matching description in accordance with the dogmatic doctrine of strict
compliance principles are the negative issues with regards to the Letter of
Credits.  Therefore, it can be noted
that, there are both positive and negative issues of e commerce and letter of
credit transactions7.
On the other hand, new modifications and amendments to the UPC 600 has been
regularized and concerned the new aspects of the international trade. Moreover,
ICC banking commission meeting held in Jakarta in 2017 was discussed to change
the governing rules for letter of credits. Therefore, this assignment will be
discussed both positive and negative aspects of UCP 600 with regards to the
Letter of Credits and International Trade.

 

1.3. Reciprocal Relationship between the
UCP 600 and the Successful Facilitation of Electronic Commerce

 

E-commerce can play a
pivotal role in fostering growth and rising living standards, particularly for
developing countries. Moreover, by reducing the trade costs associated with
physical distance, e-commerce allows businesses to access the global
marketplace, reach a broader network of buyers and participate in international
trade. According to the many aspects of international trade, among the
obstacles developing countries face in fully participating in e-commerce are
high digital infrastructure costs, lack of compliance with legal and fiscal
requirements of foreign e-markets, underdeveloped financial and payment systems
and low consumer trust. On the other hand, there is closer relationship between
UCP 600 and E commerce. However, The UCP 600 is the latest version of the
Uniform Customs and Practice for Documentary Credits (UCP). As well as aiming
at established uniformity of practice with regard to the documentary credits,
it has been internationally recognized as the contractual rules governing
documentary credits. Despite restructuring the rules in the new version of UCP,
there are more considerable changes in content of UCP 600. As well as traders
of international letters of credit transactions are benefit from the new
version of UCP due to that it save unnecessary litigations and make the letters
of credit a more attractive choice8. On
the other hand, the drafters of the new version of UCP have achieved success of
creating the provisions, which are eradicated from ambiguity and vogue of the
UCP 500. Therefore, for the betterment of credit transaction and international
trade mechanism, UCP 600 can be recognized as an essential mechanism and it has
identified the letter of credits in international transactions as an important
one.

2. Analysis

2.1. UCP 600has the Capability of
Facilitating International Transactions Effectively and Efficiently in an
International Sphere which Consequently Foster International Trade and Economic
Performance

a. Major changes in the UCP 600 that Will
Consequently Contribute to the Effective Use of Trade Related Instruments in
International Trade

       I.           
Document Examination Period

Document
examination period has been reduced by UCP 600 from seven days to 5 days which
further guarantee the efficiency and effectiveness of credit instruments according
to the current demanding needs of the markets in the international sphere.

    II.           
Article 10

Article
10 for instance specifically deals with amendments to a letter of credit and
related processes. Under Article 10, a credit that was previously agreed upon
between the beneficiary and the issuer the terms and conditions enshrined
within the ambit of the credit instrument cannot be changes unless otherwise
the beneficiary consents expressly to the bank that has actually advised of
such amendment. However it should also be noted that provided that there is no
response from the beneficiary with regard to the acceptance or non acceptance
of the proposed amendment, the amendment has the capability of being
incorporated to the credit instrument after a reasonable time.

 III.           
Article 14

Article
14 addresses the standards with regard to examination of documents. It should
be noted that the present article has replaced Article 13 of the UCP 500. In
brief, the Article under consideration specifically address issues with regard
to the 21 day presentation period, lists of documents that are not required to
be attached at the point of presentation, descriptions with regard to the goods
and services that are considered. Such characteristics pointed our formerly has
been incorporated within the ambit of Article 13 of the UCP 500 but the main
points that should be noted with reference to UCP 600 is the additions that
have been made to the aforementioned sectors of consideration. For instance, It
is pointed out in the Article that the data enshrined within the documents need
to be exactly similar to that of indicated in credit or other documents unless
otherwise such inconsistencies may lead in to widespread conflicts and on the
other hand there is also a flexibility as per the addresses of the parties
involved in the credit terms as long as their addresses remain within the state
where the original address was attached to.9

Therefore,
with reference to such elements of flexibility and the ability to adopt, the Provision
under consideration can be treated as one of the best ways that has been
ensured by established legal principles to foster international trade with
higher accountability, responses with lee risks and inefficiencies based on
mere technicalities.10

2.2. Negative Aspects of UCP 600 Will
Consequently Pave the Way to Inconsistencies which Breaches the Confidence Put
on it by Actors of International Transactions

a. Banco
Santander vs Banque Paribas case11

The
case law under consideration can be regarded as one of the judgements that
ensured a negative sense with reference to letters of credit. The situation occurred
that led to this case was a process involving a detection of fraud after the
discounting procedure has been adopted by the conforming bank. In this case the
court stressed on the view that at an instance where the confirming bank
discounted its own differed undertaking the risks associated with the said action
lies within the confirming bank and the issuing bank has no duty to facilitate
reimbursements following a fraud that has been detected after the undertaking
has been made by the confirming bank.12

b. Drafting Related Loopholes and Related
Inconsistencies may render Provisions under UCP 600 unimportant specifically
with Reference to a Number of Subject Areas

 

With
regard to the views of experts on the field, following has been identified as
negative aspects of Letters of Credit which will derogate its position as a
sound financial instrument to be used within the course of international trade.
The following issues will be caused by drafting irregularities and exclusions
incorporated within credit agreements which are also unaddressed by UCP 600.

1.
When a credit arrangement as per UCP 600 is conducted with a bank where the
customers have not conducted commercial transactions before, practical
technicalities pertaining to the procedures involving credit will start to come
up while introducing inconsistencies to the sphere of the transaction involved.

2.
Officers who do not possess significant expertise and including document
checkers will slow down the whole process by making constant issues with regard
to minor technicalities which will consequently derogate the soundness of
Letters of Credit as a instrument that facilitate international trade and
electronic commerce.

3.
Specific terms that are difficult to be complied with will lengthen the
procedures involved within the credit process since the presentment of the
instrument  coupled with the amendment
procedures will consume a higher amount of time before finalizing the soundness
of the documents and data involved within the process.

4.
Letters of Credit may not be the most suitable mode of payment since the
present markets require quick and convenient payment methods due to higher competition
and profitability interests. Higher the competitiveness in the markets, higher
the efficiency accepted, and the costs and probable delays attributed within
the process of letters of Credit itself act as barriers to its effective use
and compatibility with the current demanding market needs including electronic
commerce.

3. Conclusion

With
reference to the facts enumerated within the ambit of this discussion it can be
concluded that the provisions within the UCP 300 is a trade friendly
advancement for instance, of UCP 500 with foster trade among international
borders. However it should be noted that UCP 600, even though, paved the way
the affective and efficient trade mechanism, but it also has its own
deficiencies specifically with reference to in trade and E Commerce.
Interpretation by courts pertaining to this procedure, is efficient of within
the process of presenting monitoring and amending coupled with data
presentation and information sharing. Moreover, consuming nature of the
processes involve in the verification of the Letter of Credits unavailability
of a specific standards irrevocability of the instrument, for  a instance can be regarded as  the area the latter of credit process which
consequently reduces it  soundness as a
financial instrument that facilitate e commerce and international trade.

Therefore,
with reference to the fact enumerated formally a valid conclusion can be made
saying that, UCP 600 and Letter of credit as its own way of fostering
international trade and Electronic Commerce. Coupled with negative aspects
which reduces its productiveness as a valid financial instrument. However
increasing the specific in terms that are used within the letter of credit
process coupled with data and information may increase the productiveness of
this instruments hence of the international trade and e commerce activity.

Bibliography

 

‘Banco
Santander Sa V Bayfern Ltd And Others: Comc 29 Jun 1999 – Swarb.Co.Uk’ (swarb.co.uk,
1999)

accessed 22 January 2018

‘DOCUMENTARY
LETTERS OF CREDIT, LEGAL NATURE AND SOURCES OF LAW’ (Degruyter.com,
2016)

accessed 22 January 2018

‘Electronic
Records In Letters Of Credit’ (Uncitral.org, 2013)

accessed 21 January 2018

Manzella
J, ‘The New UCP 600: Better Rules To Better Facilitate International Trade’ (The
Manzella Report | The Premier Source For Global Business And Economic News,
2017)

accessed 22 January 2018

‘Risk
Analysis Of Letter Of Credits’ (Ijbssnet.com, 2013)
accessed 26
January 2018

Staff
I, ‘Letter Of Credit’ (Investopedia, 2012)
accessed 20
January 2018

‘UCP
600 Rules – Changing Letter Of Credit Business For International Traders?’ (Vuir.vu.edu.au,
2009) accessed 21
January 2018

‘UCP
600: Letter Of Credit Rules Revised’ (Melbournecentre.com.au, 2015)

accessed 21 January 2018

‘10.9.5-Risk
And The Relation To Trade Credit-Uniform Custom And Practice For Documentary
Credits – UCP 600’ (Thecoffeeguide.org, 2016)

accessed 21 January 2018

 

1 Investopedia Staff, ‘Letter Of
Credit’ (Investopedia, 2012)
accessed 20 January 2018.

2 ‘Risk Analysis Of Letter Of
Credits’ (Ijbssnet.com, 2013)
accessed 21
January 2018.

3 ‘DOCUMENTARY LETTERS OF CREDIT,
LEGAL NATURE AND SOURCES OF LAW’ (Degruyter.com, 2016)

accessed 22 January 2018.

4 ‘Risk Analysis Of Letter Of
Credits’ (Ijbssnet.com, 2013)
accessed 21 January 2018.

5 ‘UCP 600: Letter Of Credit Rules
Revised’ (Melbournecentre.com.au, 2015)

accessed 21 January 2018.

6 ‘UCP 600 Rules – Changing Letter
Of Credit Business For International Traders?’ (Vuir.vu.edu.au, 2009)
accessed 21 January
2018.

7  ‘UCP
600 Rules – Changing Letter Of Credit Business For International Traders?’ (Vuir.vu.edu.au,
2009) accessed 21
January 2018.

 

8 ‘Electronic Records In Letters
Of Credit’ (Uncitral.org, 2013)

accessed 21 January 2018.

9 ‘10.9.5-Risk And The Relation To
Trade Credit-Uniform Custom And Practice For Documentary Credits – UCP 600’ (Thecoffeeguide.org,
2016)
accessed 21 January 2018.

10John Manzella, ‘The New UCP 600:
Better Rules To Better Facilitate International Trade’ (The Manzella Report
| The Premier Source For Global Business And Economic News, 2017)

accessed 22 January 2018.

11 BANCO SANTANDER S A V BANQUE
PARIBAS: CA 25 FEB 2000

12 ‘Banco Santander Sa V Bayfern
Ltd And Others: Comc 29 Jun 1999 – Swarb.Co.Uk’ (swarb.co.uk, 1999)

accessed 22 January 2018.

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