The UCPDC 600 standard, published by the International Institute for Customs (Standards and Regulations Council) in partnership with the World Customs Organisation, outlines best practices for document credits. Document credits are used in international shipments to reduce the administrative burden on importers, exporters, and vendors while also improving supply chain security. For example, a vendor may send an invoice to the exporter stating that they’ve completed a specific production order. The exporter then issues a document credit to their client (the importer), which reduces their invoice amount by that specific production order. The vendor can now use this document credit to ease their administrative burden when providing future invoices for other products.
Did you know? UCP 600 is a set of rules that contains 39 Articles, which apply to 175 countries worldwide.
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What Does UCP 600 Mean?
UCP-600 is the document issued by the International Chamber of Commerce that represents documentary proof of ownership. It is an acknowledgment of ownership and transfer of goods from one party to another. It can be a bill of lading, letter of credit, or any other document that conveys ownership.
The UCP-600 rules are voluntarily incorporated into contracts and have to be particularly outlined within trade finance contracts for applying. It also allows flexibility for external parties involved.
The UCP-600 is not required for all shipments. Some shipments, such as small consignments, are exempt from this requirement. If a shipment qualifies for exemption, then no UCP-600 will be issued. Other shipments may need an alternative type of documentation, such as a bill of lading or a letter of credit.
The History of UCP 600
UCP 600 had previously been in use since 1965, nearly 50 years before the document credit industry was introduced and online trade was widely adopted. The latest version of the UCP 600 instructions was necessary to adapt to the new digital trading environment. The original UCP instructions were mainly drafted for paper-based transactions, and therefore applied only to documentary trade.
The update of the UCP instructions to UCP 600 included both documentary and non-documentary credits, and was the first time that the documentary credit provisions had been integrated into a standardised customs procedure. The UCP 600 instructions have been accepted as the new customs standard by a majority of countries, and numerous groups have started to publish translations of the UCP 600 instructions. The UCP 600 instructions have become widely accepted as the internationally agreed customs standard for documentary credits and can be used as a reference for national customs rules on documentary credits.
The Purpose of UCP 600
The UCP 600 instructions aim to establish a uniform customs standard for documentary credits in international trade, thereby reducing the administrative burden on importers, exporters, and vendors. These instructions also aim to improve the security of supply chains by standardising the format of information in credit documentation. The UCP 600 standard is only for documentary credits and does not apply to non-documentary credits. It does not replace national customs laws. It is not a contract or an agreement between importers and exporters. It is not an internal customs procedure. It is a set of instructions applicable to documentary credits.
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Articles Under UCP 600
Under the Uniform Customs and Practice for Documentary Credits (UCP 600), two UCP 600 Articles deal with transport documents: Article 6 and Article 8. Article 6 covers cases where the credit indicates that transport documents must be presented, while UCP 600 Article 8 deals with topics where the credit does not mention transport documents specifically but may nonetheless be required. In both cases, the UCP 600 states that transport documents must be presented within 21 days of the date of shipment unless otherwise specified in the credit.
Article 6 of the Uniform Customs and Practice for Documentary Credits (UCP 600) deals with the requirement of presentment. The term “presentment” refers to the act of presenting documents to the nominated bank for sighting. Under Article 6, the presentation must be made within 21 days from the date of shipment (or from the date as stipulated in the credit). If not, the documents will be considered as invalid and will not be accepted by the bank.
Article 8 of UCP 600 deals with the eight requirements that must be met for a document to be considered as advice of discrepancies. These requirements are:
- The name of the advising bank
- The number and expiration date of the credit
- The discrepancies advised
- The name of the applicant
- The name of the beneficiary
- This indicates that it is an advice and not a demand for compliance
- That it is without prejudice to rights under the credit
- The signature of an authorised officer of the advising bank.
If all these requirements are not met, the document will not be considered as advice for discrepancies.
UCP 600 Article 9 deals with the use of the same bank to refer to any amendments. In the event that a bank is requested to advise amendments, but opts for non-compliance, it is subject to inform the bank from which credit, advice is received.
Key Elements of the UCP 600 Standard
Terms and conditions, including the credit period, that the exporter and importer agree upon.
Limit of Liability
Limitation of the exporter’s liability to the amount of the importer’s undertaking.
Nature of the Goods
Whether the goods were shipped, if so when and where, and their gross weight and description.
Whether the importer has provided security for the payment of the goods and the conditions, including details of the goods placed in the hands of a third party, their location, and their value.
Documents Accompanying the Credit
Documents that accompany the credit, including commercial invoices and bills of lading, and documents that identify the importer, exporter, and importer’s financial institution.
Responsibilities for the Issuer and Acquirer
- The issuer must have a reasonable belief that the goods will be delivered to the importer
- The importer must have a reasonable belief that the goods will be delivered to them
- The issuer of the credit must have a reasonable belief that the importer has provided a valid security
- The importer must have a reasonable belief that the goods and their price are covered by the credit
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UCP 600 Documentary Credits
The UCP 600 (“Uniform Customs & Practice for Documentary Credits”) is recognised as an official publication which is issued by the International Chamber of Commerce (ICC). It is a set of 39 articles on issuing and using Letters of Credit that applies to 175 countries around the world.
The following documents are the core components of documentary credit:
- Commercial invoice - An exporter’s sales invoice
- Bill of Lading - The exporter’s receipt for goods being shipped
- Draft Drawn on the Importer’s Bank - The importer’s promise to pay
- Shipping Document - A document that confirms the goods have arrived
- Customs Declaration - A document that confirms the goods have been cleared through Customs
- Other Documents - Any other documents that may be required in relation to the goods or trade transaction
Requirements for Dated Documents and Electronic Data Exchange
- A documentary credit is only valid for a specific date, which is the date the goods were shipped.
- The issuer must have a reasonable belief that the goods were shipped on that specific date.
- The importer must have a reasonable belief that the goods were shipped on that date.
- The above requirements should be clearly specified in the importer and exporter’s credit terms.
- The importer and exporter’s customs authorities must allow importers and exporters to exchange customs data electronically.
Prohibited Practices and Conditions Under UCPDC 600 Articles
Given below is the list of practices and conditions that are prohibited under the latest UCP version:
- The importer cannot use the credit before the goods have been shipped.
- The exporter cannot ship the goods before the importer has accepted the credit.
- The importer cannot accept the credit before the goods have arrived.
- The exporter cannot deliver the goods before the importer has accepted the credit.
- The importer cannot accept the credit if it is conditional on the occurrence of a future event.
- The exporter cannot issue a credit if payment is conditional on the occurrence of a future event.
- The exporter cannot issue a dated credit.
- The importer cannot accept a dated credit.
- The exporter cannot condition the credit on the importer having provided a monetary deposit.
The Limitations of the UCP 600 Standard
While UCP 600 is a very useful standard for describing the building blocks of a sustainable building, there are some significant limitations.
- First, it only describes building materials and does not address indoor environmental quality or the wider impacts of materials used in the construction process.
- In addition, UCP 600 only covers 50% of the total life-cycle costs of a building. So it doesn’t provide enough information to accurately assess what impact materials have on overall project cost.
- The UCP 600 standard is a set of instructions for documentary credits and does not apply to non-documentary credits.
- It does not replace national customs laws. It is not a contract or an agreement between importers and exporters.
- It is not an internal customs procedure. It is a set of instructions applicable to documentary credits.
- The UCP 600 standard applies only to documentary credits, not non-documentary credits, which are another type of credit payment.
- As such, UCP 600 can be used as a starting point for sustainable design, but should not be used as a sole criteria for assessing the green credentials of a building.
To get a full picture of the environmental impact of a building project, it’s important to consider all aspects of the life cycle.
How to Adopt the UCP 600 Standard?
Adopting the UCP 600 standard can help importers, exporters, and vendors improve their supply chain security while also reducing administrative costs. The first step is to determine whether the importer, exporter, or vendor will issue a credit. Once decided, the organisation should adopt the UCP 600 standard for their credit terms. The credit terms are the contractual agreement between the importer and the exporter, which outlines the credit amount, date of shipment, acceptance terms, and payment terms. The importer, exporter, or vendor can then choose from a variety of credit management software solutions that are based on the UCP 600 standard, such as ComTrade. These solutions can be used to create, issue, track, and manage documentary credits and payment terms.
The UCP 600 is a set of instructions for documentary credits that aims to improve supply chain security while also reducing administrative costs for importers, exporters, and vendors. The standard applies to documentary credits only and does not replace national Customs laws.
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