An analysis of key changes under ucp 600 compared to ucp 500 and recommendations for better ucp 600 application.doc

Introduction
1. Relevant of the study
It is generally accepted that international trade transactions naturally carry more
risks than domestic ones due to differences in practice, culture, business processes, laws
and regulations. It is, therefore, important for traders to ensure that goods are dispatched
and payment is made complying with the contract provisions. One effective solution for
traders dealing with these risks has been documentary credit (D/C) or letter of credit (L/C).
Despite of its complexity in compliance and high cost, L/C still enjoys popularity due to its
safety with banks’ participation. It has been described as “the life blood of international
commerce” (D’Arcy, Murray & Cleave 2000, p. 166) and the importance of L/C in trade
transactions is evidenced by its global acceptance, with an estimated usage in excess of 1
trillion USD per annum (SITPRO Ltd, 2003).
For more than 70 years, the International Chamber of Commerce ICC has
formulated the so-called UCP-The Uniform Customs and Practice for Documentary
Credits. The first attempt to codify letter of credit practice started in 1929 when ICC
introduced its “Uniform Regulations and Commercial Documentary Credits”. Although the
failure to gain wide acceptance, these rules provided a foundation for further developments.
Then, in 1933, ICC issued “The Uniform Customs and Practice for Commercial
Documentary Credits” and this set of rules received formal acceptance in more than 40
countries all over the world. It is, however, not until the issue of UCP in 1962, that global
acceptance took place. Since then the rules has been regularly updated in 1974, 1983 (UCP

400), 1993 (UCP 500) and now we have the sixth Revision-UCP 600 which came into
effect in July 2007.
From the fact that the old revision-UCP 500 has reached a ten year cycle of usage
and during its lifetime, it was proved to be more and more outdated, over-complicated and
ambiguous which led to series of queries, commercial disputes, unjustified discrepancies
leading to documentary rejections. Indeed, under ICC’s estimate, there is up to a 70%
documentary non-compliance rate in letter of credit transactions (ICC Thailand, 2002). The
new 2007 Revision, therefore, should be made to improve its certainty and clarity, reduce
discrepancy problem and facilitate international trade activities using L/C product.

2. Aims of the study
This study, “An analysis of key changes in UCP 600 compared to UCP 500
and Recommendations for better application”, aims to consider the differences from
UCP 500 to UCP 600. The research questions posed in this study are: “Where the rules
have been amended?” and “Which results in a potential changes in practice?”. Basing on
the findings, this study will draw recommendations for parties involved in L/C transaction
in applying the new revision UCP 600 before reaching the conclusion.
3. Research methodology
The thesis relies on relevant literature, associated rules, articles, available statistics
and employs method of comparison, analysis, arguments and synthesis. Data for the study
was collected from various sources including reference books, magazines, articles, reports,
new letters and the Internet.

4. Object and scope of the study
Objects of the thesis are the two recent versions: UCP 500_1993 Revision and
UCP 600 having commencement date of 1 July 2007. To have an in-depth understanding
and appropriate application, associated rules that may have impact on these two revisions
have been used as reference documents.
5. Structure of the study
To achieve the above objectives, the study is divided into 3 chapters
Chapter I: “Literature review”, provides an in-depth background that covers all theoretical
issues relevant to UCP set of rules and documentary letter of credit.
Chapter II: “Key changes under UCP 600 in comparison to UCP 500”, points out
structural changes as well as key changes in UCP 600 in comparison with UCP 500. An
evaluation of improvements and remaining problems is also discussed in this chapter.
Chapter III: “Recommendations for better UCP 600 application”, based on the findings,
the chapter will put an end to the study with recommendations for main parties involved in
letter of credit transaction to suggest the best way in applying the new UCP 600.

Chapter I

Literature review
1.1 What is UCP?
The Uniform Customs and Practice for Documentary Credits (UCP) is a set of rules
on the issuance and use of letters of credit. The UCP is utilised by bankers and commercial
parties in more than 175 countries. About 11-15% of international trade utilises letters of
credit, totalling over a trillion dollars (US) each year (SITPRO Ltd, 2003).
Historically, the commercial parties,
particularly banks, have developed the
techniques and methods for handling letters
of credit in international trade finance. This
practice has been standardized by the
International Chamber of Commerce - ICC by publishing the UCP in 1933 and
subsequently updating it throughout the years. Today, they have achieved almost universal
acceptance by practitioners in the countries worldwide.
It is important to note that The Uniforms and Practice for Documentary Credits
(UCP) is not law. It is private set of rules, which affects all the stakeholders involved in
letter of credit transactions if they choose to apply it. Stakeholders here refer to banks and
other institutions that issue, confirm or otherwise process L/Cs; buyers who cause L/Cs to
be issued; seller who look to L/Cs for payment; and service providers such as forwarders,
carriers, customs brokers who provide or use the documents that the credits stipulate.
Therefore, UCP is not a legal regime automatically applicable to all letters of credit. It is

just a voluntary self-regulatory rule system standardized by ICC when it is expressly
incorporated into the letter of credit.
Beside UCP, ICC Banking Commission also provides some other supplementary
publications specifying in more details the relationship between the banks themselves, i.e.
the rights and obligations of Advising, Confirming, Issuing and Nominated banks. The
latest up-to-date ones are ISBP 681 (International Standard banking Practice), eUCP 1.1
2007 (Supplementary to the Uniform Customs and Practices for Documentary Credits, for
Electronic Presentation), “Commentary on UCP 600”, ICC Banking Opinions and many

guide books for Documentary Operation as well.
1.1.1 The born of UCP 500
The considerable increase in litigation under documentary credits and the fact that up
to 50% of documents are rejected when first
presented to Banks led to ICC’s authorization of
the revision in November 1989 of UCP
Publication No. 400 published in 1983.
International judicial decisions and technological
innovations were considered origins and
foundation for the content of new revision. The
stated aim of this revision was to address
developments in the banking, transport and
insurance industries. It also sought to improve the
drafting of the UCP 400 in order to facilitate
consistent application and interpretation of UCP
rules. A Working Group (WG) including

international banking experts, legal professors and banking lawyers was formed to draft the
proposed revision. After 4 years, with the tireless effort of WB, the final draft –UCP 500,
1993 Revision – was reached and came into effect since January 1st 1994.
In comparison with the earlier revision UCP 400, UCP 500 is more concise and
updated with 49 articles. It was divided into seven sections, which were lettered from A to
G and headed in turn: General Provisions and Definitions; Form and Notification of
Credits; Liabilities and Responsibilities; Documents; Miscellaneous Provisions,
Transferable Credit and finally Assignment of Proceeds.
After ten year of usage, UCP 500 has revealed lots of weaknesses due to the advance
in fields of global logistics and technologies which needed to be incorporated in L/Cs. In
addition, there was a high proportion of documentary rejection under UCP 500. Seventy
percent documentary discrepancy in letter of credit transaction is the statistic collected by
ICC Thailand in 2002. This fact together with the increasing demand in international trade

transaction has forced ICC to start a new revision process.
1.1.2. The born of UCP 600
The latest revision process started in 2003. A drafting group comprising nine people
together with a consulting group with forty-one members from more than 25 countries
were formed to develop proposed revisions for the ICC national committees worldwide. In
fact, it cannot be denied that no draft will satisfy everyone, thus the drafting committee
gave everyone an opportunity to express their own view by making comments.

After all the suggestions had
been considered, no matter how they
are minor or small, decision on the
new draft is taken by a voting system
and the final text of UCP 600 was
reached. The new revision replacing
the UCP 600 was approved by the
Banking Commission of the ICC at its
meeting in Paris on 25 October 2006
and had a commencement date of 1
July 2007. It is the fruit of more than
three years of work by the ICC's
Commission on Banking Technique
and Practice.
The main objective of the revision was to reduce documentary rejection by ensuring
transparence and clarity, limit potential disputes, seek to eliminate poor presentation by
beneficiaries and provide a clearer understanding of principles in UCP.
1.2 What is Documentary Credit?
Documentary credit (D/C) or Letters of Credit (L/C) has been a milestone of
international trade since the early 1900s. They continue to play a critical role in world trade
today. For any company entering the international market, letters of credit are a payment
mechanism, which help eliminate certain risks.

A letter of credit is a document issued mostly by a financial institution which
usually provides an irrevocable payment undertaking (it can also be revocable,
confirmed, unconfirmed, transferable or others e.g. back to back, revolving but is most
commonly irrevocable/confirmed) to a beneficiary against complying documents as
stated in the letter of credit. Letter of credit is abbreviated as an LC or L/C, and often is
referred to as a documentary credit, abbreviated as DC or D/C, documentary letter of
credit, or simply as credit (as in the UCP 500 and UCP 600). Once the beneficiary or a
presenting bank acting on its behalf, makes a presentation to the issuing bank or
confirming bank, if any, within the expiry date of the LC, comprising documents
complying with the terms and conditions of the LC, the applicable UCP and international
standard banking practice, the issuing bank or confirming bank, if any, is obliged to
honour irrespective of any instructions from the applicant to the contrary. In other words,
the obligation to honour (usually payment) is shifted from the applicant to the issuing
bank or confirming bank, if any. Non-banks can also issue letters of credit however
parties must balance potential risks.
Source: the free encyclopedia Wikipedia
Letter of credit is also defined by TD bank financial group as “a written instrument
issued by a bank at the request of its customers, the Importer (Buyer), whereby the bank
promises to pay the Exporter (Beneficiary) for goods or services provided that the Exporter
presents all documents called for, exactly as stipulated in the letter of credit, and meet all
other terms and conditions set out in the letter of credit. A letter of credit is also commonly
referred to as a Documentary Credit or Commercial Credit.”
In principle, letters of credit are commonly used to reduce credit risk to sellers in both
domestic and international sales arrangements. It is issued to substitute the bank's credit

worthiness for that of the customer. Basically, if you are an importer, you don't want to
send the money before you get the goods. On the contrary, the exporter does not want to
send the goods to you, unless they get their money. Therefore, an LC is a statement of
issuing bank, which tells that the buyer has the money, they gave the money to issuing

bank, once the goods arrive safely at the destination, and is confirmed to be what it is
supposed to be, this bank will give the money to the vendor. Usually, banks play the role of
the 3rd party since they are institutions recognized to be trustworthy for this sort of thing,
and they sometimes also obliged to convert the currency as well – one of bank’s main
functions. The bank will also charge a fee for the service and this is just one of the ways
banks make money in the field of international business.
However, traders should bear in mind that L/C is an independent agreement separated
from original sales contract. All parties in letter of credit transaction deal with documents,
not with goods which the documents refer. Thus, the Seller gets paid, not after the Buyer
has inspected the goods and approved them, but when the Seller presents certain documents
(typically a bill of lading evidencing shipment of the goods, an insurance policy for the
goods, commercial invoice, etc.) to his bank. The bank does not verify that the documents
presented are true, but only whether they “on their face” appear to be consistent with each
other and comply with the terms of the credit. After examination, the bank will pay the
Seller.
1.2.1. Classification
There are three basic ways to classify letters of credit including classification by
method of payment; by the manner in which the credit is issued and by other specific
features of the credit. Each type of credit has advantages and disadvantages for the buyer

and for the seller. Charges for each type will also vary. However, the more the banks
assume risk by guaranteeing payment, the more they will charge for providing the service.
Classification by reference to method of payment
Letter of credit may be by “sight” payment, by “deferred” payment, by “acceptance”
or by “negotiation”. All the credits must clearly state whether they available by sight
payment, deferred payment, by acceptance or by negotiation.
A “sight” credit is one in which an issuing bank authorizes a seller of goods to
present documents for payment, without a bill of exchange or with a bill of exchange
drawn on it payable at sight, to the bank issuing the credit or its correspondent and
undertakes to pay the seller, or reimburse its correspondent upon the correspondent paying

the seller, against the documents presented.
A “deferred payment” credit or ussance credit follows the normal form as to
payment against documents, except that the paying bank is not called upon to pay until
some specific later date. The paying bank is, however, required to pass the documents to its
principal and may find itself under promise to pay in the future, having lost the security of
the documents. Moreover a confirming bank that makes payment to the beneficiary before
the deferred payment date without obtaining the authority of the issuing bank does so as its
peril. If , before the date for payment, it is proved that the documents have been presented
fraudulently the confirming bank cannot recover a indemnity from the issuing bank and
must pursue a claim against the beneficiary or another fraudulent party.
An “acceptance” credit is one which a bank authorizes a seller of goods to draw a
bill of exchange on it or its correspondent in the country of the seller, and undertakes either
to the seller or an intermediary bank to accept and pay at maturity a bill drawn o it or to pay

a bill which has not been accepted by the bank on which it is drawn. It is possible to
stipulate in a credit that the issuing bank will pay a bill of exchange drawn on the buyer in
the event of non-acceptance by the buyer, but this is discouraged by the UCP, which states
that a credit should not be issued available by bills of exchange drawn on the applicant
(buyer).
A “negotiation” credit is, strictly speaking, one that authorizes the beneficiary to
draw on the issuing bank and to negotiate the draft with the intermediary bank advising the
credit or with his own or some other banks. The issuing bank’s obligation is to pay without
recourse to the drawer. The benefit of a negotiation credit is that the seller ca discount the
bills of exchange prior to the maturity date.
Classification by reference to the manner of which the credit is issued
Documentary letters of credit can be either Revocable or Irrevocable, although the
former is extremely rare. Irrevocable letters of credit can be Confirmed or Not Confirmed.
Documentary Revocable credit may be modified or even canceled by the buyer
without the agreement of all the parties. Therefore, they are generally unacceptable to the
seller. The issuing bank gives a binding undertaking t the beneficiary provided all terms

and conditions are fulfilled. Under UCP 600 all letter of credit are irrevocable.

Documentary Irrevocable letter of credit is the most common form of credit used
in international trade. Irrevocable credits may not be modified or canceled by the buyer.
The buyer's issuing bank must follow through with payment to the seller so long as the
seller complies with the conditions listed in the letter of credit. Changes in the credit must
be approved by both the buyer and the seller. If the documentary letter of credit does not
mention whether it is revocable or irrevocable, it automatically defaults to irrevocable.
There are two forms of irrevocable credits: Unconfirmed credit (the irrevocable
credit not confirmed by the advising bank) and Confirmed credit (the irrevocable
confirmed credit).
In an unconfirmed credit, the buyer's bank issuing the credit is the only party
responsible for payment to the seller. The seller's advising bank pays only after receiving
payment from the issuing bank. The seller's advising bank merely acts on behalf of the
issuing bank and, therefore, incurs no risk.
In a confirmed credit, the advising bank adds its guarantee to pay the seller to
that of the buyer's issuing bank. Once the advising bank reviews and confirms that all
documentary requirements are met, it will pay the seller. The advising bank will then look
to the issuing bank for payment. Confirmed Irrevocable letters of credit are used when
trading in a high-risk area where war or social, political, or financial instability are real
threats. Also common when the seller is unfamiliar with the bank issuing the letter of credit
or when the seller needs to use the confirmed letter of credit to obtain financing its bank to
fill the order. A confirmed credit is more expensive because the bank has added liability.
Classification by reference to other specific features of credit

Standby letter of Credit
This credit is a payment or performance guarantee used primarily in the United
States. They are often called non-performing letters of credit because they are only used as
a backup should the buyer fail to pay as agreed. Thus, a stand-by letter of credit allows the
customer to establish a link with the seller by showing that it can fulfill its payment

commitments. Standby letters of credit are commonly used to assure the refund of advance
payments; support the obligation of a successful-bidder to accept a contract and to perform
under the terms of the contract; back up bonds issued by insurance companies; and stand
behind a monetary obligation under a promissory note or another like commitment (rental
payments, etc.). The beneficiary to a standby letter of credit can cash it on demand. Stand-
by letters of credit are generally less complicated and involve far less documentation
requirements than irrevocable letters of credit. If the seller performs his other obligation,
there will be no need for the buyer to draw against the standby letter of credit, which
supports the obligation.
Back-to-Back letter of Credit
Back-to-back L/C is a type of L/C issued in case of intermediary trade. When one L/C
is issued as security to obtain the issuance of the second L/C covering the same transaction,
and when all terms and conditions and terms of both credits are identical, excepts for
amounts and dates in the second L/C which must be smaller and earlier, the arrangement is
defined as a back-to-back L/C. It is usually requested by middle persons who do not have
sufficient credit available at their banks to open their own L/Cs to the ultimate suppliers.
Under back-to-back L/C, the middleman will ask a bank to issue a second L/C in favor of
the ultimate suppliers, while using the L/C issued by the buyer as collateral.

Figure 1: Back-to-back letter of credit transaction
Many banks are reluctant to issue back-to-back letters of credit due to the level of risk
to which they are exposed, whereas a transferable credit will not expose them to risk higher
than that under the original credit.
Green clause L/C
A clause in a letter of credit enabling the seller to receive pre-shipment advances
against a collateral represented by, for example, warehouse receipts/warrants. It is
commonly used in the export of agricultural commodities, where the company may raise
funds to harvest new crops for export by pledging available stocks as collateral.

Red Clause letter of credit

Red Clause letters of Credit provide the seller with cash prior to shipment to finance
production of the goods. A red clause L/C using the term “red” is derived from the
traditional practice of writing the clause identifying this option in red ink. Upon instruction
from the buyer, the issuing bank authorizes the confirming bank to make a cash advance to
the beneficiary against the beneficiary's written guarantee that the documents evidencing
shipment will be presented in compliance with the credit terms. In case the beneficiary fail
to ship the goods or meet the credit requirements, the paying bank looks to the issuing bank
to obtain reimbursement of the amount of the advance plus the interest charges on the
advance. The issuing bank then charges the account of the buyer--who may or may not
have received the goods.
Transferable letter of credit
“Transferable’, ‘transmissible” and “assignable” convey the same meaning referring
to the same type of credit. This kind of L/C allows the seller to transfer all or part of the
proceeds of the original letter of credit to a second beneficiary, usually the ultimate
supplier of the goods. The letter of credit must clearly state that it is transferable. This is a
common financing tactic for middlemen and is common in East Asia.
Revolving letter of credit
With a Revolving letter of credit, the issuing bank restores the credit to its original
amount once it has been used or drawn down. Usually, these arrangements limit the
number of times the buyer may draw down its line over a predetermined period. Revolving
letter of credit can revolve in relation to time or value. If the credit is time revolving, once
utilized it is re-instated for further regular shipments until the credit is fully drawn. If the

credit revolves in relation to value, once utilized and paid the value can be re-instated for
further drawings.
Freely negotiable letter of credit
L/Cs which state “this credit is not restricted to any bank for payment” or such similar
words and do not indicate any particular bank who is authorized to pay, negotiate or accept
are unrestricted or open credit.
Restricted negotiable letter of credit

When any specific bank is authorized to pay, negotiate or accept, the credit is called
restricted or special credit.
1.2.2. The mechanics of letter of credit transaction
The mechanics of the letter of credit transaction can be quite complex and has been
standardized by a set of rules published by the International Chamber of Commerce (ICC)
under the Uniform Customs and Practice for Documentary Credits (UCP).
The basic letter of credit transaction has two sides: an import side (the buyer) and an
export side (the seller). Both sides ordinarily have a bank, which makes a total four parties
to the transaction. The bank on the importer or the buyer’s bank normally issues the letter
of credit, which obligates the bank to honour upon the receipt of the specified documents.
Letter of credit rules typically describe the importer as the applicant and the applicant’s
bank as the issuing bank or the issuer of the letter of credit. The fees differ significantly
from market to market and from customer to customer . Indeed, better customers paying
much less. Alternatively, the bank on the exporter or seller’s bank plays a different role.
The seller hopes to receive the funds offered by the letter of credit as payment for

shipment, and is thus identified as the “beneficiary” of the letter of credit. Because the
beneficiary and applicant ordinarily are in different countries, the beneficiary often has its
own bank oversea and then forwards the documents to seek payment from the issuer when
the seller ships goods. The beneficiary’s bank normally assumes one of two roles: if it only
‘advises’ the beneficiary of the issuance of letter of credit, it just processes the documents
and has no direct liability on the letter of credit; besides, it might “confirm” the letter of
credit, in which case beneficiary’s bank directly obligates itself on the letter of credit, pays
the beneficiary directly, and then forwards the documents to the issuer for reimbursement.
The following is the basic set of steps used in a letter of credit transaction. Specific
letter of credit transactions follow somewhat different procedures.
Step 1. An Importer {Buyer) and Exporter (Seller) agree on a purchase and sale of
goods where payments is made by letter of credit.
Step 2. The Importer completes an application requesting its bank (issuing bank) to
issue a L/C in favor of the Exporter provided that the Importer must have a line of credit

with the issuing bank in order to request that a letter of credit be issued.
Step 3. The issuing Bank issues the letter of credit and sends it to the Advising bank
by telecommunication or registered mail in accordance with the Importer’s instructions. A
request may be included for the Advising bank to add its confirmation. The Advising Bank
is typically located in the country where the Exporter carries on busiess and may be the
Exporter’s bank but does not have be.

Step 4: The Advising bank will verify the letter of credit for authenticity and send a
copy to the Exporter. Figure 2 illustrates the typical transaction
Figure 2: Issuance of letter of credit
Step 5. The Exporter examines the letter of credit to ensures that it corresponds the
the terms and conditions in the purchase and sale agreement, documents stipulated in the
letter of credit can be produced and the terms and conditions of the letter of credit may be
fulfilled.
Step 6. If the Exporter is unable to comply with any terms and conditions of the L/C
or if the L/C differs from the purchase and sale agreement, the Exporter should notify the
Importer and request an amendment to the L/C.

Step 7. When all the parties agree to the amendment, they are incorporated into the
terms of the L/C and advised to the Exporter through the Advising bank. It is not
recommended that the Exporter does not make any shipments against the L/C until the
required amendment have been received.
Step 8: The Exporter arranges for shipment of the goods, prepares and/or obtain the
documents specified in the letter of credit and makes demand under the letter of credit by
presenting the documents within the stated period and before the expiry date to the
‘available with” bank. This may be the Advising/Confirming Bank. That bank check the
documents against the letter of credit and forwards them to the Issuing Bank. The drawing
is negotiated, paid or accepted as the case may be.
Step 9. The Issuing Bank examines the documents to ensure they comply with the
letter of credit terms and conditions. The issuing bank obtains payment from the Importer

for payment already to make the “available with” or the Confirming bank.

Step 10. Documents are delivered to the Importer to allow them to take possession of
the goods from the transport company. The trade cycle is complete as the Importer has
received its goods and the Exporter has obtained payment. Figure 3 will illustrate the
payment process.
Figure 3: Payment under a letter of credit

1.2.3. Parties involved in a letter of credit transaction
In the process of a letter of credit transaction, there are essentially five parties
involved: importer, exporter, importer’s banks, exporter’s banks and service providers. In
general, except for importer, exporter and service provider, there are nine functions
concerning letter of credit transaction, which banks can undertake. It does not mean that
each documentary credit transaction requires all those actions. It depends on requirements
of the sales agreement, relationship between importer and seller as well as relationship
between the two parties in commercial contract and their banks to choose or skip some
certain phases without affecting the principles of original sales arrangement.
Applicant
The party who applies to the opening (issuing) bank for the issuance of a letter of
credit. Normally, it is the buyer or importer.
Beneficiary
The party in whose favor the letter of credit has been established. The beneficiary is
the party who demands payment under the letter of credit.
Service providers
Service providers in letter of credit transaction include forwarders, carriers, customs
brokers who provide or use documents that credits stipulate.
Issuing bank (Opening Bank)
The bank issues the letter of credit on behalf of the applicant.

Confirming bank

A bank that at the request of the issuing bank, assures that drawings under the credit
will be honored (provided the terms and conditions of the credit have been met).
Advising bank
The party gives notification of the terms and conditions of a letter of credit to the
beneficiary (seller). The advising bank also takes reasonable care to check the apparent
authenticity of the letter of credit, which it advises.
Accepting bank
The bank named in a letter of credit on whom term drafts are drawn and who
indicates acceptance of the draft by dating and signing across its face, thereby incurring a
legal obligation to pay the amount of the draft at maturity.
Paying bank
The bank authorized in the letter of credit by the issuing bank to honor sight or
deferred payments under the terms specified in the credit. If this bank is the advising bank,
it has no obligation to honor documents; however, if this is a confirming bank, it is
obligated to pay against complying documents.
Drawee bank
The bank on which the drafts specified in the credit are drawn and from which
payment is expected.

Discounting bank
A bank, which discounts a draft for the beneficiary after it, has been accepted by an
accepting bank.
Negotiating bank
Bank, other than the issuing bank, which elects to "negotiate" (advance funds or give
value to the beneficiary) against presentation of complying documents.
Reimbursing bank
The bank authorized by the issuing bank to reimburse the drawee bank or other banks
submitting claims under the terms of the credit.
Presenting bank
The bank forwards the documents directly to the issuing bank to obtain settlement.

Transferring bank
A bank authorized by the issuing bank as specified in the credit that can transfer the
issuing bank's documentary credit from one beneficiary to another at the request of the first
beneficiary.

Chapter 2
Key Changes under UCP 600 compared to UCP 500
2.1. Changes in Structure of UCP 600 compared to UCP 500
The new rules UCP 600 is more concise than its predecessors with 39 articles as
opposed to 49 articles in UCP 500. It is not divided into the same seven sections as the
UCP 500, which were lettered from A to G and headed in turn: General Provisions and
Definitions, Form and Notification of Credits, Liabilities and Responsibilities, Documents,
Miscellaneous Provisions, Transferable Credit and finally Assignment of Proceeds.
Despite the fact that the UCP 600 does not expressly follow this allocation of Articles
by subject- master, it is still possible to divide those Articles up. The framework of the
UCP 600, which provides specific background on General Provisions and Definitions, is
stipulated in article 1-5. Article 6-13 specify the structure of a documentary credit and
obligations of parties under documentary credits including issuance, advising,
confirmation, amendments, availability and nomination. The next six articles from Article
14 to 18 and article 28 look at two difference aspects including the compliance of the
documents and the definition of an original document. Requirements of the UCP 600
regarding transport documents, standard for checking documents as well as insurance
provisions are itemized in articles 19-27. From Article 29-37, these nine rules cover
solutions for potential problems arisen during the process of the sales contract
implementation, which includes extension, tolerance, partial shipment, installments,
disclaimers, force majeure. The two remaining articles regulate the transferable credits and
assignment of proceeds.

2.1.1. UCP 500 articles not included in UCP 600
There are 5 articles of UCP 500 that have not covered in UCP 600. Article 8 and part

of Article 6 refer to revocable letters of credit. The limited usage of such instruments in
today’s letter of credit business led to the general viewpoint that there was no necessity to
remain in UCP 600. If an applicant or bank desire to use a revocable credit in the future,
they have two options: using the credit subject to UCP 600 and incorporate all the
conditions applicable to the revocability; or using the revocable credit subject to UCP 500
provided that all parties are in agreement to the usage of those rules.
Article 5 (Instruction to issue/ Amend Credits). This article is related to instructions to
issue and amend credits, which was seen as an article stated the obvious. Instructions for
the issuance of a credit and an amendment as well as the credit and the amendment
themselves must be surely complete and precise in order to make payment, acceptance or
negotiation. In addition, the absence of a specific rule in UCP 600 concerning the
instructions to issue and amend credits does not relieve Issuing banks from their duty of
care for the proper creation, completeness and content of their credit or any amendment (if
any).
Article 12 (Incomplete or Unclear Instructions) covered the issuance of preface
notification, by the Advising Bank, in the event a credit or an amendment was incomplete
or unclear in its terms. If a credit is received that is unworkable or incomplete, there is no
need for a rule to instruct Advising Bank that they should seek clarification or request a
complete message. Therefore, it is not necessary to provide a rule that the Issuing Bank
must give the appropriate information “without delay”. Similarly, the absence of a specific
rule in UCP 600 with regard to Incomplete and Unclear Instructions does not relieve the