Operational issues in Documentary Credit, Incoterms 2020, UCP 600 & ISBP 745

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A country may never produce whatever they want to consume and a country may never consume whatever they produce.  As far our country is concerned we depend on import of crude, defense equipment and capital goods.  And we have surplus production of certain items which we may be compelled to export.  It is the order of the global market.  Hence cross border trade cannot be avoided.

Cross border trade (foreign trade) never happens with known parties always.  Counter party risk and country risk cannot be avoided in foreign trade.  Very rarely Indian exporter takes risk on the unknown overseas buyer.  To manage the country and counter party risks traditionally global market believes certain instruments like letters of credit, standby credit and bank guarantees.   When more parties are handling such instruments and letter of credit is based on presentation of documents there should be a set of Rules acceptable to all parties (buyer, seller, buyer’s bank and seller’s bank). 

Before finalizing the terms of payment buyer and seller wants to fix terms of delivery on the basis of the globally accepted INCOTERMS (International Commercial Terms) like CIF and FOB etc.,  International Chamber of Commerce (ICC) Paris had taken the lead since 1936 onwards and updated the latest INCOTERMS 2020 which has come into effect from 1^st Jan 2020.

Besides, ICC introduced Rules for LCs, Bank Guarantees, Standby letters of credit which are adopted by more than 140 countries.  These Rules are known as UCP 600 for letters of credit, ISP 98 for Standby letters of credits and URDG 758 for bank guarantees.  Besides,

ICC Paris has also published another set of guidelines known as ISBP (International Standard Banking Practice for examination of documents under Documentary Credit) known as ISBP 745.   This publication exclusively prescribes the procedure for examining documents drawn under letters of credit (documentary credit).  

Even after receiving letters of credit most of export transactions could not be completed successfully.  It was found that exporters (beneficiaries) are accepting letters of credit with risky conditions without proper understanding and presenting documents with avoidable discrepancies.  As far importer transactions are concerned, importer could not get the desired benefit of letter of credit because his inability to prescribe appropriate documents which can safeguard its interest.

This one day workshop is designed in such a manner to provide practical inputs to the companies which are involved in foreign trade and also domestic trade.  Even for domestic transactions when the companies are using letters of credit, it is subject to UCP 600 only.

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Following issues will be taken up for discussion in this Programme:

• INCOTERMS 2020 and its relevance to LC transactions.
• Comparative analysis between INCOTERMS 2010 & 2020.
• What INCOTERMS do and what don’t do
• Operational issues that are to be carefully considered by the importers at the time of preparing the commercial contracts, submitting letter of credit application to the banks and establishing letters of credit
• Interpretation of some of the fields in the LC format (SWIFT) with specific reference to the relevant UCP /ISBP provisions.
• Check list for exporters at the time of confirming the draft LCs received from the importer and on receiving the letter of credit.
• Check list for analyzing the LC terms and conditions with reference to preparation of documents that are to be presented under letter of credit.
• How to identify the risky conditions in the letter of credit.
• Discrepancies in documents which can be avoided at the time of presentation of documents by the exporters
• Bank guarantees – Inland and foreign guarantees – significance of claim period and the implications of amended Indian Contract Act – IMPACT OF AMENDED SEC 28 OF INDIAN CONTRACT ACT TO BANK GUARANTEE TRANSACTIONS
• Difference between Standby letter of credit and bank guarantees.

We will be introducing case studies to explain in detail the significance of LC SWIFT format (MT 700 and MT 710) and the relevant UCP Rules with live letters of credit. 

One set of letter of credit for import and export and list of discrepancies to understand ISBP 745 will be taken up for discussion.

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• Corporate having international exposure on cross border trade handling letters of credit, bank guarantees 
• Shipping company professionals handling cargoes
• Marketing in charges & finance heads of export firms who are frequently dealing in LC transactions
• Importers having high value transactions who want to ensure due compliance of the contractual obligations by the overseas sellers through proper documents
• Bankers handling trade finance under retail and wholesale banking dealing in LC, SBLCs and Bank guarantee transactions regularly, for updating their professional skills to serve their clients more efficiently