UCPDC Part II: The Complete 39 Articles of UCP 600 – Your Definitive Trade Finance Manual

In the intricate dance of international commerce, where goods traverse oceans and continents, a quiet, yet powerful, set of rules ensures trust and payment: the Uniform Customs and Practice for Documentary Credits (UCP 600). Published by the International Chamber of Commerce (ICC), these 39 articles are the definitive global standard for Letters of Credit (LCs), underpinning trillions of dollars in trade finance annually.

For importers, exporters, and the banks that facilitate their transactions, understanding every article of UCP 600 is not merely beneficial—it’s essential. This comprehensive guide breaks down each rule, offering clarity for anyone involved in cross-border trade.

Section 1: General Provisions and Definitions (Articles 1-5)

These foundational articles set the stage, defining the scope and core principles of documentary credits.

• Article 1: Application of UCP
  • States that the UCP applies to any documentary credit (LC) when the credit expressly indicates that it is subject to these rules. Without this explicit reference, UCP 600 does not apply.
• Article 2: Definitions
  • Provides precise definitions for key terms used throughout the UCP, such as “Advising Bank,” “Applicant,” “Beneficiary,” “Complying Presentation,” “Confirmation,” “Confirming Bank,” “Credit,” “Honour,” “Issuing Bank,” “Negotiation,” “Presenter,” “Reimbursing Bank,” and “Sight Payment.” This ensures everyone speaks the same language.
• Article 3: Interpretations
  • Outlines how certain common terms and phrases within LCs should be interpreted. For example, “first class,” “well known,” and “qualified” are not to be defined. It also clarifies the meaning of expressions like “on or about,” “prompt,” and specifies how periods of time are calculated (e.g., “days” mean calendar days, “banking days” are relevant to the specific bank involved).
• Article 4: Credits vs. Contracts
  • Crucially establishes the principle of independence. An LC is separate from the underlying sale or other contract on which it is based. Banks are not concerned with, nor bound by, such contracts, even if the LC refers to them.
• Article 5: Documents vs. Goods, Services or Performance
  • Reiterates and reinforces Article 4, stating that banks deal with documents only, and not with the goods, services, or performance to which the documents may relate. This is fundamental to a bank’s role as an intermediary, removing their liability for the quality or existence of the physical goods.

Section 2: Form and Notification of Credits (Articles 6-11)

This section details the structure and communication aspects of a documentary credit.

• Article 6: Availability, Expiry Date and Place for Presentation
  • Specifies that an LC must state whether it is available by sight payment, deferred payment, acceptance, or negotiation. It must also stipulate an expiry date and a place for presentation of documents. A credit must be available with an expressly stated bank.
• Article 7: Issuing Bank Undertaking
  • Defines the irrevocable undertaking of the Issuing Bank to honour a complying presentation. This means once the beneficiary presents documents that comply with the LC terms, the Issuing Bank must pay.
• Article 8: Confirming Bank Undertaking
  • Outlines the irrevocable undertaking of a Confirming Bank to honour or negotiate a complying presentation. A Confirmed LC adds another bank’s guarantee, significantly reducing the beneficiary’s risk.
• Article 9: Advising of Credits and Amendments
  • Describes the Advising Bank’s responsibility to accurately advise the LC and any amendments. It assumes no obligation to honour or negotiate unless it is also the Issuing Bank or Confirming Bank.
• Article 10: Amendments
  • States that an LC can only be amended with the agreement of the Issuing Bank, the Confirming Bank (if any), and the Beneficiary. An amendment is binding on the beneficiary only if they accept it.
• Article 11: Teletransmitted and Pre-Advised Credits and Amendments
  • Addresses the authenticity of LCs and amendments sent via teletransmission (e.g., SWIFT). It ensures that such messages are deemed the operative credit or amendment, and a subsequent mail confirmation is only for record-keeping.

Section 3: Examination of Documents (Articles 12-16)

This crucial section details the process and standards for banks to examine presented documents.

• Article 12: Nomination
  • Clarifies the role of a Nominated Bank (a bank authorized by the Issuing Bank to honour or negotiate). It states that a Nominated Bank is not obligated to honour or negotiate unless it is also the Confirming Bank.
• Article 13: Bank-to-Bank Reimbursement Arrangements
  • Covers the arrangements for the reimbursing bank to pay the Nominated Bank. It specifies that if a reimbursement authorization is subject to UCP 600, it is independent of the credit itself.
• Article 14: Standard for Examination of Documents
  • The cornerstone of UCP 600. It mandates that banks examine documents on the basis of the documents alone, exercising reasonable care to determine if they constitute a complying presentation.
    • Documents must not conflict with each other.
    • The Five Banking Day Rule: A bank has a maximum of five banking days following the day of presentation to determine if documents are complying.
    • Data in a document, when read in context with the credit, the document itself, and international standard banking practice, need not be identical to, but must not conflict with, data in any other document.
• Article 15: Complying Presentation
  • Defines what constitutes a complying presentation: one that is in accordance with the terms and conditions of the credit, the provisions of UCP 600, and international standard banking practice. The Issuing Bank is irrevocably bound to honour a complying presentation.
• Article 16: Discrepant Documents, Waiver and Notice
  • Outlines the strict procedure for handling discrepant documents.
    • If documents are not complying, the bank may refuse to honour or negotiate.
    • The bank must give a single notice of refusal to the presenter, stating all discrepancies for which the bank refuses to honour or negotiate.
    • This notice must be given no later than the close of the fifth banking day.
    • Failure to give such notice within the time frame means the bank is precluded from claiming that the documents are not complying and must honour the presentation.

Section 4: Documents (Articles 17-28)

This extensive section provides specific rules for various types of documents commonly required in LCs.

• Article 17: Original Documents and Copies
  • Clarifies what constitutes an original document. Unless otherwise stipulated, a bank will accept a document as an original if it appears to be an original by its physical characteristics (e.g., paper, stamp, signature).
• Article 18: Commercial Invoice
  • The invoice must appear to be issued by the beneficiary (unless otherwise specified).
  • The description of the goods, services, or performance in the invoice must correspond with that in the credit.
  • The currency of the invoice must be the same as the currency of the credit.
• Article 19: Transport Document Covering at Least Two Different Modes of Transport
  • Specific rules for multimodal transport documents (e.g., sea and road). Requires the name of the carrier, signature, and indication of the place of receipt, port of loading, port of discharge, and place of delivery.
• Article 20: Bill of Lading
  • Rules for ocean bills of lading. Must indicate the name of the carrier, be signed by the carrier or their agent, indicate the vessel and port of loading, and port of discharge. It must also indicate that the goods have been shipped on board a named vessel.
• Article 21: Non-Negotiable Sea Waybill
  • Similar requirements to the Bill of Lading but for non-negotiable sea waybills, which are typically used when the consignee’s identity is not confidential or the goods are released without requiring the original document.
• Article 22: Charter Party Bill of Lading
  • Specific rules for bills of lading issued under a charter party agreement (where a ship is hired). Banks will typically not accept these unless explicitly allowed by the credit.
• Article 23: Air Transport Document
  • Rules for air waybills. Must appear to be issued by the carrier or agent, indicate the name of the carrier, be signed, and indicate the airport of departure and destination.
• Article 24: Road, Rail or Inland Waterway Transport Documents
  • Rules for land and inland waterway transport. Must indicate the name of the carrier, be signed, and indicate the place of dispatch and destination.
• Article 25: Courier Receipt, Post Receipt or Certificate of Posting
  • Rules for small parcel shipments. These documents must appear to be issued and signed by the courier service and indicate the date of dispatch.
• Article 26: “On Deck”, “Shipper’s Load and Count”, “Said by Shipper to Contain” and Charges Additional to Freight
  • Addresses specific clauses on transport documents. Banks will accept documents with these phrases unless the credit specifically prohibits them.
• Article 27: Clean Transport Document
  • Requires that a transport document must appear to be “clean”—meaning it must not contain any clause or notation that expressly declares a defective condition of the goods or their packaging.
• Article 28: Insurance Document and Coverage
  • Details requirements for insurance documents (e.g., policy or certificate).
    • Must be issued by an insurance company, underwriter, or their agents.
    • Must be signed.
    • Must indicate the amount of insurance coverage (usually at least 110% of the CIF or CIP value).
    • Must cover the entire transit as specified in the credit.

Section 5: Miscellaneous Provisions (Articles 29-39)

This final section covers various practical aspects, disclaimers, and liabilities.

• Article 29: Extension of Expiry Date or Last Day for Presentation
  • If the expiry date or the last day for presentation falls on a day when the bank is closed due to a public holiday or other reason, the expiry or last day is extended to the first succeeding banking day.
• Article 30: Tolerance in Credit Amount, Quantity and Unit Prices
  • Allows for a 5% tolerance either way in the credit amount, quantity, or unit price if the credit does not specify “about” or “approximately.”
• Article 31: Partial Drawings or Shipments
  • Allows for partial drawings or shipments unless the credit states otherwise.
• Article 32: Instalment Drawings or Shipments
  • If drawings or shipments are to be made in instalments, and any instalment is not drawn or shipped within the period allowed, the credit ceases to be available for that and any subsequent instalment.
• Article 33: Hours of Presentation
  • Banks are not obliged to accept a presentation outside of their banking hours.
• Article 34: Disclaimer on Effectiveness of Documents
  • Banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification, or legal effect of any document. This reinforces the “documents only” principle.
• Article 35: Disclaimer on Transmission and Translation
  • Banks assume no liability or responsibility for the consequences arising out of any delay, loss in transit, mutilation, or other error arising in the transmission of messages or for errors in translation or interpretation.
• Article 36: Force Majeure
  • Banks assume no liability or responsibility for delay, loss, damage, or destruction to documents caused by “Acts of God,” riots, civil commotions, insurrections, wars, acts of terrorism, or any other cause beyond their control. If a credit expires during such an interruption, the bank will not honour it upon reopening unless specifically authorized.
• Article 37: Disclaimer for Acts of an Instructed Party
  • An Issuing Bank or Advising Bank utilizes the services of another bank for the purpose of giving effect to the applicant’s instructions at the applicant’s risk.
• Article 38: Transferable Credits
  • Defines a transferable credit and the conditions under which it can be transferred (e.g., only once, and to a second beneficiary who can then present documents).
• Article 39: Assignment of Proceeds
  • States that while a credit cannot be transferred without the issuing bank’s authorization (Article 38), the proceeds payable under a credit can be assigned by the beneficiary to a third party.

UCP 600: The Blueprint for Certainty

The UCP 600, with its meticulously crafted 39 articles, provides a global blueprint for certainty and risk mitigation in international trade. It is a testament to the power of standardized rules in fostering trust across borders, languages, and legal systems. While the digital revolution continues to reshape how trade is conducted, the fundamental principles enshrined in UCP 600 remain as relevant and indispensable as ever.

— Md. Towhidul Islam