Basics Of Export Documentation

The basics of export documentation include but are not limited to a commercial invoice, packing list, certificate of origin, shipper's letter of instructions, shipper's export declaration, and ocean bill of lading or air waybill.

Depending upon the ultimate destination, further documentation may be required in order to fulfill the terms of sale as well as to adhere to the particular customs regulations of a given nation.

Generally speaking, nations of both Latin America and the Middle East may not be as lenient as European or Pacific Rim nations when assessing compliance with their individual documentation requirements, assessments that could result in customs penalties and fines, temporary seizure of goods, or the forfeiture of goods.

Absolute adherence to export documentation requirements need not be viewed as simply the task of complying with the country's and foreign customs regulations. On the contrary, documentary compliance is an important task when completing any export transaction and in some cases can help to avoid any negative financial repercussions associated with errors in documentation.

In most cases, a freight forwarder, airline, or steamship line will prepare the air waybill or ocean bill of lading on behalf of an exporter. Both of these documents are essential to their respective mode of transportation; each clearly defines the terms and conditions of the export transaction and should also be consistent with any and all additional information provided on the remaining export documents. The waybill and the bill of lading each confirm receipt of the cargo to be shipped, contain a description of the cargo, and set forth the contract of carriage between the owner/shipper and the carrier.

Commercial Invoice

Obviously, a seller issues a commercial invoice to a buyer in an export transaction. Along with an ocean bill of lading or an air waybill, the commercial invoice needs to present the principal information of the export transaction and includes the following:

• Name of the seller of the goods (shipper/exporter)
• Name of the buyer of the goods (consignee/importer)
• Commercial value in U.S. dollars (unit price/total value)
• General description of the goods
• Date of the transaction
• Any applicable reference numbers (e.g., invoice numbers, purchase order numbers, letter or credit number, etc.)
• Original signature (not required for every destination)
• Diversion clause
• Terms of sale
• Terms of payment

Packing List

In addition to clearly identifying the seller and buyer of the goods (in accordance with the commercial invoice), the packing list, prepared by the seller/shipper, should also clearly indicate the specifics of each package. As with other export documents, the information on a packing list must be consistent with each export document presented to U.S. Customs. Any discrepancies between a packing list and an air waybill or ocean bill of lading regarding the exact number of packages and weight will generally result in customs clearance delays at destination. A basic packing list contains the following information:

• Name of the seller of the goods
• Name of the buyer of the goods
• Date of the transaction
• Any applicable reference numbers
• The quantity and type of packages shipped (e.g., cardboard cartons, wooden crates, skids, etc.)
• The net weight and gross weight of each package
• The dimensions of each package

Certificate of Origin

A certificate of origin is not required for every destination, although it is should be considered an important export document for several reasons. Some nations may require a certificate of origin to compile statistical trade data, while other nations may use a certificate of origin for financial reasons (e.g., to assess the eligibility of goods for preferential duty rates or duty-free importation).
Most nations use and accept many formats of a certificate of origin provided they contain the necessary information. However, some nations, Israel in particular, will only accept one distinct type of certificate or origin. A standard certificate of origin, prepared by the shipper or the forwarder, contains the following information:

• Name of the seller of the goods
• Name of the buyer of the goods
• General description of the goods
• Date of the transaction
• Any applicable reference numbers
• Original signature
• Diversion clause
• Named origin of goods
• In many cases, the certificate of origin will need to be notarized by a local chamber of commerce

Shippers Letter of Instruction/Shippers Export Declaration

A shipper's letter of instructions (SLI) is used to clarify the exporter's intended transportation and payment terms to the respective freight forwarder, airline, or steamship line.

A shipper's export declaration (SED) is required for export from the United States, and it provides necessary export information to several U.S. government agencies. The U.S. principal party of interest (USPPI) must complete the SED. The USPPI is defined as the exporter for export control purposes. However, there are instances in which a foreign party may act as the principal party of interest (PPI), in which case it is necessary for the U.S. exporter is to provide a foreign power of attorney. The SED must also clearly identify the ultimate end user of the export shipment. Generally, when the value of each exported commodity (Schedule B number) is less than $2,500 and is not licensable, an export declaration is not submitted to U.S. Customs; however, U.S. Customs must be notified of this exemption on the bill of lading or air waybill. (An SED is not required for most shipments to most countries if the value of each commodity/Schedule B number is less than $2,500. Nevertheless, an SED is required for shipments to certain countries and for shipments subject to export licenses regardless of value. See the resource list for more information.)

Although the SLI and SED are available separately, they are now commonly merged into one document. Also, a signature on the SED (or the merged SLI and SED) acts as a one-time limited power of attorney for any involved third parties such as freight forwarders. The SLI and SED generally contain the following information:

• Name of the USPPI or foreign PPI
• Name of the ultimate consignee of the goods
• Intermediate consignee, if applicable
• General description of the goods
• Date of exportation
• Any applicable reference numbers
• Original signature by a duly authorized officer or employee of the USPPI
• Diversion clause
• U.S. state of origin
• Mode of transportation
• Port of loading and unloading
• Temporary import number and or import entry number, if applicable
• Request for insurance coverage (or denial)
• Return or abandon instructions should a consignment be undeliverable
• Country of ultimate destination
• Schedule B number and value of each commodity tendered for export
• Export license number or license exemption
• Export Control Classification Number (ECCN), if applicable
• Origin of production (domestic, foreign, or items produced for the Foreign Military Sales program)

Export documentation may vary on a shipment-by-shipment basis; as such, clear instructions should be obtained for each export transaction. Financial documents, such as a sight draft or a letter of credit, may stipulate that additional export documents be provided in order to fulfill the terms of a given contract.

Some destination countries may also require that their respective consulates in the United States legalize certain documents prior to export from the United States. Other documentation, such as inspection certification, export licensing, or an insurance certificate, may be required depending on the commodity, the destination, and/or the transaction. The importer of U.S. goods may be responsible for other documentation (e.g., an import license) that affects the export shipment.
A freight forwarder or any other third-party transportation company assisting an exporter can provide specific documentation requirements on a shipment-by-shipment basis.

Sample Shippers’ Indemnities

Shippers’ indemnities should be addressed to the bank to which you are presenting documents and follow one of the following formats:

BLANKET INDEMNITY

A blanket indemnity should be on company letterhead, signed by an authorized signatory, and should read as follows:

In consideration of your honoring/negotiating our drawings presented to you under any and all letters of credit issued in our favor notwithstanding any discrepancies which might exist therein, we hereby agree to pay you on demand the amount of each such drawing (with interest at the per annum rate of __% from demand until paid in full) and to indemnify and hold you harmless for any other losses, costs, and expenses (including, without limitation, reasonable attorneys’ fees and court costs) incurred in connection therewith or the enforcement hereof, in the event that the documents included in the drawing are refused by the issuing bank or the issuing bank fails, for any reason, to pay a drawing honored or negotiated by you. This agreement does not preclude any other rights you might have against us by reason of such drawings.
TRANSACTIONAL INDEMNITY
A transactional indemnity should appear on the company’s transmittal cover letter or be on separate company letterhead, signed by an authorized signatory, and read as follows:

Re: Our reference ___________________ dated ___________________________ for (amount) drawn under letter of credit number _________________ issued by ________________________, Bank reference ______________________.

In consideration of your honoring/negotiating the above described drawing under the cited letter of credit, notwithstanding the following: (list of discrepancies or the words “ any discrepancies which might exist therein”)

we hereby agree to pay you on demand the amount of such drawing (with interest at the per annum rate of __% from demand until paid in full) and to indemnify and hold you harmless for any other losses, costs, and expenses (including, without limitation, reasonable attorneys’ fees and court costs) incurred in connection therewith or the enforcement hereof, in the event that the documents included in the drawing are refused by the issuing bank or the issuing bank fails, for any reason, to pay the drawing. This agreement does not preclude any other rights you might have against us by reason of such drawings.

LC - A Document Examination Checklist

The Draft: Check that...

• the Draft bears the correct Letter of Credit reference number, the signature and/or the name of the Drawer corresponds with thename of the Beneficiary,

• the tenor is in accordance with the Letter of Credit,
• the payee is the bank documents are being presented to or the Beneficiary,
• if the payee is the Beneficiary, it is duly endorsed and bears no restrictions or conditions in the endorsement (e.g., “without recourse”),
• the amounts in figures and words correspond and the currency is that in which the L/C is issued,
• it is drawn on the Drawee specified in the L/C,
• the amount drawn does not exceed the balance available in the Letter of Credit,
• the values of the draft and the invoice correspond,
• it has a current date—specifically, the shipment date if the Letter of Credit calls for the maturity of the Draft to be based on the bill of lading date,
• any apparent alterations have been properly stamped and/or initialed,
• it contains any necessary clauses required by the Letter of Credit.

The Invoice: Check that...

• the correct number of original(s) and copy(ies) is presented,
• it is issued by the Beneficiary named by the Letter of Credit and, if an address is shown, it is the same address as that indicated in the L/C,
• the Applicant (the buyer) is indicated as the invoiced party, and, if an address is shown, it is the same address as that indicated in the L/C,
• the description of the goods is in exact accordance with the merchandise description in, and includes the shipping terms indicated in, the Letter of Credit, and no extra goods are included, no additional detrimental description of the goods appears that may question their condition or value (e.g., “re-conditioned”), any other information supplied in the invoice, such as marks, numbers, transportation information, packaging, weight, freight charges or other related insurance and transport charges etc., is consistent with that in the other documents,
• the currency of the invoice is the same as that in the Letter of Credit,
• the invoice amount is at least the amount of the Draft,
• if partial shipments are prohibited, the invoice covers the complete shipment as required by the L/C or is within the 5% tolerance allowed by the UCP,
• if required by the Letter of Credit, the invoice is signed, notarized, legalized, certified, etc.

Transport Documents: Check that...

• the full set of originals issued is presented, unless otherwise allowed by the Letter of Credit (for air waybills, the original Shipper’s Copy constitutes the “full set”),
• it clearly indicates who the carrier is,
• it clearly indicates the name and capacity of the signer (e.g., “ABC Co. as carrier” or “XYZ Co. as agent for ABC Co., the carrier”),
• if an “ocean” or “port-to-port” bill of lading is required, it clearly indicates that the goods are on board a named vessel at a named port on a given date,
• the place of receipt/origination/taking in charge, port of loading, port of discharge, place of delivery/destination, etc. are as specified in the L/C,
• it is not a “charter party” transport document, unless authorized in the L/C,
• the name of the consignee is as stipulated in the Letter of Credit,
• if the transport document requires endorsement, it is appropriately endorsed,
• there are no clauses on the transport document that may render it “unclean” (See UCP 500 sub-Article 32(a)), the description of the goods is not inconsistent with the description of the goods as stated in the invoice, and that the marks and numbers as well as other specifications, if any, are identical to those appearing on the other documents, any apparent alterations have been properly stamped and/or initialed,
• the name and address, if any, of the notify party are as stipulated in the Letter of Credit,
• the indication of “freight prepaid” or “freight collect,” as required by the terms of the Letter of Credit, appears on it and is consistent with the shipping terms shown in the invoice, all other conditions stipulated in the appropriate transport articles of UCP 500 are complied with.

The Insurance Document: Check that...

• the policy/certificate/declaration/cover note, as required by the Letter of Credit, is presented,
• the full set of the insurance document issued (all signed originals) is presented,
• if specified in the L/C, the correct number of original(s) and copy(ies) is presented,
• it is issued and signed by the insurance company or underwriter or their agents, or countersigned by the assured if so required by the insurance document itself,
• the date of issuance or date from which cover is effective is no later than the date of loading on board or dispatch or taking in charge of the goods, as the case may be,
• if the assured named is other than the Confirming Bank, Issuing Bank or buyer, it bears the appropriate endorsement,
• it is issued in the same currency as the Letter of Credit, unless otherwise allowed in the Letter of Credit,
• the insured value of the goods is as required by the Letter of Credit or as defined in UCP 500 sub-Article 34(f),
• the goods description is not inconsistent with and relates to that of the invoice, the marks and numbers, etc. are identical to those of the transport document and all other information appearing on the document is consistent with that of the other documents,
• it covers the specified risks as stated in the Letter of Credit and that the risks are clearly defined,
• it covers the merchandise from the port of loading or place of taking in charge to port of discharge or place of delivery designated in the L/C, any apparent alterations have been properly stamped and/or initialed.

Most Common Discrepancies in LC - How To Avoid Them

A large portion of the discrepancies found in letter of credit documents occur with a great deal of frequency. Three common problems can be avoided if the exporter carefully checks the following before shipping:

1. The credit amount is sufficient to cover the shipment (particularly if the shipping terms are CIF or CIP).
2. Documents will be available and can be presented before the expiry date of the credit.

3. The latest shipment date (if there is one) specified in the letter of credit can be met. After shipping, documents must be properly prepared and presented on a timely basis.

The most common discrepancies encountered by banks examining documents under letters of credit represent errors or misunderstandings in how to prepare documents.

They include the following:

1. Documents are inconsistent with each other.*

2. Documents were presented more than 21 days after the date of shipment (or other presentation period specified in the L/C).*

3. Full set of bills of lading was not presented or other required documents are missing.

4. Draft is drawn incorrectly or for the wrong amount.

5. Draft is not signed or not endorsed.

6. Invoice does not describe merchandise in exact accordance with the letter of credit. Note: If the letter of credit describes merchandise in a foreign language, then the exporter must describe the merchandise in that language in the invoice; translations are not acceptable.

7. Invoice does not show the same shipping terms as specified in the L/C.

8. Invoice includes charges inconsistent with the shipping terms in the L/C.

9. Invoice is not made out in the name of the applicant shown in the L/C.

10. Insurance coverage is insufficient or does not include the risks specified by the L/C.

11. Insurance certificate or policy is not endorsed.

12. Insurance certificate is dated later than the shipment date.

13.Bill of lading is not clean (defective condition of goods or packaging indicated).

14.Bill of lading does not clearly indicate the name and capacity of the signer and who the carrier is (must be signed “ABC Co. as carrier” or “XYZ Co. as agent for ABC Co., the carrier”).*

15.Bill of lading is not consigned correctly or is not endorsed (if endorsement is required).

16.Multimodal bill of lading was presented when L/C calls for port-toport, or simply “ocean,” bill of lading. (Acceptable if “on board” notation includes the name of the vessel and the port of loading.)*

17.Multimodal bill of lading was presented when shipping terms are FOB (i.e., port to port) and does not indicate inland freight has been prepaid or otherwise fails to meet requirements for port-to-port shipment.

18.Bill of lading is not marked “freight prepaid” or “freight collect” as required under the credit or in agreement with the invoice and shipping terms.

19.Not all documents show license numbers, letter of credit numbers, or other identification required in the credit.

20.Documents are not signed in accordance with L/C terms (any document called a “certificate” must be signed).

Discrepancies like these can generally be avoided by reviewing the terms and conditions of the letter of credit and preparing documents that follow the instructions found there. (Click here for A Document Examination Checklist).

Keep in mind that banks deal only in documents and have no business getting involved in the underlying contract between the exporter and the buyer. The bank’s reimbursement from the buyer depends on the documents complying.

Standby LC - 10 Things Exporter Should Consider

1. A letter of credit is a bank's agreement to pay a specified amount of money upon presentation to them of documents specified in the letter of credit. Think of it as a certified check that can be cashed by presenting it back to the bank with a few documents stapled to it. The documents can be anything you, the applicant, have the L/C specify, but the bank must be able to examine them quickly and determine whether or not they comply. Of course, your customer, the beneficiary, must agree to the documents you require or they may reject the L/C at the outset. For example, it is allowable for the L/C to require documents which purport to be signed by you, but doubtful the beneficiary will accept such a letter of credit.

Tip: In addition to documents, letters of credit may include "modalities." These are facts the bank can verify from their internal records. For example, the requirement that documents be presented at a specified place by a stated date is a modality. There may come a time where you may find yourself in the "advance payment impasse." This is where the customer refuses to give you the advance, or down, payment until you provide a guarantee and you refuse to provide a guarantee until you get the advance payment. To cut through this impasse, the letter of credit may state it only becomes effective upon the bank's receipt of the advance payment (citing the letter of credit number).

2. As long as the engagement the bank writes meets the above requirement, it is a letter of credit. If it makes someone happy, it can be called a demand guarantee, a bank guarantee, a bid or performance bond, or something else. If it contains non-documentary conditions, either it is not a letter of credit or the non-documentary conditions are unenforceable, but you may not know which until you get to court.

3. A contract guarantee is not a letter of credit. It is more like a parent guarantee or a surety bond issued by insurance companies. The guarantor, in this case, is effectively co-signing the contract. If there is a claim, the guarantor may refuse to pay until they see an arbitration award or at least conduct an inquiry into the facts supporting the claim before paying. This makes contract guarantees generally unacceptable in trade transactions. When someone says they want a bank guarantee or a local guarantee, they almost always mean a standby letter of credit.

4. U.S. banks are prohibited by U.S. regulators from issuing contract guarantees. They are, however, free to call their letters of credit guarantees (although this tends to make them uncomfortable). The key is to make the instrument issued completely documentary and, for the sake of comfort, subject to rules (see point #6). Banks in other countries are comfortable issuing guarantees, but these are, as a rule, demand guarantees payable upon presentation of documents, i.e., they are letters of credit traveling incognito. A common problem, however, is that they are not subject to any international rules, but rather to local laws.

5. Avoid making your letters of credit subject to the laws of the country of the beneficiary. Unless they state otherwise, letters of credit are subject to the laws of the country of the issuing bank. If you ask this bank to subject their engagement to laws they are not familiar with, they will ask for extra indemnities that may be very open-ended and expansive and may block your credit line indefinitely. The laws of the beneficiary's country may say, for example, that expiration dates are meaningless (and that the letter of credit must always be returned in order to be cancelled), or that documents do not have to fully comply.

6. Try to make sure your letters of credit are subject to some set of internationally recognized rules. In the order of preference, these are the International Standby Practices (International Chamber of Commerce publication 590, or "ISP98"), the Uniform Customs and Practice for Documentary Credits (ICC publication 500, or "UCP500"), and the Uniform Rules for Demand Guarantees (ICC publication 458, or "URDG"). Despite what your customers may tell you, these rules can all be invoked even if your letters of credit are called guarantees.

7. Although it may not be possible, try to avoid the structure of using a standby letter of credit issued as a counter-guarantee to a foreign bank in order to get the foreign bank to issue a local guarantee. A far better structure is confirmation by the foreign bank of a letter of credit (possibly called a guarantee) issued by your bank. The counter-guarantee structure only provides partial insulation from foreign laws; the foreign bank's guarantee will be subject to local laws, which may allow capricious drawings. The letter of credit will only require a statement from the foreign bank that they have paid under the local guarantee.

Furthermore, foreign laws may not allow the local guarantee to be cancelled until returned, leading to the guarantor drawing under the standby when the expiration comes near. (This is called the "extend or pay" dilemma.)

Do not expect the foreign bank to take any special steps to try to get the guarantee returned for cancellation-your customer may not be their customer and they have no reason to know when the guarantee is no longer needed. If necessary, have one of your employees visit the customer and accompany the customer to the bank to get the guarantee cancelled. A confirmed letter of credit (or guarantee) avoids these problems.

8. Letters of credit are payable against presentation to the bank of the documents required. Truth is not part of the equation. The issuing bank is legally prohibited from refusing to pay compliant documents even if you tell them the beneficiary is lying and not entitled to the money. The motto in the courts is, "Pay first, litigate later." The slogan, which is like unto it, is, "The purpose of a letter of credit is to change who is holding on to the money when the litigation comes."

9. Do not try to use a letter of credit as a substitute for terms that belong in a contract with the beneficiary. If the L/C is drawn on and the bank pays, the contract is your basis for recovering payment, not the L/C. The contract should specify under what conditions the beneficiary is entitled to draw, so you have clear grounds for recovery if they draw abusively.

The documents required under the L/C should certainly contain a statement as to why the beneficiary is entitled to draw, but do not expect this to protect you from abusive drawings. Do not try to include non-documentary conditions, like, "This letter of credit is payable in the event of a default by [your company] in the performance of contract 12345." By law, non-documentary conditions in a letter of credit get ignored.

10. Letters of credit use your line of credit and cost money. Do not use them lightly. When possible, ask for them to be returned for cancellation as soon as the obligations they are assuring are discharged rather than waiting for them to expire.

Tip: Most drawings under standby letters of credit are the result of misunderstandings. You can include a requirement in a letter of credit that documents be presented in 2 stages, say 30 days apart. The first set of documents would just be a statement of intent to draw on the L/C in 30 days, giving reasons, and the second would be the actual demand for payment. The bank will notify you of presentation of the intent to draw, giving you time to remedy the reason for drawing and convince the customer not to present the demand for payment.

A less effective alternative is, rather than calling for presentation in 2 stages, to require that the demand for payment to be accompanied by a certification that the customer notified you directly, 30 days earlier, of their intent to draw and that you failed to remedy the situation-keep in mind that the bank will not listen to you if you claim you received no such notification. Ineffective: A requirement in the letter of credit that the customer must actually notify you of their intent to draw. Such a requirement is non-documentary and cannot be enforced-the bank is looking for a document of some sort.

Sample Letter Of Credit Instructions

This format is for use in designing a Letter of Credit Instructions form appropriate for your own company.

LETTER OF CREDIT INSTRUCTIONS

Date: _____________

To: From ____________________________________

Address ____________________________________

City & State ____________________________________

Country ________________ Zip Code _________

Attn ____________________________________

Telephone ____________________________________

Fax ____________________________________

RE: ¨ Our Pro-Forma Invoice# _____________________ Dated _________________

¨ Your Purchase Order# _____________________ Dated _________________

¨ Commercial Contract# _____________________ Dated _________________

Gentlemen:

In connection with your above-referenced purchase, the following terms and conditions are for inclusion in your irrevocable letter of credit. We are providing you with these details as a confirmation of our understanding of the terms of sale covering this transaction. If these details do not agree with your understanding or if you are unable to comply with these terms and conditions, please notify us prior to the issuance of your letter of credit to avoid unnecessary delays and costs. Thank you for your patronage and cooperation.

1. The letter of credit must be issued no later than __________________ by a bank acceptable to us.

2. The letter of credit must be irrevocable and be subject to the 1993 Revision of the Uniform Customs and Practice for Documentary Credits published by the International Chamber of Commerce (UCP500).

3. The letter of credit must state that it is available with any bank by negotiation.

4. The letter of credit must be opened with full details by SWIFT or tested telex

In favor of: ____________________________

____________________________

Attn: ____________________________

Telephone: ____________________________

[indicate the company name and address you will use in your invoices; if this is not the address you want your L/Cs mailed to, give separate instructions for where this L/C is to be sent]

We will not initiate shipment until the actual letter of credit is received but it may expedite processing if you will fax a copy of the letter of credit to [name] at [fax number]. This must be a copy of your bank's actual SWIFT message sent to the advising bank. A copy of your letter of credit application is not sufficient.

5. The letter of credit must be payable in U.S. dollars for

¨ up to an amount of __________________________

¨ an approximate amount of __________________________

6. The letter of credit must be advised through an acceptable, “prime” U.S. or European bank such as:

[list your preferred letter of credit advising banks]

7. The letter of credit must authorize the advising bank to add its confirmation only if requested to do so by beneficiary.

8. The letter of credit must authorize the negotiating bank to debit the issuing bank's account with a U.S. reimbursing bank with no deductions. It will expedite processing, and possibly reduce the reimbursing bank's charges, if your bank indicates their account number with the reimbursing bank in the L/C.

9. The letter of credit must be payable against drafts drawn, at the beneficiary's option, on the issuing bank, on the advising bank, or on the reimbursing bank. Drafts must be

¨ at sight

¨ at ____ days from the date of the transport document/forwarder's receipt.

¨ at ____ days from the date of the invoice.

10. The letter of credit must indicate:

Ÿ All banking charges outside the applicant's country, including any amendment charges, are for the

account of the ¨ applicant ¨ beneficiary.

Ÿ Discount and acceptance charges for time drafts shall be for the account of the

¨ applicant ¨ beneficiary.

Ÿ Reimbursement related charges must be for the account of the issuing bank. Please instruct your

bank to reflect this in their reimbursement authorization as well as in the letter of credit.

11. ¨ The letter of credit must be transferable by any bank.

12. ¨ The letter of credit must allow partial shipments.

13. The latest shipping date in the letter of credit must be at least ____ days after the issuance date of the L/C.

14. The letter of credit must allow a minimum of ____ days after the date of transport document/forwarder's receipt for presentation of documents. Add 14 days if any documents required must be consularized or legalized or if they include an inspection certificate issued by S.G.S. or similar inspection service. Expiration should be this same number of days after the latest shipment date at the counters of the negotiating bank.

15. The letter of credit must require the commercial invoice to describe the merchandise, in accordance with our pro-forma invoice, as (use only generic terms, avoiding details as to grade, quality, etc.):

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

¨ EXW (Ex Works, Ex Factory) ¨ cleared for export

¨ loaded on departing vehicle

¨ FCA (Free Carrier At) ¨ Seller's premises

¨ Consolidator's terminal in Seller's country

¨ Carrier's terminal

¨ Airport of departure

¨ CPT (Carriage Paid To) ¨ Customs terminal in Buyer's country

¨ Consolidator's terminal in Buyer's country

¨ Buyer's premises

¨ Airport of destination

¨ CIP (Carriage & Insurance ¨ Customs terminal in Buyer's country

Paid To) ¨ Consolidator's terminal in Buyer's country

¨ Buyer's premises

¨ Airport of destination

16. If you have selected a freight forwarder who will be receiving the goods for consolidation and/or shipment, payment must be available against a Forwarder's Cargo Receipt showing merchandise consigned to/at disposal of yourselves. Otherwise the L/C must require either a multimodal transport document consigned to order of the issuing bank showing place of receipt as _________________ and place of delivery or final destination as ________________ or an air waybill consigned to yourselves showing airport of departure as ________________ and airport of destination as ________________. L/C must require the multimodal transport document or air waybill be marked “Freight Prepaid” if terms are CIP or CPT or “Freight Collect” if terms are EXW or FCA.

17. If terms are CIP, you may require a marine cargo insurance certificate covering

¨ All risks warehouse to warehouse

¨ All risks warehouse to warehouse including SRCC & War Risks

If terms are EXW, FCA, or CPT and we are arranging the shipment, you may require a copy of a cable or fax message to yourselves giving date and means of shipment and description and value of the goods shipped, certified by the beneficiary (ourselves) to be true and accurate and to have been sent no later than two days after shipment.

We anticipate receipt of your letter of credit conforming to these requirements.

ISP vs UCP

In 1998, the International Chamber of Commerce endorsed a new set of rules called the International Standby Practices or 'ISP98', designed to specifically cover standby letters of credit and demand guarantees. Companies using standby letters of credit now have to make a choice regarding whether they want their standbys made subject to these new rules or to the UCP500, which continues to be in use for all types of letters of credit.

Let's see what are the major differences between these two sets of rules, as they regard standby letters of credit, to assist in making this choice.

Major Differences Between the ISP and the UCP

* The UCP was designed for letters of credit whose primary purpose is to serve as a medium of payment.

The ISP was designed for letters of credit whose primary purpose is to provide credit assurance.

• The UCP makes an assumption that the documents required under a letter of credit have commercial value and that the applicant will authorize payment even when there are discrepancies.
  

The ISP assumes the documents are merely pieces of paper and that the reason for a drawing is probably that there is a dispute between the applicant and beneficiary or the applicant has gone bankrupt; therefore, the likely impact of discrepancies is that payment will not be made. The ISP implicitly supports the maxim, “Pay first; litigate later.

• The ISP is much more liberal about checking documents. For example, the ISP states,

An issuer or nominated person is required to examine documents for inconsistency with each other only to the extent provided in the standby. (ISP 4.03)

In complete contrast, the UCP states, Documents which appear on their face to be inconsistent with one another will be considered as not appearing on their face to be in compliance with the terms and conditions of the Credit. (UCP 13(a))

Furthermore, the UCP has 18 articles defining the required content of various documents. The ISP specifically indicates none of the requirements from the UCP should be applied; each document should be examined simply for the required content indicated in the letter of credit.

• The ISP is more liberal about when documents must be presented. The ISP states,If on the last business day for presentation, the place for presentation stated in the standby is for any reason closed and presentation is not made timely because of the closure, then the last day for presentation is automatically extended to the day occurring thirty calendar days after the place for presentation re-opens for business, unless the standby otherwise provides.” (ISP 3.14)
  

• In contrast, the UCP states, Banks assume no liability or responsibility for the consequences arising out of the interruption of their business by Acts of God, riots, civil commotions, insurrections, wars or other causes beyond their control, or by any strikes or lockouts. Unless specifically authorized, banks will not, upon resumption of their business, pay, incur a deferred payment undertaking, accept Draft(s) or negotiate under Credits which expired during such interruption of their business.” (UCP 17)
  

Furthermore, there is no requirement, as in the UCP, that documents must be presented within a certain number of days after being issued (see UCP 43(a) regarding “the 21-day rule”).

• The UCP is more concerned about getting original documents. In the UCP, if an L/C calls for a document in one or more copies, one must be an original. (UCP 20(c)(ii)) If the same language is used on an L/C subject to the ISP, the documents may all be copies, although originals may be presented in lieu of copies. (ISP 4.15(e)(ii)
  

• The ISP sets down a number of rules thought to apply to all letters of credit, but never stated in the UCP, e.g., what happens when someone loses an L/C (ISP 3.12), that documents must be in the language of the L/C (ISP 4.04), what happens if the issuer moves (ISP 3.14(b)), what happens if a beneficiary changes their name or becomes bankrupt (ISP 6.12). Thus, the ISP is, arguably, more complete than the UCP.
  

• The ISP contains a number of articles addressing matters that are specific to standby practice, e.g., certain undesirable terms (ISP 1.10), “extend-or-pay” situations (ISP 3.09), and rules for counter-guarantees (ISP 4.21).
  

• The ISP allows L/Cs to be transferred multiple times, but always in their entirety. The UCP allows L/Cs to be transferred only once, though in portions if desired.

eUCP - Answers to FAQ - Final - Part 5

21. Are banks prepared to handle electronic presentations? How will this system work?

It doubtful to say that banks are prepared. Very few Identrus cards have been issued at this point. There is no expectation that banks will actually start receiving electronic documents on April 1st; the purpose of the eUCP is to provide a framework for banks to develop a system for their customers.

However we can predict that some Applicants may "jump the gun" by waiving the authentication requirements and allowing payment against unauthenticated e-mail copies of invoices and, perhaps, scanned images of waybills (non-negotiable). This should provide sufficient evidence of shipment to some importers that they will allow payment. (In this scenario, there is questionable value to having a Nominated Bank as the documents could be e-mailed directly to the Issuing Bank, but exporters may be uncomfortable with dealing directly with foreign banks.)

22. After an e-documents presentation, how would the Beneficiary ensure that the Nominated Bank has received the e-documents?

The issue is the same as for documents presented by mail. If desired, the Beneficiary can electronically request the Nominated Bank to electronically acknowledge receipt of the e-documents.

23. What happens when an electronic document is infected or corrupted?

This is an example of how the eUCP provides a framework. Article e11 indicates that the bank receiving the corrupted file can require re-presentation without refusing the documents. It goes on to explain what happens to the deadlines for examination and presentation.

24. What constitutes corruption of an electronic record? Can the Nominated Bank simply declare that a record is corrupted whenever they are not able to read it? What if the issuer of the document has evidence that the corruption occurred after receipt by the Nominated Bank—can the Nominated Bank be held responsible for negligently corrupting the electronic record?

Article e11 does not define what constitutes corruption of data. It is left to the courts/national law to interpret the meaning of corruption of an electronic record. (Note that “electronic record” is a term defined in the eUCP; all electronic documents must qualify as electronic records to be acceptable.)

Nonetheless, it reasonable to interpret corruption as occurring when a record is truncated or rendered not readable, whether by a virus and or by technical problems encountered in transmission, data storage, and retrieval.

25. If an Issuing Bank wishes to make a letter of credit subject to the eUCP, would they advise the credits as per current practice to the Advising Bank and would the Advising Bank, in turn, receive electronic documents from the Beneficiary?

As described above, the Issuing Bank must choose a Nominated Bank who is prepared to receive and authenticate the documents. If an Issuing Bank tries to nominate someone who is not prepared to do this, they will decline to receive the documents. If an Issuing Bank tries to make them the Advising Bank (as they should), they should respond at that time if they will not be able to receive the documents electronically, similar to turning down a request to add confirmation.


eUCP - Anwers to FAQ - Part 1

eUCP - Anwers to FAQ - Part 2

eUCP - Anwers to FAQ - Part 3

eUCP - Anwers to FAQ - Part 4

eUCP - Anwers to FAQ - Part 5 (Final Part)

eUCP - Answers to FAQ - Part 4

16. What happens if the bank electronic documents are presented to cannot authenticate the documents?

Article e5(f) covers this directly. It says, “An electronic record that cannot be authenticated is deemed not to have been presented.” This will result in a discrepancy that can possibly be corrected by the Beneficiary or waived by the Applicant.

17. If I want to be able to sign documents digitally, how do I obtain a digital certificate?

As discussed in question 14, a digital certificate provides a means of creating digital signatures that identify the signer and also assure that the document is unaltered. There are various “certificate authorities” who issue such certificates. The issuance process itself is questionable in many cases, making some digital signatures “better” than others. As with many other matters governed by the eUCP, it is up to the parties involved to choose what means of authentication is acceptable. If digital certificates are to be used, the parties should further agree who are acceptable certificate authorities.

18. Is the Beneficiary of an L/C (subject to eUCP) expected to submit a paper-based letter of instructions to the Nominated Bank when they are presenting a full set of electronic documents?

Whenever presenting documents electronically, the Beneficiary must include a “notice of completeness,” in addition to the documents specified in the letter of credit, to signify that all the documents have been submitted and are ready for the Nominated Bank to negotiate/pay/accept. This provision in the eUCP allows the Beneficiary to present electronic documents one at a time and to mix paper and electronic documents (see question 5). The notice can serve as a cover letter and include, where applicable, any requests for discounting/financing as well as settlement and other instructions. It may either be paper-based or in electronic form, according to the Beneficiary's choice.


19. How long does a Nominated Bank have to examine electronic documents?

The eUCP makes no changes in the length of time allowed to examine documents. The UCP rule of “a reasonable time, not to exceed seven banking days” continues to govern. (If the rule were different, it would require a great deal of complexity to address mixed presentations.) Nonetheless, keep in mind that what constitutes a reasonable time is dictated by the circumstances; seven days is only an outside parameter.

20. How can the parties in an eUCP transaction ensure that their electronic systems are compatible with one another?

Note that the eUCP requires only that the Nominated Bank, the bank to whom documents are presented by the Beneficiary, verify the authenticity of the documents. The Issuing Bank is expected to rely on the Nominated Bank’s verification. Thus, it is not necessary that the 2 banks have compatible systems, only that the parties creating the documents use a means of authentication that the Nominated Bank considers secure.

Our expectation is that supply chains will align for this purpose, i.e., importers and Issuing Banks will specify Nominated Banks based on arrangements they know these banks have made for receiving and authenticating electronic documents from the exporters.

The "open" alternative is that importers can require in their L/Cs that the electronic documents be signed using Identrus signatures. Any Identrus bank can then be nominated to receive the documents as e-mail attachments.

Remember that it is very important to specify the data format for any documents that will be presented by e-mail, to make sure the Nominated Bank can open and examine the data files and then relay them to the Issuing Bank in a format they can relay to the Applicant. It is expected that e-mail attachments will commonly be required to be in Word or Acrobat formats (with the version number specified as well).


eUCP - Anwers to FAQ - Part 1

eUCP - Anwers to FAQ - Part 2

eUCP - Anwers to FAQ - Part 3

eUCP - Anwers to FAQ - Part 4

eUCP - Anwers to FAQ - Part 5 (Final Part)