Logistics, Trade Administration and Supply Chain

In order to prevent misinterpretations, misunderstanding and other associated problems connected with the interpretation of trade terms, phrases and divergences in customs and practice in the international trade, the International Chamber of Commerce (ICC) has come out with a standard set of rules and interpretations known as the Uniform Customs and Practice for Documentary Credits, Publications No. 500 (in short UCP No. 500). Briefly, the UCP No. 500 sets out universally accepted procedures, liabilities, responsibilities and various terms and conditions and their respective interpretations connected with international trade. The UCP has been adopted practically by every nation in the world. Although the UCP generally does not have the force of law, their provisions are binding on the relevant parties who had adopted them. Thus, as a requirement, every application and documentary credit and amendment have to bear the words, "Subject to Uniform Customs and Practice for Documentary

Article 2 of the Uniform Custom and Practice for Documentary Credit defines a documentary credit as: "For the purpose of these articles, the expression documentary credits and standby letters of credit (hereinafter referred to as credits ) means any arrangements, however named or described, whereby a bank (the issuing bank) acting on request and on the instructions of a customer (the applicant) or on its own behalf: is to make a payment to or to the order of a third party (the beneficiary) or is to accept and pay bills of exchange (drafts) drawn by the beneficiary, or, authorizes another the bank to effect such payment or to accept and pay such bills of exchange (drafts) or, authorizes another bank to negotiate, against stipulated documents, provided that the terms and conditions of the credit are adhered with". In a layman language, a documentary credit may be describe as a legal undertaking in writing. It is issued by the customer's bank (also known as the issuing ba