国际结算双语教材英语版

国际结算双语教材英语版 Introduction to International Settlement International political, economic and cultural exchange inevitably leads to credits and debts owed by one country to another. The international settlement involves both tangible and intangible trades, foreign investments, funds borrowed from or lent to other countries and so forth. To be more specific, international payments and settlements can also be necessary financial activities rendered from commercial payments, payments for the services rendered, payments between governments, and the transfer of funds among countries. 1.1 Definition International payments and settlements are financial activities conducted among different countries in which either payments are effected or funds are transferred from one country to another for the purpose of settling accounts, debts, claims, etc. 1.2 Types of International Settlement Usually international settlement is divided into three broad categories: remittance, collection and letter of credit. Negotiable instruments, however, ways of international settlement and documents used in the international settlement sometimes constitute the framework of international settlement. For example, the following payment terms can be read in the sales contracts. (1)The supplier agrees that the buyer will effect payments under the term of T/T against receipt of B/L by fax. (2) Hong Kong suppliers agree that the buyer will effect payments under the term of CAD(Cash against Documents). (3) Only in case of new suppliers and first order to them, the buyer might agree to effect payments under L/C terms(The L/C charges on the buyer's side will be born by the buyer and the L/C charges on supplier's side will be born by the supplier. The Bill of Lading is made out to order and notify the buyer. (4) In case that the supplier still insist on L/C terms even after the first order, the supplier agree to take over all L/C charges on him as well as the buyer's side. In those cases we request a Bill of Lading. 1.3 History and Development of International Settlement Tracing back the history of international settlement, the medium of exchange originated from coins. Later on, commercial drafts and other credit instruments emerged and became popular to meet the needs of the constantly increasing business activities in both geographical regions and volume of the international trade. Depending on the creditability of financial institutions, both buyers and sellers are usually willing to complete their settlement through banks respectively, and a financial arrangement could be reached then. Therefore, many banks have focused on their business of international settlement and trade finance. Most of the international payments originate from transactions in the world trade. With the enormous amount of international trade activities, the volume of the international settlement has reached trillions of US dollars nowadays. Banks; as a result, are focusing more and more on the development of the business because it is a major resource of profit. 1.4 International Customs and Practices The International Chamber of Commerce is the world business organization. It is the only representative body that speaks with authority on behalf of enterprises from all services in every part of the world. (1)International Practices concerning Bills: Bill of Exchange Act, 1882, Jeva Uniform Bill Act. (2) International Practices concerning Settlement:(Uniform Rules for Collection, ICC Publication No: 522), Uniform Customs and Practice for Commercial Documentary Credits,1993 Revision, ICC Publication No. 500). (3) International Practices concerning Documents: Hague Rules, Hamburg Rules, International Convention Concerning the Transport of Goods by Rail, Agreement on International Rail-Road through Transport of Goods, Uniform Rules for a Combined Transport Documents, Institute Cargo Clauses, ICC, International Rules for Interpretation of Trade Terms, Incoterms2000 and UNCITRAL Arbitration Rule. Instruments 2.1General Introduction Bills of Exchange, cheques, and promissory notes are all known as negotiable instruments. It is a fundamental principle of property law that we cannot obtain a better title than that possessed by the person from whom we received it. There is always the risk that that person has no title to the property because he has stolen it or obtained it from some other person who got improperly. The true owner, on discovering the property and proving his right to it, can demand the property be restored to him. Our remedy is to look for the person from which we received the property and try to get our money back. That person will in turn claim from his immediate transferor, this tracing right goes on up to the unfortunate one who bought the property from the thief. 2.2 Bills of Exchange 2.2.1 Definition A Bill of Exchange (draft) is a commercial instrument. It is an unconditional order in writing, addressed by one person to another，signed by the person giving it，requiring the person to whom it is addressed to pay on demand，or at a fixed or determinable future time，a sum certain in money，to or to the order of a specified person or to the bearer( A typical Bill of Exchange is drawn in this manner(see Specimen 2.1)? Note: , An unconditional order in writing. , Addressed by one person (the drawer). , To another (the drawee). , Signed by the person giving it. , Requiring the person to whom it is addressed.、、 , To pay. , On demand or at a fixed or determinable future time. , A sum certain in money: , To or to the order of a specified person or the bearer. 2.2.2 Liability on Bills of Exchange The liability on a Bill of Exchange is by signature only: no signature, no liability. In another words, no person is liable as drawer, endorser or acceptor of a bill who has not signed. 2.2.3 Endorsement of Bills of Exchange For many commercial contracts, the benefits of the contract may be transferred from one person to another. With a Bill of Exchange, this transfer is effected by delivery, or by endorsement and delivery. Endorsement is a signature and a signature must be the same with the transferor's name as stated on the bill. It is normally on the back of the document. There are four types of endorsement: blank, special, restrictive or conditional.2 (2.4 Acceptance of Bills of Exchange The drawee has no liability on the bill until he signs the bill in ,such a way as to signify acceptance of liability to pay the money stated on the bill. The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer. An acceptance is invalid unless it complies with the following conditions, namely: (1)It must be written on the bill and signed by the drawee. The mere signature of the drawee, without additional words, is sufficient. (2) It must not express that the drawee will perform his promise by any other means than the payment of money. Acceptance may be made before signature by the drawer. It may also be accepted when overdue or when previously by non-acceptance or non-payment. 2.2.5 Holders of Bills of Exchange. A holder for value is the holder of bill for which value has been given: he is a holder for value as regards all parties prior to himself. Once value is given for a bill, the-holder giving value and all subsequent holders are holders for value. A holder for value has the right of transferability conferred upon him by the common law. He has exactly the same rights together, with faults and failings, if any, of the person who transferred the bill to him. 2.2.6Duties of Holders of a Bill of Exchange A Bill of Exchange holder must do two things:present the bill for acceptance and present the bill for payment. The holder must carry out his duties. Alternatively, he can transfer the bill to another person, within a "reasonable time" of receiving the bill. Presenting the bill for acceptance is personal. The bill is presented to the drawee personally for acceptance, wherever he is. In so doing, the holder gains an extra signature and thereby an extra liability on the bill. If the drawee refuses to accept the bill, the bill is then dishonored by non-acceptance and the holder can immediately sue all prior parties to the bill. Presentment for payment is local, meaning that the bill must be presented at the right place whether or not the person liable on the bill is at that place. The right place is the place stated on the bill as being the place of payment, otherwise the bill should be presented at the place of business or the place of the drawee/acceptor. The payment should be presented during business hours. 2.2.7 Liability of Drawers，Drawees and Endorsers (1)Liability of Drawers By drawing the bill the drawer commits himself to the following: a. That it will be duly accepted or paid on presentment, and b. That if it is dishonored he will compensate the holder or any endorser for any loss suffered. (2) Liability of Drawees Before acceptance, the drawee is not liable to any holder (though he may be personally liable to the drawer if he dishonors a bill properly drawn upon him). After acceptance, the drawee becomes the person primarily liable on the bill, and engages that he will pay the bill according to the terms of his acceptance. (3) Liability of Endorsers Any person who endorses a bill makes a commitment that it will be duly paid upon presentment. If the bill is dishonored he will compensate the holder who is compelled to pay it. 2.2.8 Dishonor of Bills of Exchange If a bill is dishonored by non-acceptance or non-payment, the holder must inform all prior parties that the bill has been dishonored. If such notice has not been given within a reasonable time, all prior parties except the person primarily liable on the bill will cease to be liable to the holder. The person primarily liable on the bill is the drawer. Once the bill is accepted, the acceptor assumes primary liability. 2.3 Cheques 2.3.1 Definition A cheque is an unconditional order in writing, addressed by a person to a bank, signed by the person making it, requiring the bank to pay on demand a sum certain in money to onto the order of a specified person or to the bearer. 2.3.2Parties to a Cheque Three parties are essentially involved: , The Payee, a person to whom a cheque is expressed to be payable. , The Drawer, the person who writes the cheque. , The Drawee, the bank on whom the cheque is drawn and to whom the order to pay is given. 2.3.3 Signature An agent may sign a cheque if he is authorized. For example; a bank officer may sign on behalf of the bank for which he works provided he is an authorized signatory. 2.3.4 Forgery If the drawer has not signed (and he cannot truly have done that if his signature has been forged), then the document without the drawer's signature is not a cheque. For example, if John Black steals Wolf Smith's cheque book, forges Mr. Smith's signature to a cheque USDS,000 and presents it to the bank on which it is drawn and obtained payment, the bank cannot debit Mr. Smith's account with it, for the bank's only authority to debit the account is Mr. Smith's genuine signature. The bank would lose the money unless the forgery was immediately discovered after payment. However, if the bank had paid the forger John Black，then its only right would be against the forger, for what it was worth. 2.4 Promissory Notes 2.4.1 Definition A promissory note is an unconditional promise in writing, made by one person (the maker)to another (the payee or the holder), signed by the maker, engaging to pay on demand or at a fixed or determinable future time a sum certain in money, to or to the order of a specified person or to bearer. A promissory note is a promise, and a bill is an order. There is no need to protest a dishonored note. And as the maker of a promissory note is the person primarily liable on it, there can be no acceptance. A promissory note is not complete when the maker signs it. It must also be delivered to the payee or bearer. A typical promissory note is made in this manner (see Specimen 2.3). Note: , An unconditional promise in writing. , The maker. , The payee or the holder. , Engaging to pay. , On demand or at a fixed or determinable future time. , A sum certain in money. 2.4.2 Liability of Makers The maker of a promissory note should be engaged in the payment according to its tenor, and is precluded from denying to a holder in due course the existence of the payee and his then capacity to endorse. 2.4.3 Banker's Drafts A banker's draft is a negotiable instrument drawn payable to order by a bank as drawer on the same bank as' drawee, in another word, the drawer and drawee are the same person. It is issued by a bank for certain fixed amounts, always payable to bearer and on demand. Even though the draft may be drawn by a branch of head office or another branch; and the bank is considered as one entity for this purpose. It is also a legal tender. It goes without saying that a banker's draft is as good as cash for many commercial purposes, dishonor of it being unheard of unless it is known that the presenter is not entitled to it. Remittance and Collections 3.1 Definition Remittance refers to the transfer of funds from one party to another among different countries through banks. At the request of its customer, a bank transfers a certain sum of money to its overseas branches or correspondent banks and instructs them to pay a named person or corporation in that country. 3.2 Means or Instruments of Remittance The remittance will be done by several means or instruments such as mail transfer, demand draft and telegraphic transfer. The instruments mentioned above bear their characteristics, which will be discussed later. 3.2.1 Mail Transfer (M/T) A mail transfer is to transfer funds by means of a payment order or a mail advice, or sometimes a debit advice issued by a remitting bank, at the request of a remitter. Either of a payment order, mail advice or debit advice must be authenticated with tested key or the authorized signatures of the remitting bank. It instructs the paying bank to pay a certain sum of money to the beneficiary. Upon receipt of the payment order, the paying bank verifies the tested key or the authorized signature, notifies the beneficiary, pays to him and claims reimbursement from the remitting bank. In practice, the remitting bank credits the account for the paying bank in the remitting bank. 3.2.2 Demand Drafts(D/D) A demand draft is often used when the customer wants to transfer the funds to his beneficiary by himself. The remitter will make a written request of issuance to the remitting bank. Then the remitting bank debits the remitter's account, issues a bank draft and forwards it to the remitter who may send or carry it abroad to the payee. Upon receipt of the draft, the payee can either present it for payment to the drawee’s bank or sell it to his own bank crediting his account. The drawee's bank verifies the signature, pays the draft and claims back the amount paid in accordance with its agency arrangement with the remitting bank. 3.2.3Telegraphic Transfer(T/T) Telegraphic transfer refers to remittance by SWIFT. It is exactly the same as a mail transfer, except that instruction from the remitting bank to the paying bank is transmitted by cable/telex/SWIFT instead of by mail. Therefore, it is faster, but more expensive than the mail transfer. It is often used when the remittance amount is large and the transfer of funds is subject to a time limit. Thus, 90% remittance is done through T/T. Table 3.1 Comparison among T/T,MT and D/D Items T/T M/T D/D Methods of transfer Telex/Cable/SWIFT Airmail Mail or carried by remitter Time of transfer Fastest Slow … Security Quite safe Reliable, but may Stop-payment is time be lost/delayed in consuming post Notification from bank to Yes Yes Yes beneficiary bank Endorsement No No Yes Negotiable No No Yes Method of authentication Test key of SWIFT, Authorized Authorized signature authentication key signature Chare High Low Lowest Most charge the The whole charge The cost of collection remitter while some remitter charges the bank may charge beneficiary 3.2.3 Collections 3.3.1 Definition After the exporter has shipped the goods or rendered services to his customers abroad, he draws a Bill of Exchange on the latter with or without shipping documents attached thereto and then gives the draft to his bank together with his appropriate collection instructions. Thus, a collection on the basis of commercial credit is usually processed through banks acting as the intermediary. 3.3.2 Workflow (1)The exporter ships goods and obtains documents of title from the shipping line. (2) The exporter, known as the principal, delivers the following documents to his bank (remitting bank): a. a Bill of Exchange drawn on the importer; b. documents for goods of title and c. a collection order which contains the exporter's instructions to the remitting bank. (3) The remitting bank completes its own collection order addressed to the importer's bank. (4) If the instructions are D/P (documents against payment), the importer's bank will release the documents to the importer only against payment. If the instructions are D/A(documents against acceptance), the importer's bank will release the documents against acceptance of the Bill of Exchange by the importer. (5) The bank credits the proceeds to the principal's account. 3.3.3 Documentary Collections (1)Definition A documentary collection is an operation in which a bank collects payment on behalf of the seller (the principal) by delivering documents to the buyer. Documentary collections are suitable in cases where the exporter is reluctant to supply the goods on an open account basis, but does not need the strong security provided by a documentary credit. A documentary collection is more secure than settlement on open account, because the importer can take possession of the goods with either making payment or accepting a Bill of Exchange. The banks concerned are under no obligation to pay. The exporter is relieved of a large part of the administrative work connected with the collection of documents, and benefits from the banks’ worldwide network of contacts. Thanks to the less stringent formal requirements, this service is cheaper and more flexible than a documentary credit. With a documentary collection, however, the exporter is not certain, at the time of dispatch of the goods whether the buyer will actually make the full payment. This form of settlement is therefore most appropriate in the following cases: , the exporter has little doubt about the buyer's willingness and ability to pay; , the political, economic and legal environment in the importing country is considered to be stable; , the buyer's country has placed no restrictions on imports (e.g. exchange controls). (2) Types of Documentary Collections a. Documents against Payment (D/P) The presenting bank is authorized to release the documents to the drawee only against immediate payment. That means the payment should be effected on first presentation of the documents. Sometimes there is no draft in the documentary collection due to the levy of stamp duty. b. Documents against Acceptance (D/A) The presenting bank releases the documents to the importer against his acceptance of a Bill of Exchange, which is usually payable 30-180 days after sight or at a fixed future date. The presenting bank must ensure that the acceptance of the Bill of Exchange is complete and correct. However, the presenting bank bears no responsibility for the authenticity of the signature, the authority of the signatory to sign or the creditworthiness of the acceptor. With a D/A arrangement, the importer takes possession of the goods before payment is actually effected. Once the goods have been released, the exporter's only safeguard is the Bill of Exchange accepted by the importer. c. Acceptance with, Documents against Payment With this type of documentary collections, the exporter gives instructions that the importer, when presented with the documents, shall accept a Bill of Exchange drawn at, say, 60 days after sight. The documents may not, however, be released to the importer until the bill has been paid. In other words, the release of documents is made against payment of tenor drafts. Acceptance. with documents against payment is not encouraged by International Chamber of Commerce. 3.3.4 Uniform Rules for Collections(URC) The Uniform Rules for Collections (URC) form an internationally accepted code of practice covering documentary collections. URC are not incorporated any national or international law, but are normally binding on all parties because all bank authorities (especially the collection instruction) will state that the collection is subject to URC (ICC Publication No: 522, URC522).URC522 will apply unless the collection instruction states otherwise or the laws in one of the countries concerned specifically contradict them. 3.3.5 Collection Instructions Having dispatched the goods and prepared the documents, the exporter is ready to request his bank to arrange a collection. The specimen of collection. instruction is a standard form which enables the exporter to include specific instructions to his bank regarding the documentary collection. The collection instruction must be clear and complete, since the handling of the transaction by the remitting and collecting banks will be governed solely by the instructions contained in the collection instruction. The most important parts included in the collection instruction are instructions regarding documents and payments. (1)Instructions to Release Documents a. D/A refers to the release of documents against acceptance of tenor drafts. The collecting bank will fulfill his obligation when the documents are delivered upon the acceptance of the draft. b. D/P refers to the release of documents against payment of sight drafts or simply against payment. c. D/P at xx days after sight refers to the release of documents against payment of tenor drafts. In order to avoid confusion with the operation of D/A, the statement "Deliver documents only after payment was effected" should be written into the collection instruction. (2) Instructions to Effect Payment One of the following three options of collection instructions may be chosen: a. When the remitting bank has an account with the collecting bank, the collection instruction will be “please credit our account with you under you SWIFT/airmail advice to us". b. When the collecting bank has an account with the remitting bank, the collection instruction will be "please collect the proceeds and authorize us by SWIFT/airmail to debit your account with us". c. When there is no account relationship between the remitting bank and the: collecting bank, the collection instruction will be "please collect and remit the proceeds to X Bank for credit our account with them under their SWIFT/airmail advice to us". (3) Additional Instructions a. The collection instruction should give specific instructions about whether or not to protest in the event of non-payment or non-acceptance. If the importer refuses to pay or to accept the Bill of Exchange when the documents are presented, the presenting bank must send notice of this to the exporter through the remitting bank(The bank will not institute a protest unless expressly instructed to do so. b. The exporter should give the name and address of a representative or agent in the country of importer who will be responsible for the warehousing and resale of goods in the event of non-payment. The collection instruction should specify if there is a party known as the "case of need". If a case of need is named, the collecting bank will refer to him in the event of dishonor for guidance or instruction. 3.3.6 Legal Position of Banks (1)Duties of Remitting Banks The bank's legal liability is set out in the Uniform Rules for Collections. Banks must verify that the documents received comply with the one specified in the collection instruction, and carryout the instructions given by the principal. a. Documents Processing Banks have no responsibility to examine the documents thoroughly. The remitting bank will make additional checks before sending them to collecting bank b. International Practice in Conducting the Business For matters not mentioned in the collection instruction, the remitting bank should handle the collection business in compliance with the international practice in terms of those unmentioned in the collection instruction. For instance, under URC522, Article 5 (d)，remitting bank may choose collecting bank for the principal if no collecting bank is named in the collection instruction. In addition, banks assume no liability in case the instructions they transmit are not carried out, even if they have taken the initiative in choosing such banks according to URC522, Article11(b). Moreover, according to URC522, Article 4(a), all the documents sent for collection must contain complete and precise collection instructions, including one specifying that the collection is subject to URC522( c. Liability for Negligence Under URC522, banks shall act in good faith and excise reasonable care. Banks will be liable for the loss caused by negligence on the part of the bank: For example, the remitting bank fails to inform the principal of the refusal of payment from the collecting bank in time, and thus causes loss to the principal. Also, the remitting bank is responsible for the documents sent to the collecting bank by wrong address. (2) Duties of Collecting Banks a. Implementation of Collection Instructions Usually there is a correspondent relationship between remitting bank and collecting bank, and correspondent agreements are signed by them. Collecting bank handles the collection business according to the collection instruction. According to URC522, Article 4, collecting banks are only permitted to act upon the instructions given in such collection instruction and in accordance with URC522(Any deviation from these instructions at the request of importer will be at the peril of the collecting bank. If the collection instruction is unclear, the collecting bank should contact the remitting bank timely and wait for the further instruction. If the collecting bank finds it difficult to follow up the instruction given by the remitting bank, e.g. goods consigned to the collecting bank without prior agreement, the collecting bank can ignore it. The collecting bank has no obligation to take delivery of goods, which remain at the risk and responsibility of the party dispatching the goods upon URC522, Article 10. b. Documents Handling According to URC522, Article 12, the collecting bank must verify that the documents received are in order as they are listed in the collection instruction and must advise by telecommunication or, if that is not possible, by other expeditious means without delay, the party from whom the collection instruction was received of any documents missing or found to be other than listed. The collecting bank has no further obligation in this respect. Documents are to be presented to the importer in the form in which they are received according to URC522,Article 5( The advice from the collecting bank which forwards to the importer is accompanied by photocopies of the documents. These provide the importer with essential facts about the goods that have been sent and tell him whether the documents received by the bank will enable him to take delivery of the goods and clear them through customs. The importer may go to the bank's offices and examine the papers. The bank, however, is not allowed to let him inspect the goods at the place of destination without authorization from the exporter. With a D/A transaction, the accepted Bill of Exchange either remains with the collecting bank or is returned to the remitting bank, depending on the instructions given by the exporter. In the latter case, the remitting bank delivers the bill to the exporter, who can either discount it or have it collected at maturity. In the case of medium-term maturity, there may be the possibility of selling the bill to a forfeiter or using it as security for a bank advance. The collecting bank should be responsible for keeping the accepted Bill of Exchange and the documents before the payment is effected by the importer: c. Protection of Goods According to URC522, Article 10, in the event that goods are dispatched directly to the address of a collecting bank or to the order of a collecting bank for release to an importer against payment or acceptance or upon other terms and conditions without prior agreement on the part of that bank, such bank will have no obligation to take delivery of the goods, which remain at the risk and responsibility of the party dispatching the goods. Even when specific instructions are given to the collecting bank to take actions in respect of the goods to which a documentary collection relates, including storage and insurance of the goods, the collecting bank has no obligation to do so, and it should advise the remitting bank accordingly. However, in the case that the collecting bank takes action for the protection of the goods, whether instructed or not, it assumes no liability with regard to the condition of the goods, or any acts and omissions on the part of any third parties entrusted with the custody or protection .of the goods. But the collecting bank must inform without delay the bank from which the collection instruction was received of any such action taken. (3) Liability of Collecting Banks a. Documents Release Under URC522, Article 19, partial payment in documentary collections will be accepted only if specifically authorized in the collection instruction. Otherwise, the collecting bank will release the documents to the importer only after full payment has been received, and the collecting bank will not be responsible for any consequences arising out of any delay in the delivery of documents. b. Completeness and Correctness of Bill Acceptance The collecting bank is responsible for ensuring that the form of the acceptance of a Bill of Exchange be complete and correct, but not responsible for the authenticity of any signature or for the authority of any signatory to sign the acceptance. However, when the importer is a customer of the bank, good banking practice dictates that the signature must be checked against the mandate. Strict control must be maintained over an accepted bill which must not be presented for payment at maturity through the post. c. Action Taken in Dishonor A Bill of Exchange is dishonored when a sight draft is not paid on presentation or when a tenor draft is not accepted on presentation or not paid at maturity. When an inward collection is dishonored, the collecting bank must examine the collection instruction to see whether the bill is required to be protested. Bill protesting is a legal evidence of dishonor acceptable to a court of law, and it will come into force by a notarization of notary office. Under URC522, whether the statement of protest to be made will be clearly indicated in the collection instruction. If there is no such wording about it, the bank has no obligation to arrange the protest for dishonor. Usually with the collection business, the exporter issues a commercial draft based on the payment by itself. The draft is made to the order of a remitting bank and the endorsement is made by the payee of the draft. The remitting bank with the endorsed draft, however, becomes an agent of collecting fund for the payee (exporter). Thus, it is unnecessary to prepare a protest in terms of recourse due to no object of recourse in the case. But the protest is a legal evidence if the exporter intends to sue the importer for dishonor. If protest is to be carried out, a Notary Public will personally call upon the drawee or acceptor and demand payment or acceptance. If the payment or acceptance is not forthcoming, the Notary Public will draw up a deed of protest, which will state the reasons for dishonor. A bill should be protested within one or two working day of dishonor. Otherwise under the Bills of Exchange Act 1882, all signatories are exempt from liability on that bill. Protesting is expensive and must be done within one working day of dishonor. To save money, it is possible to ask the Notary Public to note the dishonor. At maturity of an accepted bill, the Notary will present the bill either at the drawee's address or at the bank if payable there. If a bill is noted, the right to protest later remains without any time limit. The collecting bank should advise the remitting bank about the situation and keep the documents for further instruction. In receipt of dishonor advice, the remitting bank must give appropriate instructions as to the further handling by the collecting bank within 60 days after its advice of non-payment or non-acceptance, and the documents may be returned to the remitting bank. The collecting bank has no further obligation, but some banks with good correspondent relationships will assist in keeping the trace for the remitting bank. d. Timely Transfer of the Funds According to URC522, Article 16, amounts collected (less charge, disbursements or expenses) must be made available without delay to the party from whom the collection instruction was received in accordance with the terms and conditions of the collection instruction. Letters of Credit 4.1 Introduction to Letters of Credit 4.1.1 Definition A credit is a conditional undertaking of payment by a bank. that is to say, it is a written undertaking issued by a bank (the issuing bank) to the seller (the beneficiary) at the request and in accordance with the instructions of the buyer (the applicant) to effect payment (that is, by making a payment, or by accepting or negotiating Bills of Exchange) up to a stated sum of money,，within a prescribed time limit and against stipulated documents complying with the terms and conditions of the credit. The following points help us to understand the meaning of credits: (1)For the purpose of these Articles, the expressions "documentary credit(s)" and "standby letter(s) of credit" (hereinafter referred to as "credit(s)"), mean any arrangement, however named or described, whereby a bank (the "issuing bank") acts on the request and on the instructions of a customer (the "applicant") or on its own behalf. (2) The credit 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 (draft(s)) drawn by the beneficiary. (3) The credit authorizes another bank to effect such payment or to accept and pay such Bills of Exchange (draft(s)). (4) The credit authorizes another bank to negotiate against stipulated document(s),provided that the terms and conditions of the credit are complied with. For the purposes of these Articles, branches of a bank in different countries are considered another bank. In short, a credit is a conditional bank undertaking of payment. 4.1.2 Contractual Arrangement under the Credits 1. Three-party Contractual Arrangement Three parties are involved in the contractual arrangement concerning a documentary credit. a. The sales contract between the buyer and the seller (the applicant and the beneficiary). b. The issuing application form from the applicant to the issuing bank, the issuing agreement, the guarantee agreement and so on. c. the letter of credit between the issuing bank and the beneficiary and the contractual arrangement of a credit between the confirming bank and the beneficiary if there is a confirming bank. 2. Contractual Relations of the Three-party Each item in contracts in this arrangement is independent of one another and is to control the relationship among the parties. First, the beneficiary can in no case avail himself of the contractual relationships existing between the banks or between the applicant and the issuing bank. That is to say, if an advising bank located at the exporter's place is nominated by the issuing bank as the confirming bank while that bank is unwilling to add its confirmation, the beneficiary may not force it to do so. Likewise, if the issuing bank refuses to accept the discrepant documents presented by the beneficiary, the beneficiary cannot request the payment on the ground that the applicant has notified the issuing bank to ignore the discrepancies as he gets to know at that time. Secondly, the undertaking of a bank to pay is not subject to claims or defenses by the applicant resulting from his relationship with the issuing bank or the beneficiary. For example, the goods are indicated as "Grade A" in the application form, but the description is omitted in the credit by the issuing bank. If the applicant refuses to pay against the documents which are incompliance with the terms and conditions of the credit, the issuing bank will still have the responsibility to pay. Another example is that the Applicant requests the issuing bank refuse to pay against the documents which are in compliance with the terms and conditions of the credit to compensate for a prior unsettled claim against the beneficiary with the proceeds this time. The issuing bank should not consent but pay the beneficiary. All these show that the credit is kind of contract, such as sales contracts and interbank agent agreements. Yet, parties under credit can never employ any clauses of the contracts except credit to obtain any benefit because credit is a separate transaction from sales or other contracts on which it is based. 4.1.3 Principles and Characteristics of the Credit The credit follows principles of independence and abstraction. That means the credit is a contract independent of other contracts, and if the documents comply with the credit, the issuing bank or the confirming bank (if any) should fulfill its undertaking to pay independently regardless of other parties. The credit bears following characteristics: (1)The credit is separated from the sales or other contracts. The credit and the sales contract are the two relationships separated from each other. The credit is a separate transaction in banker's credit. from the sales or other contracts (e)g:， transport contract and insurance contract)on which it may be based and banks are in no way concerned with or bound by such contracts, even if any reference whatsoever to such contracts is included in the credit. For example, in addition to their own items in some credits the words "other terms as per contract No. XXX" maybe inserted. (2) . It is documents but not goods that underline the credit. The documents and the goods are separated from each other. In credit operations all parties concerned deal with documents instead of goods, services and/or other performances to which the documents may relate. As long as the documents presented by the beneficiary are in complete compliance with the terms and conditions of the credit, the issuing bank or the bank nominated by the credit shall fulfill the undertaking to pay; accept or negotiate. For example, if the goods have been dispatched against a forward credit and the draft has been accepted by the issuing bank, the issuing bank shall not refuse to pay at the expiry date at the applicant's request even if the applicant finds that the quantity and quality of the goods do not conform. Such a problem shall only be resolved through other ways by the applicant. 4.1.4 Roles of Credits 1. Primary Liability for Payment A letter of credit is a popular method of payment in international trade and one of the most important methods of financing. It plays an important role in the guarantee and financing of trade. In international trade, the importer and the exporter have little chance to know each other since they are so far away from each other. The importer expects the exporter to deliver goods in time but pay after selling the goods. In such a process, financing provided by the bank is needed. The exporter, however, hopes to get funds from the bank before delivery of goods and get the proceeds in time after that. The letter of credit is made on banker's credit. the issuing bank undertakes the primary responsibility for payment. But the payment will be performed on certain terms. It promotes the development of international trade by guaranteeing the proceeds as well as the documents and offering financial facilities to both sides. 2. Roles of Each Party A letter of credit has different roles for different parties. (1)Importer's Roles As for the importer, he is only requested to pay a certain proportion of deposit instead of the total amount of the credit at the time of application. It will also avoid overstock of liquid assets by issuing the credit according to the credit amount authorized by the issuing bank. The date for shipment by the exporter will be controlled by the terms and conditions of the credit to promise that the goods will be sold in time. The quality and quantity of the goods will be guaranteed before shipment by the right inspection clause so that the goods received by the importer will to some degree conform to the stipulations of the contract. If the Importer has difficulty in raising money after the issuing bank has performed its obligation of payment, he can also request the documents from the Issuing bank before payment by means of trust receipt. The importer will obtain the documents immediately after his payment. (2) Exporter's Roles As for the exporter, he may apply to his correspondent bank for a packing loan or other forms of credit before shipment if only he has received a valid credit issued by some bank of good reputation. The documents will be negotiated by his correspondent bank or another bank nominated by the credit, provided that they are in compliance with the terms and conditions of the credit and have been presented to that bank, which means that the exporter will get paid right after the shipment of goods. So, the proceeds is secured and the turnover of capital is facilitated. In a country with a controlled foreign exchange system, the issuance of the credit by the issuing bank must get authorization from the trade and foreign exchange authorities. Therefore, the exporter will be relieved from the risk of import prohibited by the importing country or that of restriction of foreign exchange transfer. In case that the issuing bank fails to pay or refuses to pay with any reason, it must return the documents to the exporter. Thus, although the exporter does not get the proceeds, he still possesses the title over the goods and is more likely to incur less loss. (3) Issuing Bank's Roles As for the issuing bank, it offers its only credit instead of actual funds to the importer by issuing the credit. It charges commission for issuance without tying up its own funds. Besides, the credit offered is not unconditional and is guaranteed by deposit or collateral. It will hold the documents presented by the importer after having made payment as guarantee for an offset to the amount due-to dispose of the goods if the importer refuses to pay. And it will maintain the right to claim on the importer for the unsettled amount if the money got from selling of the goods is inadequate for offset. So the risk of the issuing bank is lower. (4) Exporter Bank's Roles As for the exporter's bank，it will pay or negotiate against documents presented by the exporter provided that they are in compliance with the terms and conditions of the credit. It will charge commission and discount interest and then claim on the issuing bank or a nominated reimbursing bank. All above shows that .the settlement method of credit used in international trade is only relatively sound. It is impossible for this method to remove all risks incurred. For example, even if the deal has been clinched, the exporter may not receive the credit in time or not receive the credit at all from the importer. The issuing bank may refuse to pay on the ground that the documents are not in compliance with the terms and conditions of the credit or that the importer has become bankrupt. On the other hand, the importer may incur the risk of the exporter's swindle by no goods, bad goods, fake goods or fake documents. The issuing bank may incur the risk of the exporter's bankruptcy or refusal of the documents by finding fault unreasonably. The exporter's bank may also incur the risk of the issuing bank's bankruptcy or its refusing to pay for various reasons: However, as for the importer and the exporter; the payment method of the credit still has more advantages than disadvantages at present, because commercial credit has been replaced by banker's credit since banks are acting as the intermediary. 4.2 Parties to a Letter of Credit The primary parties to a letter of credit are the applicant, the issuing bank and the beneficiary. Banks, like advising bank, negotiating bank, confirming bank and paying bank, etc. are also involved in the business of documentary credit. 4.2.1 Applicants (Importers) The applicant is also referred to the buyer, consignee, accountee, importer, opener or principal. He fills out and signs a credit application and requests the bank to issue a credit in favor of an exporter abroad. Importer may reject to issue the credit if exporter does not submit a performance bond upon the stipulation on the sales contract, and exporter bears all losses then. Importer may also reject to accept the amendment of the credit required by the beneficiary if the requirement does not meet with the sales contract or something else. 4.2.2 Issuing Banks The issuing bank is one, which at the request of the applicant or on its own behalf, issues a letter of credit. It undertakes to pay to the beneficiary at sight for a sight payment, or at maturity for a deferred payment, or to accept drafts and pay them on maturity for acceptance provided that the documents presented are in compliance with the credit. In the event that the draft is drawn on any other drawee bank which does not accept or pay at maturity, the issuing bank will engage to accept the draft drawn on it by the beneficiary and pay at maturity. In the settlement of credit, the issuing bank is always in the core position. 1 (Issuing Banks' Legal Obligations (1)Requirement on Margin for Credit Issuance The issuing bank may require the applicant to hand over certain percentage of credit amount as a margin when it opens a credit. It may require to increase the percentage of credit amount as a margin at any time. (2) Handle Goods and Make Claim After effecting the payment, the issuing bank may handle goods under the credit and make a claim on the importer if the importer is unable to pay the issuing bank. (3) Rejection on Payment The Issuing bank should check the documents sent by the negotiating bank and may reject the payment if there are any discrepancies in the documents. (4) The issuing bank may be exempted from its obligation for delay or loss of transmission. 2 (Issuing Bank's Legal Liability (1)The issuing Bank will be a first obligator after it accepts the application of importer and opens a letter of credit. An irrevocable credit constitutes a definite undertaking of the issuing bank, provided that the stipulated documents are presented to the nominated bank or that the terms and conditions of the credit are complied with. (2) The issuing bank deals exclusively with documents, nothing else. The issuing bank is bound to pay on the basis of documents presented to it to see whether the terms of the credit have been fulfilled. It is not responsible to verify whether the goods supplied actually agree with those specified in the credit. (3) The undertaking of the issuing bank to pay is irrevocable and final. The issuing bank cannot take recourse to drawer after its actual payment 4.2.3 Beneficiaries(Exporters) The beneficiary is also called the exporter or the seller. He is the one who has the right to demand the proceeds by presenting draft(s) and /or document(s) complying with the terms and conditions of the credit. A beneficiary also has some certain rights concerning the credit. He is responsible not only for accuracy and authenticity of the documents but also for the goods conforming to the contract. If the issuing bank does not pay or has been in liquidation, the Beneficiary can claim from the opener for the payment. The exporter may require amendment or reject the credit if he should not satisfy himself that the terms and conditions called for in the credit are in agreement with the sales contract. The exporter may take lien and stoppage in transit or resell goods if the importer goes bankrupt and is unable to pay. 4.2.4 Advising Banks The advising bank is the one which advises the credit to the beneficiary in accordance with the stipulations concerning the credit. The advising bank is in the locality of the beneficiary and is usually the issuing bank's branch or correspondent acting as an agent of the opening bank in accordance with the given instructions. 4.2.5 Confirming Banks A confirming bank is such a bank that is authorized by the issuing bank to add its confirmation to the credit. The confirmation constitutes the same definite undertaking of it as that of the Issuing bank. confirmation is a definite promise to the beneficiary made by the confirming bank, which is in no relation to that by the issuing bank. The confirmation bank will pay, acceptor negotiate drafts drawn by the beneficiary without recourse to drawers or bona fide holders, provided that the stipulated documents are presented to it and that the terms and conditions of the credit are complied with. Therefore, a confirmed credit will offer the Beneficiary a double promise to pay. When an issuing bank is in low reputation and the beneficiary has no knowledge of it, a bank in higher reputation located at the beneficiary's country is then requested to add its confirmation. When there exist political risks or economical risks in the issuing bank's country, the beneficiary will have to request the issuing bank through the applicant to authorize a bank outside the importer's country to add its confirmation. Sometimes the issuing bank will actively authorize the advising bank to add its confirmation to the credit without the beneficiary's request as it realizes that it is not in high enough repute. The nominated bank will remit the documents to claim reimbursement from the confirming bank, and then the latter will settle with the issuing bank after having performed its obligation. If the nominated bank remits to the issuing bank directly for claiming, the confirming bank will bear no responsibility for the credit. Sometimes the advising bank or some other banks will add their confirmation upon the beneficiary's request without the authorization or instructions from the issuing bank, known as "silent confirmation". The issuing bank is independent of such a confirmation since it is an agreement exclusively between the beneficiary and the "confirming bank". The "silent confirmation" constitutes a definite undertaking of the "confirming bank" to discount or negotiate drafts drawn by the beneficiary, provided that the stipulated documents are presented to it and that the terms and conditions of the credit are complied with. Since such a confirmation is not subject to UCP600, the "confirming bank" is not entitled to the same right of the credit as that of the issuing bank. Since the confirming bank undertakes the same independent responsibility for payment as that of the issuing bank, when it advises the amendment of the credit to the beneficiary or teletransmits the discrepancies of the negotiated documents by the issuing bank on the beneficiary's request to demand the authorization of the issuing bank to pay, without extending its confirmation to the amendment or pay -against the discrepant documents, it must definitely inform the beneficiary and the issuing bank so as to be exempted from the responsibility as a confirming bank. 4.2.6 Negotiating Banks A negotiating bank refers to a bank authorized to negotiate by giving value for drafts and/or documents. It will pay to the Beneficiary the amount of drafts/documents deducted by the interest after having examined the documents. After the negotiation, the negotiating bank will then become the proper holder of the draft:. If only it is not the confirming bank at the same time, it can claim on the drawer, viz. the beneficiary of the credit if the issuing bank refuses to pay. To minimize the risk, the beneficiary will be requested by the negotiating bank to issue and present a collateral certificate. A collateral certificate should indicate that the negotiating bank will be entitled to make a claim to the drawer or sell the collateral if the issuing bank refuses to pay. 4.2.7 Reimbursing Banks A reimbursing bank is the bank instructed and/or authorized to provide reimbursement pursuant to a reimbursement authorization issued by the issuing bank. The reimbursing bank is obliged to be claimed made by the negotiating bank, paying bank or confirming bank upon bank-to-bank reimbursement arrangement. If the reimbursing bank does not honor such reimbursement claims in time, the issuing bank will bear losses and the reimbursing bank will be responsible for breach reimbursement arrangement. It has been established that the Uniform Regulation for Bank-to-Bank Reimbursement under Documentary Credit, ICC Publication No. 525 is applicable to all obligations required of the reimbursing bank by the nominated bank. The obligations include: (1)The issuing bank shall provide the reimbursing bank with the authorization to honor reimbursement claims. (2) The issuing bank shall not require the claiming bank to provide the reimbursing bank with a certificate of compliance with the terms and conditions of the credit. (3) The issuing bank shall not be relieved from any of its obligations to provide reimbursement. (4) The issuing bank shall be responsible to the claiming bank for any loss of interest if reimbursement is delayed. (5) The reimbursing bank's charges should be for the account of the issuing bank. The reimbursing bank will issue a reimbursement undertaking in compliance with the issuing bank's authorization and send it to the claiming bank, who will remit the documents and claim on it. The reimbursement undertaking should indicate: (1)The Credit number and the issuing bank; (2) The currency and amount of the reimbursement authorization; (3) The additional amount payable and the tolerance (if there is any); (4) The currency and amount of the reimbursement undertaking; (5) The latest date for claiming, including the date for forward claiming; (6) The party to whose account the undertaking fee will be accredited; (7) Other terms and conditions if any. It should be noticed that the payment made by the reimbursing bank is just a simple payment for the issuing bank. In other words, the reimbursing bank shall claim from the claiming bank with refund, with interest, any reimbursement which has been made if the issuing bank refuses to pay after examining the documents. 4.2.8 Paying Banks It is a bank nominated or authorized by the issuing bank. Once it has been established that the documents are of no discrepancy, it will pay at maturity or incur a deferred payment undertaking without recourse. 1.Paying Bank's Legal Obligations (1)The paying bank is usually the issuing bank's sister bank or correspondent bank under an agent agreement with issuing bank. The paying bank may refuse to pay if the credit amount exceeds line of the agreement between the paying bank and the issuing bank. (2) The paying bank may refuse to pay if the documents presented do not comply with terms and conditions of the credit. 2. Paying Bank's Legal Liability (1)The paying bank is obliged to check documents and effect payment after signing an agent agreement with the issuing bank. (2) The payment of paying bank is final and it has right of recourse to the presenter of documents. The paying bank will be responsible for its own action if the issuing bank refuses to accept documents with discrepancies. 4.2.9 Accepting Banks It is a bank nominated or authorized by the issuing bank. If the documents are found to be of no discrepancy, it will accept the drafts and pay at maturity. In the case that the accepting bank is not the issuing bank, the issuing bank will pay in the end when the accepting bank is incapable of paying or becomes bankrupt after having accepted the drafts. And in the case that the nominated accepting bank refuses to accept the drafts, even though the documents are in compliance with the terms and conditions of the credit, the issuing bank will accept the forward draft drawn on it and pay at maturity. 4.3 Operations of Letters of Credit 4.3.1 Application of Issuing UC by Applicant The importer's responsibility is to apply for credit issuance timely, because the importer is bound to make an application of credit to the bank upon the sales contract. The exporter may require to be free from the execution of the contract if the importer does not apply for credit issuance to the bank in time. The importer is also obliged to hand over certain margin to the bank when he applies to issue a credit. Banks will decide the amount of the margin upon the credit worthiness of the importer. 4.3.2 Issue of UC by Issuing Banks The issuing bank will undertake the first-line responsibility of payment once a credit is opened. Thus it must study carefully all the risks concerning the applicant, market and trade. 1. Risks of Credit Issuance Although the business of credit has promoted international trades and financing, it may incur great risks due to many uncontrollable factors involving the parties of importer and exporter, shipping company, insurance company at home and abroad. Thus, risks should be considered at the time of issuance. (1)Risks of Market The international market is constantly changing all the time. Some salable commodities become dull of sale within a very short period of time, which directly affects the importer's ability to pay. Therefore, there exist funds risk and market risk in the settlement method of Credit. (2) Risks of Fraudulence The seller's fraud is mainly in forms of his obtaining the proceeds of the credit by faking Bills of Lading while goods are not loaded at all, loading bad goods or juggling the original Bills of Lading. The pre-dated Bill of Lading is an example. Pre-dated Bills of Lading may also be endorsed "Clean on board" and "Freight prepaid" to comply with the requirements of the letter of credit. These may be in contradiction to the actual condition of the cargo or the terms of the charter ply. For example, the ship owner under the charter party may require Bills of Lading to be marked "subject to the terms, conditions and exceptions of the charter party dated...". He may also insist that the Bills of Lading to be signed by the Master. Pre-dated Bills of Lading which are designed to comply with the term of the letter of credit may not conform to these requirements. The result could be that the ship owner may refuse to give the consignee delivery of the cargo upon presentation of the pre-dated Bills of Lading. The third party's fraud often occurs. For example, Phantom ships are those vessels which change their identity on each voyage to avoid being traced and arrested. Instead of delivering this cargo to its contracted destination, the owners of the vessel sell the cargo to other buyers, discharging at a different port. Another set of Bills of Lading consigning the cargo to the new buyers is issued. A phantom vessel will load a cargo under one identity, and then proceeds under a different ship's name to the port of destination on the second Bill of Lading and discharges the cargo. (3) Risks of Clauses 1/3 original Bill of Lading is sent by the beneficiary to the applicant, order blank or in the name of the applicant. 2. Credit Study on Applicants and Trade The issuing bank will undertake the first-line responsibility of payment once a credit is issued, so it should find out the credit information of the applicant before issuing a credit to make the guarantee of payment available. Credit information is essential to make a judgment as to whether the applicant is incompliance with the terms of those to whom the bank will offer its credit and the operation and standard of such an investigation is basically the same as that of an inspection of general credit receivers. Specifically, the bank shall examine the following aspects of the applicant at first: , Operational conditions and profits , Financial analysis , Turnover of funds , Standing in its industry and development trend of the industry , Operator , Correspondence with banks For those import enterprises in good standing and in frequent correspondence with the bank, it will take much time and great effort to make an investigation on their credit position each time a business is done. So, the bank's settlement department together with its credit department may put the series of such guidelines of the enterprise under strict examination as its fixed assets, dynamic operational condition, turnover of funds and ability to pay according to the stipulations of examination and approval of loans in foreign exchange. And then the bank will give an account of the examination in writing and offer the enterprise a certain amount of credit line after research. Within that amount, the import enterprise can issue a credit without guarantee. Certainly, since the credit line is made by a comprehensive analysis on the customer, it will have to be revalued regularly. The bank shall find out the enterprise's operational condition and funds availability at any moment so as to revise the credit line in time. As for other clients, in general, the bank will demand a certain proportion of deposit when issuing the credit. The amount without guarantee should be coupled with chattel mortgage or real estate mortgage by the importer or secured by the guarantor. The bank will also examine the trade contract, issuance agreement, procedure of guarantee, mortgage and pledge, market demand variation of imports, credit information of the beneficiary and import license, etc.，which are relating to the issuance of the credit. Whether the bank could select a good beneficiary depends on the importer's credit standing and financing method. But frauds made by the beneficiary are common, so it is important that the bank examine the credit standing of the beneficiary. 3. Check Application Forms The issuing department should put the application under examination. The application is a contract on credit business between the client (applicant) and the bank. When issuing a, credit, it should be drafted strictly according to the application and shall not be appended or cut down or altered casually. If there is any question, it may not be altered without contacting the applicant and getting his confirmation. Before issuing the credit, the content of the application should be examined in earnest to assure its accuracy, completeness and consistency. The essential content of an application includes: (1)Signature and official seal of the applicant. (2) Type of the credit: irrevocable or not, transferable or not. (3) Confirming bank. (4) Name and address of the beneficiary. (5) Expiry date and valid site, e.g.，99/01/05 at London and the valid site should be match the place where the nominated bank is located. (6) Amount and currency. (7) Availability of the credit. a. Nomination of banks; b. Specification of the manner of the credit sight payment, deferred payment, acceptance of draft or negotiation. (8) Whether partial shipment or not. (9) Whether transshipment or not. (10) Port of loading, port of destination and the latest date for shipment. (11)Goods descriptions should not be over-descriptive. Be brief and straightaway and stipulate clauses of common sense. The terms of price of goods refer to and apply to Incoterms2000. (12) Required documents (in general). The documents should be in the following sequence: commercial invoices, transport documents, insurance documents, other documents such as certificate of origin, certificate of analysis, packing list, weight list, etc.. Accurately list the documents, identifying the original ones and the duplicate ones. According to the statutory requirements, if the documents are not transport documents, insurance documents and commercial invoices, the credit should specify the issuers and wording of the documents or the content of data. For transport documents (general): a. It should be indicated on the face of transport documents the name of the carrier or a multimodal transport operator (except for the charter party Bill of Lading and the courier and post receipts). b. If the goods are to be shipped on a vessel of nominated nationality or national flag, the credit should specify therein as to which documents are used to indicate that they comply with the certain terms and non-documentary conditions should not be included. (13) Name and address of the applicant. (14) Expiry date of the credit. 4.3.3 L/C Delivered by Advising Bank A credit may be advised to a beneficiary through another bank (the "advising bank") or be mailed to him directly without advising. While the advising bank can check the authenticity of the credit through the test key with the issuing bank, the beneficiary is warned especially by I.C.C(that before accepting a credit received by mail directly from the issuing bank, he should obtain verification from that bank at first to prevent a possible fraudulence. A credit advised to a beneficiary through the advising bank lays no obligation on the advising bank. But the advising bank should take reasonable care to check the apparent authenticity of the credit before it advises. The advising bank should establish the apparent authenticity of the credit by the signature book, telex key or swift key with the issuing bank, or otherwise by some other means such as an authenticated teletransmission sent by the agent of the issuing bank. If the authenticity of the credit cannot be verified, the advising bank is bound to notify the issuing bank and Beneficiary. The advising bank may also decide not to advise the credit, but it must inform the issuing bank about it in time. The advising bank shall be responsible for any loss of the beneficiary caused by its neglect of duty to check the authenticity of the credit it advises. The advising bank should read carefully the instructions of the credit received, and examine its terms and conditions. If incomplete or unclear instructions are received, the advising bank must inform the issuing bank and request it to provide the necessary information. The following should be noticed when examining a credit: (1)Is the credit issued by a bank in a country which maintains friendly intercourse with its own country? (2) What are the political background and financial standing of the issuing bank? If the issuing bank is domiciled in a country which has friendly relations with that country, but does not enjoy the state's nationality, this credit is not acceptable. If the issuing bank is a very small bank with a very poor financial standing, this credit, too, is unacceptable. (3) Are the terms and conditions of the credit contradictory? For instance, the latest shipment date is later than the expiry date of the credit, insurance policy is required under CFR price terms. (4) Can the terms be satisfied? (5) Can the documents be provided? (6) Are there any soft clauses? Soft clauses refer to those that will make it easy to produce discrepancies in the documents presented so that the payment under the credit will be limited. (7) Can payment be erected promptly and safely? (8) Are the terms and conditions of the credit from a country maintaining a payment agreement with that country, in conformity with that agreement? (9) Is the beneficiary charged excessively? If so, tell him to check with the contract. (10) Is the beneficiary given enough time to make shipment and presentation of documents? 4.3.4 Shipment of Goods and Presentation of Documents The exporter's liability is to ship goods as required by credit timely after receiving the credit. After shipment, the exporter should complete all the documents carefully and make presentation to the bank on the time and claim reimbursement on bank provided that the documents presented are complied with the terms and conditions of the credit. The exporter should also make correction on the documents if there are any discrepancies until the importer accepts them. 4.3.5 Negotiation of L/C by Negotiating Banks There are two essentials for making negotiation: (1)The negotiating bank should have got authorization from the issuing bank. (2) The authorized negotiating bank will honor drafts and/or documents. Therefore, in the case of a non-negotiable credit or unauthorized negotiation or mere examination of the documents without honoring them, none of the relevant banks is a negotiating bank. They are only the remitting banks and do not have the following rights subject to UCP600as a negotiating bank does: (1)The issuing bank and the confirming bank (if there is any) shall be responsible to the negotiating bank for reimbursement, provided that the presented documents appear, on their face, to be in compliance with the terms and conditions of the credit. (2) The negotiating bank will only have to examine the documents with reasonable care to ascertain whether or not they appear, on their face, to be in compliance with the terms and conditions of the credit. So according to ICC Publication 399, even if the documents presented by the beneficiary has been proved to be forged ones, the issuing bank will still have to reimburse the negotiating bank as long as it doesn't participate in the forgery and also has no prior idea and the forgery is not conspicuous that the negotiating bank fails to find it after having examined the documents with reasonable care. In that case, if that bank is the remitting bank but not the negotiating bank defined under UCP600, or the beneficiary presents the documents directly to the issuing bank, the latter could refuse the documents when they are found to be forged ones. (3)The issuing bank must reimburse another bank with which a revocable credit has been made available for negotiation, and the negotiation is, completed prior to receipt of notice of amendment or cancellation, against documents that appear on their face to be in compliance with the terms and conditions of the credit. But if that bank is the Remitting Bank, it will not been titled to make any claim against the issuing bank. (4) The negotiating bank is only required to guarantee the negotiation of the documents prior to the expiry date of the credit. It assumes no liability or responsibility for the consequences resulting from delay and/or loss in transit of any documents, while the remitting bank must remit the stipulated documents to the nominated bank, the issuing bank or the confirming bank prior to both the expiry date of the credit and the presentation of documents. The issuing bank and the confirming bank may refuse to pay if the documents are delayed. And they assume no responsibility for the loss in transit of any documents, which is at the beneficiary's risk. 4.3.6 Documents Examined and Honored by Issuing Banks When the issuing bank receives the documents sent by the negotiating bank，another nominated bank or the beneficiary, it must make an examination according to the principle of its independent judgment and the regulations on credits and documents on: , whether or not the expiry date regulated is complied with; , whether or not the documents appear on their face to be in compliance with the terms and conditions of the credit and abide by the regulations of UCP500; , common sense, e.g. the relations among documents. If the documents are examined to be conform to the credit, the issuing bank will give notice to the applicant to take the documents by making payment, and at the same time will reimburse the nominated bank with which the credit has been made available for sight payment, deferred payment, acceptance or negotiation made by it, and accept the documents. When. the issuing bank finds discrepancies during the examination, it will allow the Beneficiary to come to amend the documents if it is within the expiry date of the credit and for presentation of documents. If the nominated bank has already got reimbursement from the reimbursing bank at that time, the issuing bank will claim on the beneficiary for the payment made by the reimbursing bank with recourse. The issuing bank should determine discrepancies in term of the following principles: (1)The issuing bank shall examine the documents independently without deferring to the irregular requests of the applicant, who will take advantage of those discrepancies to gain his commercial ends. When there exist discrepancies in the documents, in order to win initiative the issuing bank may still protest them on its own even the applicant consents to accept those discrepancies, for it is the issuing bank that is the debtor of the credit. (2) Discrepancies only exist in the documents. Refusal to pay on argument of the goods beyond the documents is not allowed. (3)The documents used as guarantee of delivery cannot be protested even if there are discrepancies in them. Some nonessential mistakes in spelling should not be regarded as discrepancies. When the issuing bank is to protest the documents, it must do in the following ways. (1)Refuse to pay base on the documents instead of discrepancies of the goods. (2) Do it in seven banking days. When discrepancies are found, the issuing bank will decide on itself whether to refuse the documents, or contact the applicant to see if he will accept the discrepancies. If the applicant won't accept, the notification of refusal of the documents should also be given in seven banking days. (3) State all the discrepancies in a lump. It means release for those discrepancies that are not put forward at the first time and it is not allowed to put forward new discrepancies at the second time. (4) State whether it is holding the documents at the disposal of, or is returning them to, the presenter. The issuing bank is usually holding the documents at the disposal of the remitting bank, so that the applicant and the beneficiary can talk over solutions to make the buyer accept the discrepant documents at last. The issuing bank must not refuse the documents while at the same time give the documents secretly to the applicant so that he could take delivery, which means the issuing bank is helping the applicant gain the goods by cheating. If the applicant protests the documents stoutly, the issuing bank will return them to the remitting bank. But if the amended documents are sent back by the remitting bank within the expiry date of the credit, the issuing bank must accept them. If the negotiating bank presents the discrepancies by SWIFT when remitting the documents, the issuing bank should contact the applicant to see if he will accept them. If the discrepancies are accepted, the issuing bank will telegraph the confirmation to the negotiating bank. The documents will still be examined when they are received by the issuing bank and if they are found to have other discrepancies except the presented, the issuing bank will protest the documents all the same( If the negotiating bank presents the discrepancies on B.P., the issuing bank should also decide whether to accept the documents within seven banking days. If it won't accept, it must give notification of rejection within seven banking days as well. 4.3.7 Payment by Applicants When the issuing bank makes a retirement of documents to him, the importer is also obliged to make an acceptance on the term Bill of Exchange and make payment on its due. Importers will effect payment after careful review on the documents. If there are any discrepancies on the documents, importers may reject to pay and return the documents. Importers have right to return goods if the physical quality and quantity of goods are not complied with the sales contract or make claim on exporters even if the payment has been made. 4.4 Types of Letters of Credit 4.4.1 Payment，Negotiation，Acceptance and Deferred Payment Credits (1)Payment Credits The meaning of the term `payment' is self-evident. The nominated bank will pay the beneficiary on receipt of the specified documents and on fulfillment of all the terms of the credit. Sometimes the issuing bank will nominate itself as the paying bank, in which case payment will be made on receipt of the correct documents at their counters abroad. On other occasions, usually with confirmed credits, the issuing bank will nominate the advising bank to pay. The term ‘payment' only applies to sight drafts, and sometimes, fixed time drafts (deferred payment). (2) Negotiation Credits Sometimes the issuing bank will nominate the advising bank to negotiate a credit, or it may even make the credit freely negotiable, in which case any bank is a nominated bank. If a bank negotiates a credit; it will advance money to the beneficiary on presentation of the required documents and will charge interest on the advance from the date of the advance until such time as it receives reimbursement from the issuing bank. Such negotiation advances are said to be with recourse, so that if payment is not ultimately forthcoming from the issuing bank, the negotiating bank will be able to claim repayment from the beneficiary of the advance, plus interest. If the negotiating bank has confirmed the credit, then the advance will be on a `without recourse’ basis, provided the credit has been complied with. (3) Acceptance Credits The term‘acceptance’can only apply when the credit calls for usance bills(term bills), i.e. Bills of Exchange payable at a specified time after acceptance by the drawee. And bills should be drawn on a bank( The acceptance credit is also referred to as a‘term credit ’or ‘usance credit’，which means that the seller draws a draft o the nominated bank demanding payment at some determinable future date, e.g.，at 30 days’sight instead of at sight. In practice, this means that instead of receiving immediate payment on presentation of the documents (at sight), the seller's draft is returned to him accepted on face by the nominated bank. (4) Deferred Payment Credits Normally the terms of a documentary credit will include an instruction to the beneficiary to draw Bills of Exchange, and the issuing bank will guarantee that such bills will be honored, provided all the other terms of the credit are met. However, in deferred payment credits, there is no need for the exporter to draw a Bill of Exchange. The issuing bank simply guarantees that payment will be made on a fixed or determinable future date, provided the other conditions have been fulfilled. Although the exporter does not draw a Bill of Exchange, in all other respects these credits are identical to documentary credits. Although Bills of Exchange are not drawn, in practice some banks will negotiate the documents provided they are entirely satisfied with the standing of the issuing bank. One benefit of deferred payment credits is that they avoid the need for payment of stamp duty on Bills of Exchange. In some counties stamp duties are set at a low rate, or there may not be any stamp duty at all, whereas in other countries stamp duties can be much higher. 4.4.2 Revocable and Irrevocable Documentary Credits 1. Revocable Documentary Credits A revocable documentary credit is issued in favor of the beneficiary in accordance with the instructions of the applicant and gives the buyer maximum flexibility, since it can be amended, revoked or cancelled without the beneficiary's consent and even without prior notice to the beneficiary up to the moment of payment by the bank at which the issuing bank has made the documentary credit available. The revocable documentary credit involves risks to the beneficiary since the documentary credit may be amended or cancelled while the goods are in transit and before the documents are presented, or, although documents may have been presented, before payment has been made, or, in the case of a deferred payment document credit, before documents have been taken up. The seller then faces the problem of obtaining payment directly form the buyer. The revocable documentary credit is normally accepted as usage between affiliated parties or subsidiary companies, or as a usage of a particular trade, or as a substitute for a promise to pay 2. Irrevocable Documentary Credit An irrevocable documentary credit constitutes a definite undertaking of the issuing bank, provided that the stipulated documents are presented to the nominated bank or to the issuing bank and that the terms and conditions of the documentary credit are complied with, to pay, accept drafts and/or document(s) presented under the documentary credit. An irrevocable documentary credit gives the beneficiary greater assurance of payment: however, he remains dependent on an undertaking of foreign issuing bank. The issuing bank irrevocably commits itself to honor the exporter's draft and/or documents provided that the stipulated documents are presented and the stipulations of the documentary credit are complied with. The irrevocable documentary credit cannot be cancelled/modified without the express consent of the issuing bank, the confirming bank(if any)and the beneficiary. 4.4.3 Confirmed Documentary Credits 1. Definition A confirmation of an irrevocable documentary credit by a bank(the confirming bank)upon the authorization or request of the issuing bank constitutes a definite undertaking of the confirming bank, in addition to that of the issuing bank, provided that the stipulated documents are presented to the confirming bank or to any other nominated bank on or before the expiry date and the terms and conditions of the documentary credit are complied with, to pay, to accept draft(s) or to negotiate. 2. Double Assurance of Payment An irrevocable confirmed documentary credit gives the beneficiary a double assurance of payment, since it represents the undertaking of both the issuing bank and the confirming bank. The second obligor(the confirming bank)engages that drawings under the documentary credit will be duly honored in accordance with the terms and conditions of the documentary credit. Normally, one considers the classification of the credit and the financial standing of the issuing bank. If an issuing bank is considered to be a first class bank, there may not be any need to have its documentary credit confirmed by another bank. Nevertheless, the beneficiary may desire that the documentary credit and payment be guaranteed by a bank located in his own country. In such a situation, such a confirming bank becomes legally liable to the beneficiary to the same extent that the issuing bank does.4.4.4 Transferable Documentary Credits and Back-to-Back Documentary Credits 1. Transferable Documentary Credits A transferable credit is only transferable when it is expressly designated by the issuing bank. The transferable credit will be used when the supplier of goods sells them through a middleman and is not willing to issue a credit on his behalf. Thus the middleman will approach the final buyer and ask him to arrange a transferable credit in his favor. The middleman is known as the first beneficiary of the credit, and the original supplier of the goods is known as the second beneficiary. 2. Back-to-Back Documentary Credits Back-to-back credit consist of two entirely separate documentary credit, but one credit may act as security for the other. They apply in transactions when original suppliers and final buyers deal through a middleman. If the supplier insists on a documentary credit, the middleman may apply to his bankers for them to issue one on his behalf. The back-to-back aspect comes into play if the middleman's bankers insist that the middleman obtain a documentary credit in his favor from the final buyer as security for which the middleman has applied for in favor of the seller. Bank Guarantee and Standby Credits 5.1 Overview In international trade, importers and exporters often face similar problems. An exporter might find it difficult to assess his importer's willingness and ability to pay, while the importer might not be sure that the exporter intends to perform his side of the contract or has necessary financial and technological resources to do so. The term "guarantee" is frequently used to mean, any transaction in which one person offers security for another's obligations. This includes not only surety bonds and promises of payment but also such devices as letter of comfort, which are morally binding only. The guarantee used in international trade, however, are normally "demand guarantees" in .which the commitment made by the guarantor is legally independent of the underlying commercial contract. 5.1.1 Functions of Bank Guarantee The common element in all these arrangements is that the guarantor undertakes to be answerable for the payment of a debt or the fulfillment of an obligation in the event of default by the party primarily responsible. Thus the basic function of a guarantee is to provide security. But it also has advantages with regard to liquidity, because it obviates the need for a blocked cash deposit. The main difference between a guarantee and a documentary credit is that the latter also functions as means of payment. 5.1.2 Effects of Bank Guarantee The guarantor bank has no obligation to supply goods or perform work on the principal's behalf. The obligation of a guarantor is limited to the payment of a sum of money in the event of default by the seller. A bank guarantee provide protection against non-performance in the following three ways. 1. Attestation A bank guarantee testifies to the seller's ability to carry out the contract. Since the issue of a guarantee constitutes an irrevocable undertaking of payment, a bank will not enter into such a commitment without first making a thorough examination of the principal's financial status and technical capability. 2. Motivation The principal stands to lose the guarantee amount if he fails to fulfill the contract terms. This gives him a strong incentive to complete the contract, even if the transaction has become unattractive to him in the meantime. 3. Compensation If the principal fails to fulfill his contractual obligations, the buyer has the right to demand payment of the guarantee amount, which will compensate him wholly or in part for the financial consequences of the breach of contract. 5.1.3 Issue of a Bank Guarantee The bank will design the guarantee in such a way as to protect the principal's interests within the limits set by the wishes of the beneficiary and relevant legislation in the beneficiary's country. The maximum liability must be stated. It is also very important to specify a precise expiry, date. Other provisions will cover the procedure for making a claim. 5.1.4 Claiming under a Bank Guarantee If the beneficiary considers that the supplier has defaulted on the contract, he can claim under the guarantee. As a rule, a simple written statement by the beneficiary that the amount of the guarantee is now due will oblige the guarantor bank to make payment immediately. The only conditions are that the claim must be made without reservation, within the period of validity of the guarantee and in accordance with the guarantee terms. 5.1.5 Types of Guarantee 1. Tender of Bid Bonds A tender of bid bond, usually for 2% to 5% of the contract value, guarantees that the principal will take up the contract if it is awarded. Failure to take up the contract results in a penalty for the amount of the bond. In addition, the tender bond usually commits the principal and his bank to joining in a performance bond if the contract is awarded. Tender bonds serve to prevent the submission of frivolous tenders. 2. Performance Bonds Performance bonds guarantee that the goods or services will be of the required standard and a stated penalty is payable if they are not. The amount payable will be a stated percentage of the contract price, often 10% but sometimes more. 3. Advance Payment Bonds Advance payments bonds undertake to refund any advance payment if the goods or services are unsatisfactory. 4. Warranty or Maintenance Bonds Warranty or maintenance bonds undertake that the exporter will maintain the equipment for a period of time. 5. Retention bonds Retention bonds enable retention monies, which would otherwise be held by the buyer beyond the completion of the contract, to be released early. These bonds guarantee the return to the buyer of these retention monies in the event of non-performance of post-completion obligations by the exporter. 5.2 Standby Letters of Credit 5.2.1 General Introduction A standby letter of credit, like a commercial letter of credit, is a promise by the issuer to honor the beneficiary's presentation of the document or documents specified in the letter of credit. The standby letter of credit, however, is not typically used as a payment mechanism. In a standby letter of credit; the parties do not normally expect that the presentation of documents will occur. The issuer is merely `standing by' just in case the obligation in the underlying transaction is not performed by the obligor. A standby letter of credit anticipates the possibility that something will go wrong or a negative event will occur, such as the failure of the applicant to perform a payment pursuant to a loan agreement or the failure of the applicant to perform some other kind of obligation. A commercial letter of credit, by contrast, is a method of payment that anticipates a positive event, the consummation of the performance of the buyer and the seller while standby credits envision the possibility of non-performance by the applicant in the underlying transaction. 5.2.2 Documents under a Standby Letter of Credit The documents presented to the issuer under a standby letter of credit are typically very different from the documents presented under a commercial letter of credit. Documents presented under a commercial letter of credit are invoices, transport documents, insurance documents, weight certificates, packing lists, and other documents customarily delivered in transaction for the sale of goods. These documents must be examined carefully by the bank, and the bank is sure that they comply with the requirements of the credit. The documents presented under a standby letter of credit, by contrast, usually indicate in a relatively perfunctory manner that the applicant has defaulted in its obligations to the beneficiary. For example, the underlying obligation in a standby letter of credit might be a loan. In the standby letter of credit, the issuer would undertake to pay the lender the amount specified by the lender upon presentation by the lender of a draft or demand for payment and a document certifying that `the Borrower is in default under the Loan'(If a standby letter of credit is used to secure payment of a purchase and sale transaction, additional documents required for presentment may be a copy of the commercial invoice and a copy of a document showing that the beneficiary effected delivery of the goods. Standby letters of credit can be used to provide payment in lieu of the performance of non-monetary obligations as well as to assure the payment of monetary obligations. The underlying obligation, for example, might be an obligation to construct a building. The documents presented might be a draft or demand for payment of a specified sum of money and a statement such as the Contractor has failed to perform its obligations under the Construction Contract'( The positions of the parties could be reversed. The contractor might be the party seeking assurance under a standby letter of credit of the payment of the construction price. In that event the documents presented by the contractor might be a demand for payment of the balance due under the construction contract and a statement that `the Contractor has performed all its obligations under the Construction Contract and the said sum is due and unpaid'( Standby letters of credit have been used for a wide variety of purposes and are available for use in virtually all circumstances in which the applicant owns a payment or performance obligation to the beneficiary. Standby letters of credit could be used subject to UCP500 as well as to the International Standby Practices (ISP98, ICC Publication NO. 590). In the latter the term‘standby’，is adopted instead of‘standby letter of credit’( Documents Related to International Settlement Documents under the letter of credit are usually prepared by exporters and related to third parties. 6.1 Bills of Exchange(Drafts) Bill of exchange is evidence of an unconditional and abstract obligation to make payment. Following points should be checked before the negotiation and acceptance by the bank. (1)Number of the credit. (2) Issuing date of the draft. (3) Consistence of the name between the drawer and the beneficiary: if the credit is transferable, the draft may be issued by the second beneficiary. (4) The deadline of payment shall be exactly the same shown both by the draft and the credit. If it is a term draft (90 days after B/L，for instance)，the issuing date of such documents(B/L, for example) shall be noted on the draft. (5) The payer can be either the issuing bank or the reimbursing bank. (6) Amount (currency, figures and words). The amount of the draft may be less than it is in the credit if partial shipment is permitted. If partial shipment is forbidden and there is no tolerance clause, the amount of the draft shall be exactly the same with it in the credit. (7) Payee. Usually, the payee of the draft is the negotiating bank, however, it may also be the drawer or the remitting bank if endorsements of the draft are consecutive and documents are complied with terms and conditions of the credit. 6.2 Commercial Invoices A Commercial Invoice is an import demonstration issued by the exporter. It is also an import basis for determining the customs duties. It gives details breakdown of the monetary amount due. Following items will always be noticed while preparing it. (1) Names and addresses of companies should be the same as they are stated in the credits.～ Invoices of a transferable credit can be issued by the second beneficiary. Commercial invoices issued in a name other than the beneficiary named in the credit are not acceptable.) (2) Drawees of invoices should be applicants and the address, if any, shall conform to the one in the credit. (3)A "Pro-forma" or "Provisional" invoice is not acceptable. (4) Description of the goods should be identical to the one in the credit. General terms of goods can be used in other documents but with no contradiction to the credit. For example: the goods is described as "Chunlan air-conditioner" in the credit, such description shall be shown exactly，the same in the invoice. However, descriptions like "air-conditioner" will do in all other documents. The additional descriptions in invoices can be accepted if they do not contradict to the credit and has no bad effect on the goods. For example: "Second hand goods" is described in the invoice, but there is no such description in the credit. The documents therefore will not be accepted since the description will have some bad effects on the goods. (5) Details of the goods, prices and terms as mentioned in the credit should be included in the invoice. The bank nevertheless is not responsible for any extension or calculation. (6) Any other information indicated in the invoice, such as shipping marks, quantities, transportation information should be exactly the same as they are in the credit. (7) Value of the invoice should not exceed the available balance of the credit, unless otherwise stipulated in the credit or there is a tolerance clause. However, under UCP600, if a bank authorized to pay, incur a deferred payment undertaking, accept draft(s), or negotiate under a credit accepts such invoices, its decision will be binding upon all parties, provided that such bank has not paid, incurred a deferred payment undertaking, accepted draft(s) or negotiated for an amount in excess of that permitted by the credit. (8) The invoice should cover the complete shipment as required by the credit, if no partial shipment is allowed. (9) If signature of invoice is required by the credit, the invoice should be signed. 6.3 Transportation Documents 6.3.1 Marine/Ocean Bills of Lading A Bill of Lading is the most important transport document of a letter of credit. There are four main functions of B/L: (1)A Bill of Lading acts as a receipt of the goods from the shipping company to the exporter. When there is no indication of damage to the goods, a Bill of Lading is said to be clean. (2) The Bill of Lading is an evidence of the contract for carriage between the exporter and the carrier. (3) A Bill of Lading is a quasi-negotiable document. Any transferee for value who takes possession of an endorsed Bill of Lading obtains a valid title to it, provided that the transferor had a valid title in the first place. (4) A Bill of Lading acts as a document of title to goods being shipped overseas. The goods will be released from the overseas port only against production of one of the original Bills of Lading. 6.3.2 Key Points for the Examination of B/L (1)Names Various names are used for B/L, such as Ocean B/L, Marine B/L, port to port B/L etc.: This is why a uniform format, which parallels the two names together (such as Marine B/L /combined transport documents), is used by most shipping companies in issuing the shipping documents. In any case, the documents with information conforms to the requirements of B/L can be regarded as Marine Bill of Lading. (2) It must appear on its face to indicate the name of the carrier no matter who issue them. (3) Issuers of B/L The issuers can be divided into two categories: , the carrier, a named agent for the carrier and a named agent on behalf of the carrier; , the master, a named agent for the master and a named agent on behalf of the master. Besides, the signer must indicate his capacity whether he is an agent or a representative signing for the carrier or the master. (4) Indication of "loaded on board" and "shipped on named vessel" Upon UCP, special stipulations may be made in the credit if there is a special requirement for notation of on board by the applicant or the issuing bank. Unless otherwise stipulated by the credit, banks have no obligations to check the authentication and validity of this signature. (5) Loading Ports and Discharging Ports Names of loading ports and discharging ports stated in the B/L should be identical to those in the credit. UCP draws no distinction between a place of receipt or a place of final destination (which are different from the named ports of loading or discharging) being either an inland point or another port. In many instances, the place of receipt would evidence the beneficiary's location, the forwarders' or shipping companies’ container yard or container freight station-all of which would be inland points. If one were to read the reverse of a Bill of Lading, "on board" would be included amongst others. This supports the stance of a place of receipt being an inland point. Under UCP600, a Bill of Lading showing either an inland point or other port would be acceptable provided that a valid on board notation was included. (6) Transshipment Even if the credit prohibits transshipment, banks will accept a Bill of Lading which: a. Indicates that transshipment will take place as long as the relevant cargo is shipped in Container(s), Trailer(s) and/ "LASH" barge(s) as evidenced by the Bill of Lading, provided that the entire ocean carriage is covered by one and the same Bill of Lading. b. Incorporates clauses stating that the carrier-reserves the right to transshipment. Carriers have the right to effect transshipment and it is, almost without exception, printed on the reverse side of the B/L. The B/L should be acceptable because it does not necessarily lead to the performance of transshipment. (7) The indication of "freight prepaid" (CFR/CIF) or "freight collect" (FOB) cost, as required by the terms of the credit, appears on its face. (8) The description of the goods does not contradict it in the invoice. (9) There is no unfavorable description of goods packing on the B/L. (10) The shipping date on the B/L is within the latest date of shipment stipulated by the credit. (11)The name and address, if any, of the notifying party is as required in the credit. (12) The consignor on the B/L complies with the credit. If there is no other contrary stipulation, it can be either the beneficiary or anyone other than him. (13) Correction seal shall be stamped where there is any correction on the B/L. 6.3.3 Non-Negotiable Seaway Bills A non-negotiable seaway bills is a new transportation document arising with the development of update transportation and EDI (Electronic Data Interchange) system, which makes international trade gradually taken over by "electronic documents". Since problems such as "transfer of documents" and "assessment of original signature" still remain unsolved, it is now only employed in the transaction that does not need the transfer of title of the goods. Here are differences between the Ocean Bill of Lading and the non-negotiable seaway bill: a. An Ocean Bill of Lading is title of the goods and is transferable after endorsement. A non-negotiable seaway bill is not title of the goods and may not be transferred. b. The consignee shall be indicated on the non-negotiable seaway bill and he may take delivery of goods with delivery advice and without non-negotiable seaway bill. 6.3.4 Charter Party Bills of Lading The Charter Party Bill of Lading is the contract signed between the shipper and the hirer(applicant or beneficiary). Broadly speaking, charter parties are classified as ‘time’charters (for a stipulated period of time) and ‘voyage’charters (for one or more voyages). The examination of such document is almost the same as that of the Ocean Bill of Lading with the following exceptions: a. The name of the carrier need not be indicated. b. The issuer of the Charter Party Bill of Lading: i. The master, a named agent for the master or a named agent on behalf of the master; ii. The owner, a named agent for the owner or a named agent on behalf of the owner. c. Even if the credit -requires the presentation of a charter party contract, banks will not examine such charter party contract and will pass it on without responsibility on their part. 6.3.5 Multimodal Transport Documents The examination of the multimodal transport document is almost same as that of the Ocean Bill of Lading with the following exceptions: (1) It appears on its face to indicate the name of the multimodal transport operator and has been signed by a named .agent for or on behalf of him, and thus the signor of a multimodal transport document can be divided to three categories: a. The carrier, a named agent- for the carrier or a named agent on behalf of the carrier; b. The multimodal transport operator, a named agent for the multimodal transport operator or a named agent on behalf of the multimodal transport operator; c. The master; a named agent for the master or a named agent on behalf of the master: (2) It indicates that the goods have been dispatched, taken, in charge or loaded on board and the date of issuance will be regarded as the date of, dispatch. However, if the document indicates,(by stamp or otherwise, a date of dispatch, taking in charge or loading on board, such date will be regarded as the date of shipment. (3) It indicates the place of taking in charge and the final destination stipulated in the credit. 6.3.6 Air Transport Documents (1)It appears on its face to indicate the name of the carrier and has been signed or otherwise authenticated by the carrier or a named agent for or on behalf of the carrier. An agent signing for the carrier must also indicate the name and capacity of the party on whose behalf he is acting. (2) In general, airway bill has to be prepared in three original copies and nine non-negotiable copies by the airline company: one copy for the carrier (airline company), one copy for the consignee and the other for the consignor. Thus, the beneficiary could only present his one to the bank even if a full set original airway bill is required by the credit. The airway bill is specific named and not a document of title nor is it negotiable. The airline company will hand goods to the consignee at destination airport without presentation by the original copy of the waybill after ensuring his identity. (3) It indicates the airport of departure and the airport of destination stipulated in the credit. (4) It indicates the consignee stipulated by the credit. (5) There should be no unfavorable description to goods and the packing conditions. (6) No contradiction on description of goods is made as it is in the invoice. (7) The indication of "freight prepaid" or "freight collect" cost complied with the terms of the credit. (8) The name and address, if any, of the notifying party and the consignor are as required in the credit. 6.4 Insurance Documents An insurance policy is a legal document signed by prominent insurance companies. Types of Insurance Cover must be stipulated by the credit and should be effective throughout the procedure of transportation. (1)The insurance documents must be issued and signed by insurance companies or underwriters or their agents. Cover notes issued by brokers will not be accepted, unless specifically authorized in the credit. (2) It presents all the originals that have been issued. (3) The date of issuing is not later than the date of loading on board or dispatch or taking in charge of the goods. (4) The value of the goods insured should be what it is required by the credit or at least110% of the CIF or CIP value of the goods. When the CIF or CIP value can not be determined from the documents on their surface, banks will accept such minimum amount 110% of the amount for which payment, acceptance or negotiation is required under the credit, or 110% of the gross amount of the invoice, whichever is greater. Unless it is expressly stipulated in the credit, the .insurance amount that is over 110% of the invoice should not be deemed as a discrepancy; however, unusually high value of the insurance amount calls for special attention. (5) It is issued in the same currency as the credit unless otherwise stipulated in the credit. (6) The insurance should cover the transportation from named loading port to destination under the Credit. (7) The insurance should be done exactly according to the stipulation of the Credit. (8) Insurance policy can be acceptable if insurance declaration or certification is specified in the Credit. (9) All the amendment on the insurance policy should come with correction stamp and signature. 6.5 Inspection Certificates An inspection certificate is a document evidencing that the goods have already been inspected and conform to the standard of quality, specification, weight or packing. Such document signed by the inspection bureau stipulated in the credit shall conform to the requirements of the credit. If a certificate such as a quality certificate or a sanitary certificate is required by the credit, we should pay attention that names of such documents shall conform to the credit regulation. Besides, the inspection date should be no later than the shipping date but not too early prior to it. 6.6 Certificates of Origin A certificate of origin is a document evidencing the goods originated from a particular country, and it should be signed by a legal bureau. It is one of the shipping documents required by the importer to fix the tariff. Description, quality, quantity and price of the goods should be carefully examined to certify whether or not they conform to the commercial invoice or other relevant documents. 6.7 Packing Lists and Weight Lists Packing lists, weight lists and specification lists are supplied to certify the details of the shipped goods, including the gross weight, net weight, etc.. Such documents shall all conform to the commercial invoice and the Bill of Lading. From all above and the latest regulation of UCP600, principles of documents examination can be concluded as follows: (1)Banks must examine all documents stipulated in the credit with reasonable care. (2) Such examination is based on whether or not the documents appear, on their face, to be in compliance with the terms and conditions of the credit. (3) Such compliance of the stipulated documents on their face with the terms and conditions of the credit, shall be determined by international standard banking practice as reflected in these Articles. (4) Documents that are not stipulated in the credit will not be examined by banks. If they receive such documents, they shall return them to the presenter or pass them on without responsibility. (5) If a credit contains conditions without stating in the document(s) to be presented incompliance therewith, banks will deem such condition as not stated and will disregard them. (6) Banks shall have a reasonable time, not to exceed seven banking days following the day of receipt of the documents, to examine the documents.