1.
What are the international regulations available for trade
facilitation? (3.1)
Regulatory Framework for International Trade Facilitation In performing international trade services operations,
banks are required to follow both a set of domestic regulations and
international rules/guidelines. Among the international rules and guidelines,
International Chamber of Commerce (ICC) publications are the most relevant. The
major relevant regulations followed in performing trade services activities in
International Trade Services is shown in below.
International Regulations of International
Trade Services
v Uniform Customs and Practice for
Documentary Credit (UCP 600 including e UCP);
v Uniform Rules for Collections (URC 522);
v Uniform Rules for Bank-to-Bank
Reimbursements under Documentary Credits (URR 725);
v International Standard Banking Practice
(ISBP 745);
v International Commercial Terms 2010,
v International Standby Practices (ISP-98),
v Uniform Rules for Demand Guarantees (URDG
758),
v Documentary Instruments Dispute Resolution
Expertise Rules (DOCDEX); and
v United Nations Vienna Convention on
Contract of Sale of Goods (CISG)
2.
What should be the components under a firmed contract?
(3.1.2)
Purchase/sale agreement
is the contract between exporter and importer. Banking system needs a standard
format for purchase/sale agreement, considering the risks to protect the
interests of the clients in a better manner. In generally, a standard contract
should have at least the following components:
Components of a
Standard Purchase/Sale Contract
v Name and address of applicant, the
applicant’s bank/ collecting/ presenting/ buyer’s bank
v Name and address of the beneficiary’s bank
/nominated/ remitting/ seller’s bank
v Total value and full description of goods
(specification, quantity, unit price, etc.)
v Last date of shipment, date of expiry and
documents required
v
Payment
terms: method, tenor, trade terms etc.; and warranty/ guarantee/ undertaking
v Dispute settlement process (arbitration or
litigation and the governing laws)
v
Liquidated
damage clause; and force majeure.
3.
What is the purpose of CIGS?(3.1.3)
v
The
United Nations Conventions on Contracts for the International Sale of Goods
(CISG) is popularly know as Vienna Convention which is a uniform framework for
contract of sale of goods.
v
The
CISG allows exporters to avoid choice of law issues, as the CISG offers
acceptable substantive rules on which contracting parties, courts and
arbitrators may rely.
v
Under
the treaty, the parties, which come from all legal traditions, having different
economies together account for over two thirds of global commercial exchanges
(UNCITRAL 2014).
4.
Why should UCPDC followed throughout the Globe? (3.1.3)
v The UCP remain the most successful set of
private rules for trade ever developed. It is generally accepted that
international trade transactions carry inherently more risk than domestic trade
transactions, because of differences in culture, business processes, laws and
regulations. It is therefore important for traders to ensure that payment is
received for goods despatched and that the goods received and paid for comply
with the contract of sale. One effective way of managing these risks has been
for traders to rely on the letter of credit as a payment method. However for
exporters in particular, the letter of credit has presented difficulties in
meeting the compliance requirements necessary for the payment to be triggered.
v For reducing complexity of Payment in
international Trade to zero percent UCPDC play crucial/vital rule throughout
the globe.
v The universal acceptance of the UCP by
practitioners in countries with widely divergent economic and judicial systems
is a testament to the rules' success. In Bangladesh, LC can only be opened and
received within the framework of UCP 600 since July 2007.
5. What does UCPDC say
regarding terms and conditions of “Credit Contract” and ‘Sales/Purchase
Contract*?(3.1.3)
As per Article 4,
UCPDC-600:
v A credit by its nature is a separate transaction from the sale or other contract.
v Banks are in no way concerned with or bound by such contract, even there is anyreference to it in the credit.
v The undertaking of a bank to honor, to negotiate or to fulfill any other obligationunder the credit is not subject to claims or defenses by the applicant resulting
from its relationships with the issuing bank or the beneficiary.
6.
How many (minimum) parties are required to give consent,
while amending a confirmed LC? (3.1.3)
As per Article 13(b), UCPDC-600:
There are three parties required to give consent,
while amending a confirmed LC. They are
1) Issuing Bank
2) Confirming Bank
3) Beneficiary
7. What appropriate notations
arc to be given in the body of an LC at the time of opening it, for getting
protection under UCPDC? (3.1.3)
At the time of opening of an LC In MT700 at
Field 40E: applicable rules is UCPDC latest version.
At the time of opening LC the following
notations are to be given in the body of LC for getting protection under UCPDC
“APPLICABLE RULES : UCPDC 600 ICC publication latest version”
8. The LC expires on June 20,
2015. Documents under the LC presented on June 18, 2015 at the counter of
confirming bank. How many days, an issuing bank will get to examine the
document? (3.1.3)
As per article 14 (b) UCP 600 nominated bank,
confirming bank and issuing bank each have a minimum 5 banking days following
the date of presentation of the documents for examination. So, issuing bank
will get 05 banking days from the following day of the receiving document at
the counter.
9. You are an issuing bank.
You have received discrepant document. How will you handle the discrepant
documents? (3.1.3)
Documents against LC are examined on the
basis of Article 14 of UCPDC where sub-articles 'a' to 'l' clearly state how
the examination will be carried out and what issues will be considered as
discrepancy.
Therefore At first we will notice the
discrepancy to the applicant for waiver/acceptance/negotiation. After getting
clear instruction from the applicant we will give a discrepancy notice as per UCPDC-600 Article 14 (sub-articles 'a' to 'l') to the
nominating bank within 05 banking days from the date of received,mentioningBank
is refusing to honor mentioning discrepancies and returning/holding the
documents until further instruction received by the applicant.
10. Suppose, an LC has been
opened for about USD 10,000 and the price of the good is approximately USD 10
per unit. But the presented documents show per unit price USD 11 and total
amount USD 11,000. Will you accept the documents? (3.1.3)
As per Article 30(a) UCPDC 600,
The words "about" or
"approximately" used in connection with the amount of the credit or
the quantity or the unit price stated in the credit are to be construed as
allowing a tolerance not to exceed 10% more or 10% less than the amount, the
quantity or the unit price to which they refer.
Here, The amount of the credit USD 10,000 and the unit price USD 10.
If 10% increase in amount and unit price that is
amount USD 11,000 and unit price USD 11; So amount and unit price within term
and condition of UCP, so we will accept the document.
11. What constitutes
“standards’* for examination, of documents by an Issuing or a Nominated
Bank?(3.1.3)
o
Banks must examine a presentation on the basis of
the documents alone.
o
Bank shall each have a maximum of five banking days
following the day of presentation.
o
Presentation not later than 21 calendar days after
the date of shipment, but in any event not later than the expiry date of the
credit.
o
If a credit requires presentation of a document
other than a transport document, insurance document or commercial invoice,
without stipulating by whom the document is to be issued or its data content,
banks will accept the document as presented if its content appears to fulfill
the function of the required document and otherwise complies with sub-article
14 (d).A document presented but not required by the credit will be disregarded.
o
If a credit contains a condition without stipulating
the document banks will deem such condition as not stated and will disregard
it.
o
A document may be dated prior to the issuance date
of the credit.
o
When a presentation does not comply, it may refuse
to honour or negotiate.
o
When an issuing bank determines that a presentation
does not comply, it may in its sole judgment approach the applicant.
o
When a bank decides to refuse, it must give a single
notice to the presenter.
o
Notice of refusal must contain refusal statement,
reasons for refusal and status of the documents.
12. A transferable credit is
generally transferred on the basis of the terms of original LC. But there are
some permissible deviations in regard to transferring an LC. What are those
deviations? (3.1.3)
Article 38 of UCPDC 600 related to transferable credit.
Here mention some deviation in regard to transferring an LC. These are-
o
A
transferred credit cannot be transferred at the request of a second beneficiary
to any subsequent beneficiary. The first beneficiary is not considered to be a
subsequent beneficiary.
o
No bank is obligated to effect transfer.
o
All charges relating to transfer are
for first beneficiary.
o
If L/C allows partial drawings or shipments, it can be transferred in part to more than one
second beneficiary.
o
Rejection
of an amendment by one or more second beneficiary does not invalidate the
acceptance by any other second beneficiary.
o
The
transferred credit must accurately reflect the terms and conditions of the
credit, including confirmation, if any, with the exception of the amount of the
credit, any unit price stated therein, the expiry date, the period for
presentation, or the latest shipment date or given period for shipment, any or
all of which may be reduced or curtailed.
o
The
percentage for which insurance cover must be affected may be increased to
provide the amount of cover stipulated in the credit or these articles
o
The
fact that a credit is not stated to be transferable shall not affect the right of
the beneficiary to assign any proceeds
13. What is assignment of
proceed? (3.1.3)
As per Article 39 UCPDC 600,
The fact that a credit is not stated to be
transferable shall not affect the right of the beneficiary to assignany
proceeds to which it may be or may become entitled under the credit, in
accordance with the provisionsof applicable law. This article relates only to
the assignment of proceeds and not to the assignment of theright to perform
under the credit.
Or
A document transferring all
or part of the proceeds from a letter of credit
to a third party beneficiary.
To receive an assignment of proceeds, the beneficiary
of a letter of credit is required to submit, in writing, a request to the bank
to assign the funds to a different person or company.
14. Is authentication required
for correction in packing list issued by beneficiary?(3.1.4)
Packing list is an optional
document and as such not mandated under UCP 600 or other regulation But Correction and alterations in a transport document need authentication as
per ISBP 745.
15. What will be language of document, if LC is
silent?(3.1.4)
·
As per ISBP 745 If the LC is silent on language, then documentmay be present in any language and the data will need to be examined.
OR
·
When a credit is silent with respect to the language of the documents to
be presented, the documents may be issued in any language.
16. The certificate of origin must be signed and must be
dated. Do you agree? Explain.(3.1.4)
·
As per ISBP 745 paragraph L1certificate
of origin must beSigned
and may be dated.
17.
Is the
reimbursement bank obligated to judge the complying presentation of documents
to honour a reimbursement claim?(3.1.5)
As per URR 725 the reimbursement bank is not obligated
to judge the complying presentation of documents to honour a reimbursement
claim.
18.
What is the
difference between revocable reimbursement authorization and irrevocable authorization?
(3,1.5)
Revocable reimbursement authorization can be cancel without
reimbursement bank consent, you may refer to URR 725 article 8.
However, if the RA is irrevocable, cancellation will require reimbursement bank
consent, this is stated under URR article 9 (g).
19. At whose request reimbursement bank will act in the
LC?(3.1.5)
Issuing bank request
20. What are the financial documents and commercial
documents under URC 522?(3.1.6)
URC 522
rules of the documentary collections defines two main types of documents;
financial documents and commercial documents.
Financial
Documents : Financial documents means bills of exchange, promissory notes,
cheques, or other similar instruments used for obtaining the payment of money.
Commercial
Documents : Commercial documents means invoices, transport documents,
documents of title or other similar documents, or any other documents
whatsoever, not being financial documents
21. What is presentation under ISP 98? (3.1.7)
A presentation is
timely if made at any time after issuance and before expiry on the expiration
date.
A presentation must
identify the standby under which the presentation is made.
If the last day for
presentation stated in a standby is not a business day of the issuer or
nominated person where presentation is to be made, then presentation made there
on the first following business day shall be deemed timely.
22. What arc the standards for examination of documents under 1SP98?
(3.1.7)
o
Demands
for honour of a standby must comply with the terms and conditions of the
standby
o
Whether
a presentation appears to comply is determined by examining the presentation on
its face against the terms and conditions stated in the standby as interpreted
and supplemented by these Rules which are to be read in the context of standard
standby practice.
o
Documents
presented which are not required by the standby need not be examined
o
The
language of all documents issued by the beneficiary is to be that of the
standby.
o
Any
required document must be issued by the beneficiary unless the standby
indicates that the document is to be issued by a third person
o
A
standby term or condition which is non-documentary must be disregarded.
23. What is URDG7 (3.1.8)
o
Uniform
Rules for Demand Guarantees (URDG 758) is the guiding framework applicable to
the demand guarantee and counter —guarantee practices. The URDG help leveling
the playing field among demand guarantee issuers and users regardless of the
legal, economic and social system in which they operate.
24. How many incoterms are there under INCOTERM 2010?
(3.1.9)
There are
10 incoterms are there under INCOTERM 2010. From the 1st January 2011, the
ICC’s Incoterms 2010 came into force. This is the eighth revision of the
Incoterms Rules, with the last revision dating back to 2000. The introduction
to the new 2010 rules stresses the need to use the terms appropriate to the
goods, to the chosen means of transport and to whether or not the parties intend
to impose additional obligations on the seller or buyer.
25. Which incoterm is most
suitable for buyer? (3.1.9)
There
really is no ‘’best’’. The current version is Incoterms 2010 and should be
used. Since the intention of these terms are to clearly explain what will
happen, where and when, any one of these are fine, if both parties agree and
are clear. Naturally, your costs will change with the type of three-letter term
used.
Much will
depend on which part of the supply chain you can negotiate better (say freight)
than your seller, then go for CPT, but if your insurance is higher than the
sellers, go for CIP.
There is
seldom a ‘’winner’’, since the price of goods will be reflected by the terms
used unless the seller has a large margin and you have no clue. I would usually
negotiate EXW, since I was confident to be able to control all the rest at the
most advantage to my company. You could also negotiate EXW first, then see what
a change to DAP would cost and compare to what you know you can do.
26. Distinguish between the
responsibilities of buyer and seller under DAT and DAP. (3.1.9)
Seller
packages goods for transport and pays for all transportation costs to a named
destination place on the buyer’s side. Buyer is responsible for unloading goods
at the named place - this is the main difference between DAP and DAT.
The seller covers all the costs of transport
(export fees, carriage, unloading from main carrier at destination port and destination
port charges) and assumes all risk until arrival at the destination port or
terminal.
All charges after unloading (for example, Import
duty, taxes, customs and on-carriage) are to be borne by buyer. However, it is
important to note that any delay or demurrage charges at the terminal will
generally be for the seller's account.
Under DAP terms, all carriage expenses with any
terminal expenses are paid by seller up to the agreed destination point. The
necessary unloading cost at final destination has to be borne by buyer under
DAP terms.
Allocations
of Costs to Buyer/Seller according to Incoterms 2010
|
Incoterm
2010
|
Export
customs declaration
|
Carriage to
port of export
|
Unloading
of truck in port of export
|
Loading on
vessel/airplane in port of export
|
Carriage
(Sea/Air) to port of import
|
Insurance
|
Unloading in
port of import
|
Loading on
truck in port of import
|
Carriage to
place of destination
|
Import customs
clearance
|
Import duties
and taxes
|
|
DAP
|
Seller
|
Seller
|
Seller
|
Seller
|
Seller
|
Seller/Buyer
|
Seller
|
Seller
|
Seller
|
Buyer
|
Buyer
|
|
DDP
|
Seller
|
Seller
|
Seller
|
Seller
|
Seller
|
Seller/Buyer
|
Seller
|
Seller
|
Seller
|
Seller
|
Seller
|
27. What is the purpose of
DOCDEX rules? (3.1.11)
The purpose of the ICC DOCDEX Rules is to
provide parties with a specific dispute resolution procedure that leads to an
independent, impartial and prompt expert decision for settling disputes
involving the UCP, URDG, URR and URC.
28. Case Study and Solution
You are exporting a twenty foot container
of goods by truck from Italy (Milan) to Ukrain (Kiev). Your primary obligations
agreed with the buyer in relation to delivery of the goods-are to Delivery the
container by Truck to an unloading bay at a named terminal in Kiev- Clear the
goods for export but not for import and pay any related costs-Pay all charges
in respect of transport
of goods up to the
place of delivery- The goods are delivered when they are placed at the requisite bay
in the terminal in Kiev ready for unloading. Which incoterm is applicable here?
(DAP) -
29.
Case Study and Solution
Can a draft be drawn on a confirming bank if a credit is available with it by negotiation? What if the credit is
available with it by sight payment, deferred payment or acceptance?
(If the credit is available with it by sight payment,
deferred payment or acceptance a draft can be drawn on a confirming bank.)
30. Case Study and Solution
An issuing Bank issued a transferable credit. The first beneficiary approached
transferring Bank to transfer the credit to three second beneficiaries. The transferring Bank declines to transfer the credit. The
first beneficiary approached
the issuing Bank to act
as a transferring Bank. The issuing Bank is also declined to transfer the credit. The first beneficiary insists since
the issuing Bank is the author of
the credit. Does the
issuing Bank obligate to transfer the credit?
(Issuing bank is not obligated to transfer
the credit.)
31.
Case Study and Solution
The issuing bank, ABC Bank in USA, issues
a credit through XYZ Bank in The Netherlands and XYZ Bank is the nominated bank. The
expiry date is stated to be August 16, 2015 at the counters of the nominated
bank. The beneficiary presents documents to BBB Bank in The Netherlands on
August, 16 2015 and BBB Bank courier all documents to the issuing bank on that
day. Issuing bank receives the documents on August 17, 2015. From this
scenario, is this presentation considered to be late presentation or not? Can
the issuing bank also point out a discrepancy i.e., documents not presented by
nominated bank?
(Issuing bank receives the document after expiry date,
so this presentation will consider as late presentation).
