One argument that was put forward for a revision of UCP 600 surrounded the removal of drafts from the rules. Market feedback from a number of trade practitioners questioned the on-going requirement for drafts in a documentary credit transaction and, furthermore, pointed out that sight drafts do not provide any benefit.
This is not a new issue and has been raised on a number of occasions over the last few years. It is fair to say that we understand why the question should be asked.
However, the problem likely to be faced in this regard is that drafts, combined with documentary credits, still have enormous support from certain parts of the world. It should also not be forgotten that, whether or not drafts are required, this is not a UCP issue. It is the case that almost every bank's application form, whether in paper form or on-line, will contain a pre-set requirement for the presentation of a draft. Whether a draft is required is within the hands of every issuing bank and does not need a change to the UCP to achieve it. Merely deleting drafts from UCP will not stop their usage.
As mentioned during the UCP session at the Banking Commission meeting in Jakarta in April 2017, statistics provided by SWIFT for the ICC's 2015 Global Survey indicated that 72.3% of credits issued by MT700 were available by negotiation (these would have all required a draft) and 6% by acceptance. Practice dictates that drafts are an essential aspect of certain bank's processes - especially those in Asia.
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A further statement was made that it is considered vital that UCP's unique characteristic of global acceptance is maintained and suggestions for non-optional changes that only benefit particular business or geographic segments of the user base are opposed. We could not agree more with this comment; changes need to focus on the entire market and not solely on particular elements. |
This is not to say that we agree with the usage of drafts in documentary credits. In the main, we believe that they are a redundant requirement that is superfluous to actual needs. In essence, guidance as to the appropriate usage of drafts is the applicable response to this issue.