Following on from the previous newsletter, this edition addresses further issues that have been raised by corporates and banks over the past 6-7 months. It needs to be recognised that in most cases, the questions that are being raised would have equal application under UCP 500 as they do under UCP 600.

Corporate issues

Article 10 – Amendments.

As an applicant, why can I not include a time limit for the rejection of an amendment? In most cases, the amendment is known to the beneficiary so why cannot I attach some form of limitation on the period for acceptance or rejection?

This issue first raised its head under UCP 500. The wording in sub-article 9 (d) was seen, by some, as amending the process under which banks were operating. For most banks, the content of sub-article 9 (d) was fine as that was how they were approaching the question of acceptance of amendments. For those few banks that saw a difference, the ICC issued Position Paper No. 1 to spell out that including time limits within an amendment was bad practice.

This issue all but disappeared but then was resurrected during the drafting process in some of the ICC National Committee comments. Given the fact that the introduction to UCP 600 makes it clear that the Position Papers have no application under these rules, there was a need to reinforce the principle that an irrevocable credit should not be capable of amendment by silence on the part of the beneficiary.

In addition, such clauses in an amendment would impose an unnecessary burden upon the advising bank in relation to delivery of the amendment and obtaining of consent or rejection within any prescribed period.

Sub-article 14 (l) – Standard for Examination of Documents.

Does this sub-article allow for the issuance of transport documents by freight forwarders?

Yes. This sub-article has been inserted into UCP 600 to emphasise that transport documents may be issued by parties other than the carrier, master, owner or charterer i.e., a freight forwarder, NVOCC etc.

The wording of this sub-article was inserted at the request of the transport industry even though the drafting group did not see the necessity. None of the transport articles 19-24 indicate who is to actually issue the transport document which is covered therein.

The articles refer to a document however named that complies with the content of the respective article. In effect, this replaces the content of article 30 of UCP 500. The transport industry was concerned that by removing the wording of article 30 this could lead to banks refusing documents ‘issued’ by a freight forwarder that otherwise complied with the respective transport article.

Sub-article 26 (a) – “On Deck”, “Shipper’s Load and Count”, “Said by Shipper to Contain” and Charges Additional to Freight

Why is a transport document acceptable stating that the goods may be loaded on deck whereas it is not where it indicates the goods are or will be loaded on deck?

A bank is concerned with facts that indicate that the goods actually are or will be loaded on deck as this is a definitive statement that on deck shipment will occur for all or some part of the journey. Where the transport document shows “may be loaded on deck” there is no such definitive statement.

Bank issues

Article 10 – Amendments.

In circumstances where a credit allows partial shipments, there is no quantity of goods and the credit amount is reduced by way of an amendment, is it safe for a bank to conclude that a drawing made by the beneficiary for the amount of the credit, after the amendment, is an indication of acceptance thereof?

No. The amendment is subject to the consent of the beneficiary and although the beneficiary has presented documents for the amended amount of the credit it cannot be taken as an implicit acceptance.

In fact, the bank can ask the beneficiary whether or not they have accepted the amendment and the beneficiary could decline to comment on the basis of sub-article 10 (c). The drafting group tried to correct this position in UCP 600 by requiring the beneficiary to indicate, no later than the date of presentation, the amendment(s) that they had accepted or rejected. In this way there would be no ambiguity or scope for uncertainty on the part of the bank. This suggestion was rejected by the ICC National Committees.

Sub-article 11 (b) – Teletransmitted and Pre-Advised Credits and Amendments

Why does the UCP still refer to pre-advices when every credit we see is issued by SWIFT? Is it still a practice around the world to send a pre-advice and mail confirmation?

The UCP still covers the issuance of pre-advices as that was the wish of the majority of the ICC National Committees. It was certainly the view of the drafting group that reference to them could be removed completely from the UCP. The final wording has been ‘beefed up’ from that in UCP 500 to emphasise the need to issue the operative credit or amendment, without delay.

Sub-article 14 (e) – Standard for Examination of Documents

Is it true to say that a goods description must appear on every document? – we insist upon this today.

There is no requirement under UCP 500 for there to be a goods description on every document. If this is required, to complete what is commonly referred to as a ‘linkage’ exercise between the documents, then this should be a condition of the credit.

Under UCP 600 the position is made even clearer by the inclusion of the words “if stated” to emphasise that only where the goods description is stated need it be in general terms not conflicting with the description in the credit.

Despite the requests of a few ICC National Committees, there is no reference to ‘linkage’ within the UCP 600. If required, this is achieved through the text of the credit and, in particular, the requirements for each of the documents called for. It is the writers view that banks should not look for linkage between documents to cover for their credits not specifying exactly what they expect to appear on that document i.e., merely calling for a “Packing List” without further detail as to its required content.

Sub-article 14 (g) – Standard for Examination of Documents

This sub-article reads “A document presented but not required by the credit will be disregarded and may be returned to the presenter” – why is there no longer an option to send the document forward without responsibility on the part of the bank?

It is true that the wording in UCP 600 has changed from that in UCP 500 but it does not stop a bank from forwarding an ‘additional’ document without responsibility. The decision was made to leave the option as “may be returned to the presenter” so that the choice remains with the bank as to the action they are agreeable in taking i.e., they may return the document but they may also agree to forward.

In a large number of cases it would not be appropriate for a nominated bank to forward an ‘additional’ document to the confirming or issuing bank. Beneficiaries should be encouraged to send such documents directly to avoid any unnecessary issues in relation to the processing of the documents presented.

Sub-article 29 (b) – Extension of Expiry Date or Last Day for Presentation

This sub-article refers to a specific statement appearing on the schedule of the nominated bank. Is this the sole means by which this event can be covered?

In all probability, banks will continue to state words such as “all credit terms and conditions complied with” or similar to cover such events. In most cases, it may not be apparent to an issuing or confirming bank that the documents were actually presented on that ‘extended’ expiry.

Use of the words “without delay”

The UCP continues to use the words “without delay” with no definition of how long such a period is. Why is this and how long is ‘without delay’?

Under UCP 500, the term “reasonable time” could be defined in terms of an outer limitation on time i.e., seven banking days and include a preclusion rule in article 14 where the issuing or confirming bank fail to provide a notice of refusal by the close of that period.

The term “without delay” is different in that the context in which it is used in the rules cannot convey a penalty for failure to comply. For example, sub-article 9 (e) states “If a bank is requested to advise a credit or amendment but elects not to do so, it must so inform, without delay, the bank from which the credit, amendment or advice has been received” and thereby allows an advising bank the opportunity to decline to advise a credit or amendment but they must inform the issuing bank without delay. If the wording in sub-article 9 (e) had stated “….. so inform, no later 3 banking days after receipt of the credit or amendment, the bank from …..” what would be the repercussions to that advising bank if they had reverted on banking day 4 or 5 after receipt? Answer – none, as they have no obligation to do anything. This is fundamentally why the term has not been defined more clearly. The inclusion of a specific period would not impose any duty for a bank to comply.

The second is to plug the tax loophole arising from the transformation. The revised VAT regulations provide that the input VAT for consumables (like vehicles and yachts) is not allowed to get deduction from output VAT since it is easy to mix up corporate consumption with personal consumption that is not relevant to the technological improvement of the enterprise.

The third is to reduce the levy rate for small-scale taxpayer. Before the amendment,small-scale taxpayer who is engaged in production activities is subject to VAT at a 6% levy rate. According to the original VAT regulations, with the approval from the State Council, small-scale taxpayers carrying on production activities and nonproduction activities are taxed at a levy rate of 6% and 4% respectively. After the transformation reform, the tax burden of the VAT ordinary (general) taxpayer has been reduced across the board. To balance the tax burden between the VAT ordinary taxpayer and the small-scale taxpayer and promote the growth of small and medium size enterprises to raise employment level, it is necessary to reduce the tax burden of the small-scale taxpayer. Taking into account the fact that it is commonplace for the small-scale taxpayer to carry on production and non-production activities at the same time, it is difficult to distinguish between the small-scale taxpayer who is doing production business and the one who is not. Therefore, the revised VAT regulations no longer provide for two levy rates for different line of businesses, and fix the levy rate at 3% across the board for the small-scale taxpayer.
The fourth is to incorporate some current VAT policies into the revised VAT regulations, mainly including the deduction rates for agricultural produce and transportation charges, the provisions for the qualifications for being recognized as the VAT general taxpayer, and the abolition of tax exemption for the equipment 5 imported for use in export processing with supplied materials, export processing with samples, and compensation trade.

The fifth is to extend the VAT filing deadline from 10 days to 15 days after the month end in order to provide convenience to taxpayers, improve revenue service level and relieve the workload for handling VAT filing at the counter of the local tax bureaus in accordance with the practices of tax levy and administration. The revised VAT regulations also clarify the issue how to determine the tax withholding agent, the time the tax liabilities arise, the location of paying taxes and the period within which payments should be made for the taxpayer situated outside China.

(1) Ensuring the major point of reform without an amendment across the board, and that provides for the legal base for the VAT transformation reform;
(2) Keeping policy stable and linking the current policy and regulations with relevant provisions to show that the requirement for the rule of law has been followed;
(3) Satisfying the requirement for tax collection and administration, optimizing the tax services, enhancing the standard of tax collection and administration, and the standard of conduct in law enforcement.

BACKGROUND

1. The Company, the Servicer, the Lender and the Administrator are parties to that certain Amended and Restated Receivables Financing Agreement, dated as of _________,_________,_________(M,D,Y) (the “Receivables Financing Agreement”).

2. The parties hereto desire to amend the Receivables Financing Agreement in order to extend the scheduled termination date as set forth herein.

NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

Section 1. Definitions. Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings assigned thereto in the Receivables Financing Agreement.

Section 2. Termination Date. The definition of “Termination Date” set forth in Appendix A to the Receivables Financing Agreement is hereby amended by deleting the date “_________,_________,_________(M,D,Y)” where it appears in paragraph (c) thereof and substituting therefor the date “_________,_________,_________(M,D,Y)”.

Section 3. Representations and Warranties. The Company and the Servicer hereby represent and warrant that (i) the representations and warranties contained in Article VI of the Receivables Financing Agreement are true and correct on and as of the date hereof, and after giving effect hereto, as though made on and as of such date, and shall be deemed to have been made on and as of such date, and (ii) no event has occurred and is continuing or would result from this Amendment, that constitutes an Event of Default or Unmatured Event of Default.

Section 4. Miscellaneous. The Receivables Financing Agreement, as amended hereby, remains in full force and effect. Any reference to the Receivables Financing Agreement from and after the date hereof shall be deemed or referred to the Receivables Financing Agreement as amended hereby, unless otherwise expressly stated. The Company hereby agrees to execute and deliver a replacement Note, substantially in the form set forth in Exhibit A hereto, on or before the date hereof. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. This Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers there unto duly authorized, as of the date first above written.

AAA, INC.

By: /s/ _________

Name Printed: _________

Title: _________

BBB, INC.

By: /s/ _________

Name Printed: _________

Title: _________

CCC CORP.

By: /s/ _________

Name Printed: _________

Title: _________

DDD BANK, NATIONAL ASSOCIATION

By: /s/ _________

Name Printed: _________

Title: _________