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Letter to the editor |
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Letter to the editor |
In the last issue of DCInsight, Reinhard Längerich, writing in "Expert commentary", says: "I am convinced that by removing the term 'negotiation' and 'the right of recourse against the beneficiary' [from UCP], we would make the letter of credit a more reliable instrument." I suggest, however, that Mr Längerich may be speaking from his experience in the Nordic countries, where L/Cs are used less and less. He should look at the same issue from a worldwide perspective.
I cite but one illustrative example, which comes from Hong Kong, where I used to be an L/C practitioner. Hong Kong exporters and manufacturers with tight cash flows may need immediate cash to pay off various obligations. In the case of one of these, the Chinese New Year bonus (the so-called "thirteenth month of salary") to be paid to the work force, employers cannot wait until presentations are approved by the issuing bank. Every single day counts. Even for sight payments, they need to have immediate cash in exchange for negotiation "with recourse". Otherwise, they could be compelled to appear before a government labour tribunal for delays in paying the bonus. Worse still, their most experienced employees could defect to competitors. These problems and others for the beneficiary may not be understood by bankers working in other regions. The circumstances here are not reflected in the UCP or the ISBP, but they are among those confronting tight cash flow beneficiaries.
Clearly, the term "negotiation" means different things in the East and in the West. This is one of the reasons why it is so difficult to define. For usance drafts or deferred payment L/Cs, negotiation can provide beneficiaries with ready cash to pay off their financial liabilities. If they do not have this possibility, their factories could be closed down. L/C practitioners in the West who do not trade in the Middle East or Asia, or who do not visit their customers in these areas, may not understand the significance of "negotiation" to beneficiaries in these regions.
Negotiation is the lifeblood of the banking business in the Middle East and Asia. Considering that L/Cs are used less and less in North America, the main users of the next UCP are likely to be located in the Middle East and Asia. The UCP is a worldwide set of rules. As such, they cannot apply to only a narrow set of users.
T.O. Lee
T. O. Lee FAE, MCIArb, MITD is an expert witness and trainer specializing in resolving international trade disputes involving letters of credit, bills of lading, charter parties, Incoterms 2000, trade frauds and China trade.
His e-mail is experts@tolee.com and his Web site is http://www.tolee.com
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