International Law for Sale: The International Chamber of Commerce Approves the UCP 600
Here’s one international law development that did not appear in the headlines (are you surprised?). On October 25, 2006, the International Chamber of Commerce’s (ICC) Commission on Banking Practice and Technique (Banking Commission) voted unanimously to approve the UCP (Uniform Customs and Practices) 600, punctuating a 3 ½ year effort to revise the universally followed “rules of the road” for documentary credits (aka letters of credit).
In its simplest form, a letter of credit (LC) is a bank-to-bank undertaking to pay an exporter upon an “issuing bank” receiving documentary proof (commercial invoice, bill of lading, certificate of origin, packing list, etc.) that the exporter has “performed” as delineated in the LC. The fundamental tenet of LC practice is that the “issuing bank’s” obligation to pay is purely documentary — if the documents ostensibly indicate that the exporter has performed then the bank must pay the exporter and has no obligation to (in fact is not supposed to) investigate whether the underlying transaction in fact has proceeded as the documents indicate.
From the vantage point of LC end-users (exporters (beneficiaries) and importers (applicants)), LCs become an attractive risk mitigation and/or financing tool if LC practice is perceived as predictable and consistent. In other words, if commercial banks determine whether documents comport with the terms of the LC (and thus determine whether to release payment to the exporter) in manner that fairly reflects commercial expectations and practice, then exporters and importers will gravitate toward their use. Under the auspices of the ICC’s Banking Commission, commercial bankers (primarily from large, money center banks in industrialized countries) join with law professors and, occasionally, representatives from the transport and insurance industries to draft the UCP, to “codify” the rules that banks do and should follow in deciding whether (or not) to pay an exporter under an LC. In drafting an LC, the parties may choose the “UCP” as governing law, and, indeed, most commercial banks will not issue an LC unless it is governed by the UCP.
Historically, letters of credit greased approximately 25% of all short-term (repayment terms under 180 days) international trade, although their use has recently waned due in part to the high percentage of discrepancies (and thus non-payments) that strict application of the UCP 500 tended to yield. Why would an exporter require payment via LC if even the slightest discrepancy between the documents and the LC, a discrepancy that reasonable merchants would undeniably ignore such as a spelling or typographical error, could justify the issuing bank’s withholding payment? The UCP revision – the UCP 600 – is, in part, an attempt to discount minor discrepancies, shed some of the UCP’s strict formalism in favor of functionality, and, concomitantly, restore many LCs to the ambit of compliance.
I believe that the UCP has much to teach about how law gels in certain corners of international commerce. The UCP also raises many important questions about the nature of international law and lawmaking: Is it appropriate to label the UCP “law”? What are the normative consequences of such private lawmaking that is not moored to the state?
Today, however, I would like to highlight one narrow facet that I find particularly fascinating and somewhat disturbing – the UCP as international law for sale. Although the UCP is ubiquitous in LC practice (it governs essentially all commercial LCs, most courts in the US (in fact, around the world) use the UCP to decide LC disputes, and Article 5 of the UCC essentially “incorporates” the UCP), the UCP is not available in the public domain. The Banking Commission does not post it on the ICC web site, nor does it make the rules accessible via commercial services such as Westlaw and Findlaw. Instead, the ICC’s publishing division aggressively markets and sells the UCP (and some cynics have even suggested that UCP revisions are timed to meet the ICC’s revenue demands). And even though the ICC Banking Commission approved the UCP 600 over a month ago (and promised to release the document in early November), the ICC has not yet released the UCP 600 (even for sale) and instead is guarding its contents like the most precious of state secrets.
I am not unsettled by the notion of private lawmaking, especially in the transnational realm where the official apparatus is comparatively skeletal. I am, however, unsettled by the creation of “private law,” by which I mean law that is available only to those willing and able to pay for it but nonetheless applicable to all (in this instance, who use LCs). The price tag that the ICC attaches to the UCP is, at one level, a symbolic gatekeeper, troubling not so much because of the nominal cost but because it is emblematic more generally of the Banking Commission’s closed, secretive ways. But, on a deeper level, when we remove law from the public realm do we inevitably transform law from a “public good” to a “private good”? And, in doing so, do we fundamentally alter the essence if law itself?
Meanwhile, I am anxiously waiting with my credit card in hand so that, as soon as ICC Publishing lifts the veil, I can purchase my copy of the UCP 600, begin to digest the new legal rules, and think about what they mean for the course international trade and, more generally, the march of international law.