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CHAPTER XXXIII NEGOTIATION OF SHIPPING DOCUMENTS
Instructions for Opening a Letter of Credit
Examination of a Letter of Credit
Common Discrepancies
Negotiation with Discrepancies
Documents for Negotiation
Presentation of Documents
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Negotiation
Negotiation means the purchase by the nominated (negotiating) bank of drafts and shipping documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary
An exporter presents a draft (a bill of exchange) and shipping documents specified in the letter of credit to a nominated bank or any bank if there is no nominated bank, which becomes a negotiating bank, to get paid.
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Instructions for Opening a Letter of Credit
Items usually included in the instructions to open an L/C.
(1) An Irrevocable letter of credit subject to the UCP of the latest version; UCP No. 600 (2007 Revision)
(2) Whether the L/C is to be confirmed by a . bank or not.
(3) The name and address of the beneficiary: in favor of exporter.
(4) Whether the L/C is to be transferable or not
(5) Terms of payment such as at sight or usance
(6) Where negotiation or payment is to be effected
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Instructions for Opening a Letter of Credit
(7) Whether the payment is to be made in . dollars or other foreign currency
(8) What trade terms are to be used: FOB, CFR or CIF?
(9) Coverage of marine insurance: All Risks, WA, FPA, War Risks, Warehouse to warehouse or any special coverage such as a rejection clause
(10) Documents to be required for negotiation
Commercial invoice
Packing list
Marine insurance certificate
Ocean bill of lading
Other documents requested by the buyer and accepted by the seller
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Instructions for Opening a Letter of Credit
(11) Whether partial shipments are allowed or not
(12) Whether transshipments are allowed or prohibited
(13) Presentation period/date: A period of time for presentation of documents after shipment
(14) Ports of loading and unloading
(15) The latest shipping date
(16) The expiry date
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Examination of a Letter of Credit
When a letter of credit is received, exporter must:
(1)Examine the conditions and documents specified in the L/C and determine whether he can meet them or not.
(2) If there are any conditions he cannot meet, request his buyer to amend the L/C asap before he starts manufacturing export goods.
(3) If the L/C calls for a time draft, have the L/C specify that the discount interest for the time draft shall be for account of accountee (importer), when agreement was a sight draft but L/C is opened with a time draft
(4) Hold off shipping the order until he receives an amendments to the L/C as requested.
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Common Discrepancies
A discrepancy: any inconsistence or difference from the terms and conditions stipulated in the letter of credit in minute details.
(1) Drafts
Draft amount is different from invoice
Draft tenor is different from the L/C
Wrong drawee
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Common Discrepancies
(2) Commercial invoices
Different merchandise description from the L/C
Invoices is not issued by the beneficiary
Insufficient copies are presented
Incorrect accountee's name and address are stated
Different prices from the L/C
Terms of trade such as FOB, CFR or CIF different from the L/C
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Common Discrepancies
(2) Commercial invoices (continued)
Marks and numbers of packages are different from all other documents
Weight is different from the L/C
A statement required in the L/C is not presented
Different currency from the L/C
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Common Discrepancies
(3) Packing list
Different description of merchandise from the L/C
Different number of unit, net weight and gross weight from the L/C
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Common Discrepancies
(4) Ocean Bill of Lading
Less than a full set of original B/L is presented
The B/L not properly endorsed
The B/L not marked with "On Board“ notation, if B/L contains the indication “intended vessel” or "Received for shipment"
The B/L not properly consigned.
In the case of CFR or CIF, the term "Freight Prepaid" is not marked, that is, no indication of freight prepaid by the exporter
Merchandise description is different from the L/C
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Common Discrepancies
(4) Ocean Bill of Lading (continued)
Different ports of loading and/or unloading from the L/C
Notations on the B/L that the merchandise or packages are damaged
The B/L indicates the "On Deck" shipment
Stale B/L : Not presented within time limit after shipment as stipulated in the L/C : within ____ days after date of issuance of bills of lading
Late shipment: The bill of lading date marked later than the shipping date specified in the L/C
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Common Discrepancies
(5) Marine Insurance Certificate
Different coverage from the L/C
Insufficient coverage
Not the same currency as the L/C
Different merchandise description
The effective date later than the shipping date
Broker's cover note presented instead of insurance certificate or policy
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Common Discrepancies
(6) Other discrepancies
Not all documents required in L/C presented
Documents presented after the expiry date of the L/C
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Negotiation with Discrepancies
In case discrepancies are found by negotiating bank, exporter must correct the discrepancies.
If exporter cannot correct them such as the shipping date, then exporter should
request the issuing bank to amend the letter of credit to cover discrepancies or authorize to pay in lieu of discrepancies
At the same time, inform the buyer of the discrepancies and request his acceptance and amendment to the Letter of Credit.
Release shipping documents to issuing bank after the L/C is amended. Buyer’s acceptance of discrepancies are not enough. The Letter of Credit must be amended.
Do not send the shipping documents to the issuing bank for an approval or on a collection basis.
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Documents for Negotiation
Depend on the stipulation in the letter of credit.
Exporter must present all documents specified in the letter of credit for negotiation.
Any missing document or incorrect document becomes a discrepancy.
Issuing bank of the L/C has under no circumstances an obligation to honor the draft and shipping documents with discrepancies.
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Documents for Negotiation
Common documents used in the international trade accompanying exporter’s Draft (Bill of Exchange)
(1) Commercial Invoice
(2) Packing List
(3) Ocean Bill of Lading
(4) Marine Insurance Certificate
(5) Any other documents if required by the L/C
Certificate of Country Origin
Consular Invoice
Inspection Certificate
Beneficiary's statement
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Presentation of Documents
Draft and all shipping documents must be presented to a negotiating bank together with the original letter of credit.
Presentation must be made within a specified period of time after shipment in the L/C, but not later than 21 days after shipment
A bank must determine whether or not presentation is a complying presentation in 5 banking days
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Presentation of Documents
If a nominated (negotiating) bank, a confirming bank, if any, or the issuing bank determines that a presentation does not comply,
it may refuse to honor or negotiate, then
it must give a single notice to presenter no later than the close of the 5th banking days.
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Presentation of Documents
The notice must state
The bank is refusing to honor or negotiate
Each discrepancy
The bank’s disposal of shipping documents:
The bank is holding documents pending instructions from the presenter or
The issuing bank is holding documents until it receives a waiver from the applicant & agrees to accept it or
The bank is returning documents or
The bank is acting according to the previous instructions from the presenter.
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Presentation of Documents
If a bank does not follow these negotiation and notice provisions,
The bank cannot claim that the documents do not constitute a complying presentation.
The bank must honor or negotiate.
A document presented but not required by the Credit will be disregarded.
If a Credit contains a condition without stipulating the document to indicate compliance with the condition,
Banks will deem such condition not stated and will disregard it.
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