INTRODUCTION AND BACKGROUND 'A letter of credit is a complex, practical instrument whose governing principles have developed over time as a result of customary banking practice'.[1] This paper considers the implications of the new letter of credit rules, effective from 1 July 2007: Uniform Customs and Practice for Documentary Credits, 2007 Revision,[2] (referred here as UCP 600), particularly as these relate to exporters. The usage of letter of credit transactions is firstly quantified (in value), together with the development of the codification of the rules of the modern day letter of credit. The contractual obligations and the current operational mechanisms are presented next, followed by discussion on the lead up to, and the implementation of the changes brought about by the UCP 600. Letter of credit transactions have been among the most popular international methods of payment, because they provide a relative degree of protection for both sellers and buyers. They are particularly suited to high-risk, high-value situations, and where a lack of trading history exists. It has been estimated that the value of letter of credit business is above one trillion USD per annum.[3] Because letter of [page 1] credit transactions are pedantic in their documentary requirements, they can be notoriously difficult -- particularly for the exporter -- due to the high level of documentary compliance required by the banks prior to the payment of funds. The International Chamber of Commerce (ICC) estimates that non-compliance in exporter documentation exists in about 70% of transactions,[4] and this comes at a cost for the exporter. It has been estimated that in the UK alone, the cost of documentary discrepancies is in the order of £113 million per annum.[5] Understanding the rules that govern these transactions therefore would seem to be the first step in 'getting it right'. The Uniform Regulations for Commercial Documentary Credits of 1929 was the first attempt by the ICC to codify letter of credit rules, as private contract law. However, this first set of rules was introduced into banking practice in Belgium and France only, with banking associations in other countries willing to adopt them only after certain amendments.[6] This resulted in the 1933 Uniform Customs and Practice for Commercial Documentary Credits. Subsequently these rules were revised in 1951. The Uniform Customs and Practice for Documentary Credits issued in 1962 was perhaps the first set of rules to gain global acceptance.[7] These rules have also been subject to regular updates, in 1971, 1983, 1993 (the current rules in force at the time of writing this paper, referred to as UCP 500 [8]) and the new rules -- the UCP 600 -- to apply from 2007. It is outside the scope of this paper to consider the changes made to the seven revisions issued since 1929. This paper considers the changes to UCP 500 that will be effective with the new UCP 600, applicable from 1 July 2007.

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