Has The Definition Of "Negotiation" Changed In UCP600?

[admin]

DEAR ALL,
HAS THE DIFINATION OF "NEGOTIATION" CHANGED IN UCP 600 FROM ITS PREDECESSOR.
THNAKS
nesarul

[admin]

Hi!

As I may understand UCP600 has made definition of "negotiation" more precise in order to avoid "untrue negotiation".

What I mean.
UCP500
======
Article 10. Types of Credit one may find
'Negotiation means the giving of value for Draft(s) and/or document(s) by the bank authorised to negotiate. Mere examination of the documents without giving of value does not constitute a negotiation.'
It doesn't state WHEN 'the bank authorised to negotiate' should 'give value for Draft(s) and/or document(s)'.
So, IMHO, most of LCs available by negotiation were in fact available with "untrue negotiation", i.e. beneficiary was reimbursed by negotiating bank only after getting reimbursement by the latter.

UCP600
======
Article 2. Definitions
'Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank.'
So, now it is clear that if the bbank has accepted to be as negotiaing bank under LC then value of drafts and/or docs under complying presentation to be paid ON OR BEFORE the date of reimbursement to the latter.

Maybe other collegues have more ideas.

Good luck
Armagedo

[admin]

dear sir,
if you compare the present negotiation definition with position paper 2 (where the stand of icc has been described under ucp 500, and clearly mentioned who are eligible to negotiate) then how you measure it.
thanks
nesar

[admin]

Hi!

It seems that you're more expierienced in this.

So, please, share Your point.

Good luck

[admin]

dear sir,
i am not sure whether i am more experianced or not. but what i think negotiation is only possible only where credit available by negotiation.
do u agree.
thnaks
nesar

[Md.zakir Hossen]

Good Topics:
I will appreciate if the forum members shows the difference among Pay at sight and Negotiation.

[hassan]

for me the ambiguity of "negotiation " is in meaning of ". . . agreeing to advance funds. . . "
if some one can explain it by an example the negotiation will be completely clear.

[shahriar]

dear hassan,

i guess many people out there are confused abt negotiation. its too late to discuss it today. i will revert tomorrow. just one think. NEGOTIATION should not be there in UCP!!!

shahriar

[nesarul]

Dear Sir,
explanation of agreeing to advance fund under the definition of negotiation:
example 1:
let an l/c is available by negotiation at the counter of confirming bank.
when the confirming bank extened its confirmation to its from that time the confirming bank has agreed to advance fund to the beneficiary.
example 2:
let l/c available with nominated bank (which is not a confirming bank) by negotiation:
if the nominated bank provide express consent towards beneficiary as per sub article 12(a) then the nominated bank may be obligated to advance fund to the beneficiary.
example:3
let credit available with bank nominated bank) by negotiation
beneficiary presents document at its counter dt.01.02.08 . after examine the document and found complying presentation on 03.02.08, the nominated bank revealed an specific date i.e 08.02.08 on which the beneficiary will receive negotiation amount. from the date of 03.02.08 to before getting payment by the beneficiary i.e.08.02.08 is agrreeing to advance fund.
.
pls be note that
in all above cases, draft must not drawn on confirming bank or nominated bank in the case may be.
reimbursement of the issuing bank to the nominated bank is occured later than the advance payment to the beneficiary.
thanks
nesar

[hassan]

Dear Nesar,
Thank you for good examples but there are still some confusings as follows : in definition of "negotiation" in Art. 2 - UCP 600 , we have

. . . agreeing to advance funds to the beneficiary" ON "or before the banking day on which reimbursement is due to the nominated bank.

what dose mean this "ON"? if the negotiating bank mus pay at the time of presentatin or a date after that but before the "banking day on which reimbursement is due to the nominated bank"
then what is the role of "on" in above mentioned definition ?

[nesarul]

Dear Hasan sir,
thnaks for your point the word "ON". your analytical question is always appreciated.
Here i cite you another example :
source: "Frequently asked questions under UCP 600 -gary Collyer

the due date of a draft in august 20,2008 and the nominated bank is based on bangladesh. the currency is USD and the issuing bank remit funds to nominated bank's account in Newyork on a due date, i.e. august 20,2008[value date] the nominated bank negotiated and agrred to advanced fund to the beneficiary on august 20,2008. the advance will be made without the bank in Bangladesh aware as to whether or not covering funds have been remitted by the issuing bank.
.
i think now it is clear, isn't it.
thnaks

[Md.zakir Hossen]

We know that Negotiation is method of settlement of the credit among other method of settlement according to article 6(b) of UCP-600.

Some specialist says that among 04 method of Payment (i,e. Cash in Advance, Open Account, Documentary Collection and Documentary Credit) Documentary Credit only covers a small portion of International Trade and some are afraid about the future of the Credit.
In these circumstances, I think Shariar Opinion goes beyond the spirit of the Letter of Credit.

We know that main objective of Letter of Credit is to facilitating Payment.But in Practice, Bankers behavior (Discrepancy lover) seems to be that the aim of Credit is to Prohibition of Payment.

Shahriar, Plese look that the definition of “Negotiation” in UCP-600 is revised.Actually What was the need for revision of the definition of Negotiation.
UCP-600 has changed and simplifird the definition of Negotiation to focus the concept on the purchase of drafts and/or documents by advancing or agreeing to advance,funds to the beneficiary.
.
In UCP-600, the definition was not so clear and the Nominated Bank somehow avoid to “giving the value of the draft or documents”. I think the drafting group has simplified this settlement procedure to make the fund available to the beneficiary before it(nego.Bank) gets fund from the Issuing Bank.

(Please see page no.22 of Commentary on UCP-600).

If the settlement method is not available in the credit than how the settlement will do in case of Sight payment, deferred payment etc. Beneficiary may suffer for retaining payment and He/She will choose Cash in Advance.

zakir

[nesarul]

DEAR ALL,
Is there any "FUNCTIONAL" [EMPHASIS ADDED] changed in SUB ARTICLE 10(b)(ii) of UCP 500 in conjunction with position paper 2 and article (2) definition of negotiation.
thanks
nesar
.

[nesarul]

Dear Zakir Bhai,
Pls perdon me, I can not call upon you only zakir, its my limitation. pls don't mind.
Pay at sight:
under this type of credit, the obligation of the issuing bank is extended only to the beneficiary and usually expires at the counter of issuing bank.
in some cases, issuing bank can authorise another bank called paying bank to honour claim of the beneficiary under a complying presentation. concept of paying bank is implied in UCP 600. normally paying bank, sometimed refers to reimbursing bank, hold an authority 9reimbursement authorization) from the issuing bank against its authorization.
if the paying bank is bank other than reimbursement bank, then credit must stipulated a reimbursement caluse from which paying bank can claim the document value under complying presentation.
remember that payment of paying bank is final as like honour of the issuing bank and paying bank received its honoured amount from the issuing bank only.
Payment by negotiation:
under this type of credit, the issuing bank engagement is extended to third parties who negotiate or purchase the beneficiary's documents presented under the credit.
.
in our country, we have frquently insert reimbursement(tt reimbursement )clause in a credit available by negotiation, which is really agaist the spirit of negotiation. i furnish here an ICC official opinion regarding above:

In ICC Opinion TA. 569 a clear statement was provided as what constitutes a negotiation credit:

"A letter of credit that is stated to be available with a nominated bank, by negotiation, must not include any reference to claiming reimbursement from a reimbursing bank or, indeed, any reference to the debiting of the issuing bank's account held with the nominated bank. This form of structure is a payment letter of credit. A negotiation letter of credit should specify that the nominated bank is to send the documents to the issuing bank and upon the issuing bank ascertaining that they comply with the terms and conditions of the credit, the issuing bank will reimburse in accordance with the instructions of the negotiating bank."
sorry for long posting.
thanks
nesar

[shahriar]

dear zakir bhai

im with nesar. from now on u r our big brother.

i agree with you that lc is for payment. but just think for a while. how many documents do u have negotiated just because that they were available by negotiation? i guess note. almost all the lcs are available by negotiation while only a fraction of it are negotiated and this happen only to the good customers of the banks. why? coz nego is closely related to the credit policy of the bank. its a purchase. dont u purchase document against purchase order? yes we do. but again, for good customers only and when the documents are in order. that means if there is no negotiation, even then banks will be giving value to their good customers; with slight change in name, may be discounting / purchase

shahriar

[nesarul]

Dear Shahriar,

have you gone through the kim's article. article by article analysis...."

I think you may agree with me that your local industry practice doesn't reflect the universal application. I always try to follow the principal especially when i am working at office that "THINK GLOBAL ACT LOCAL" I think its a better solution. If you want to act globally here, you may enmeshed with some unwelcome situation.
I never say anything regarding UCP in my office when i am not ask for. sometimes i discuss UCP matter with some same mind people like you, Bakhthyer sir, and others.

[shahriar]

dear nesar,

someone must stand up. besides there are many practices that we do locally, sometimes recognized by icc but doesnt make any sense. how would u interpret a To order AWB or a sight draft. ICC has accepted them coz some countries want them. if we change, everything will change.

shahriar

[Md.zakir Hossen]

I think main agenda of this topics is difference between NEGOTIATION,SIHGT PAYMENT AND ACCEPTANCE.

[Md.zakir Hossen]

THANKS SHARIAR
I REALIZE IT.WHAT OUR BANKERS DO THAT UNNECESSARILY THEY INSERT THE RE-IMBURSEMENT CLASUSE IN THE CREDIT AVAILABLE BY NEGOTIATION.

WHEN I DISCUSSED IT WITH SOME EXPERIENCED PERSON THEY SIMPLY AVOID ME.
I ALSO DISCUSSED THE MATTER WITH DR.TOUFIC AHED CHOWDURY AND REQUEST HIM TO BRING THE MATTER TO THE SENIOR BANKERS.
AND THIS IS NOT THE CASE FOR BANGLADESH.MANY REPUTED BANK ALSO DO THIS.
I THINK OUR SENIOR BANKER WILL REALIZE IT

[Navi]

Hi everybody,

Maybe it will be boring for you to discuss this again but i really couldn't get the point about negotiation

I often come across to L/Cs available "by negotiation" but always take it as "by payment". I think it will be more clear for me if explained with examples.

For instance, we received an L/C with amount EUR 10.000.-available with our bank by negotiation, will be confirmed by our bank, sight drafts drawn on issuing bank (sometimes no drafts required) and field 78 states: "upon receipt of credit conform docs at our counters we will cover as per your instrucitons".

Lets say that we are presented docs on 10 July, we decided that they are in conformity with L/C terms on 11 July. What should I do that time? Should I pay 10.000.- to benef. on July 11 and send docs to issuing bank requesting the same amount or pay less than 10.000.- to benef and send docs? Or, as I often do, send the docs to issuing bank and pay benef. upon receipt of the docs amount? On all cases I will receive payment later than July 11.

Moreover, I have the similar confusing with Hassan about Art. 2 - UCP 600 :
. . . agreeing to advance funds to the beneficiary" ON "or before the banking day on which reimbursement is due to the nominated bank. If I agree to pay to benef. "ON" the banking day which reimbursement is due, then I cannot see any difference b/w negotiation and payment (which I will pay on the day I receive reimbersement).

[nesarul]

Dear All,
Regarding your point 1,
Fact:
Credit available by negotiation with confirming Bank,
Beneficiary presented document 10th july
on 11th july confirming bank decided that documents constitute complying presentation.
As per sub article 8(a) (ii), confirming bank must negotiate the document.
another query: does the confirming bank must negotiate the document on 11th july.
my thiniking:
according to sub article 15(b):
"WHEN[emphasis added] a confirming bank determines that a presentation is complying, it must honour or negotiate and forward the document to the issuing bank"
here the word "When" is indicative one, its mean that after a bank completion of its examination of document as per article 14 decided that the presentation is complying, then this bank must act under article 15.
Here the word"WHEN" doesn't mean that the bank has to honour or negotiate within a second,or minute or hour or within the day after determining that documents complying, rather it means that
"When a bank determins that documents constitute complying presentation, then the bank will honour or negotiate in a normal fututre course of action.
consequently, the confirming bank must not have to negotiate within 11th july, it can negotiate in any future date provided that it will advance its own fund to the beneficiary on or before reimbursement is made to the confirming bank.

point 2:
normally,under negotiation,The confirming bank advance fund to the beneficiary is bill value less interest[from the date of negotiation to expected date of receive fund from the issuing bank] and negotiation commission if any. It may be for one day or any depending upon the agreement with the beneficiary.

point 3:
explanation of "ON": i try to explain it with an example
in my previous posting.

Awaiting for comments.

regards
nesar