Introduction to UCP 600 for Importers

Global Transaction Services

Cash Management Trade Services and Finance Securities Services Fund Services

Introduction to UCP 600 for Importers

Victor Pena Vice President Americas Regional Trade Advisor

These materials are provided for educational and illustrative purposes only and not as a solicitation by Citigroup for any particular product or service. Furthermore, although the information contained herein is believed to be reliable, the following does not constitute legal advice, and Citigroup makes no representation or warranty as to the accuracy or completeness of any information contained herein or otherwise provided by it.

UCP 600 Understanding & Application

Review History & Process

Comparison with UCP 500

Overview of UCP 600 Articles

Review History & Process

The UCP is the work of the ICC, a private international organization founded in 1919.

Remains, to date, the most successful set of private rules for trade ever developed.

UCP 600 Sixth (6th) revision since its inception by the International Chamber of Commerce in 1933

Included review - ICC Opinions, Decisions, DOCDEX cases, legal decisions, URR525, ISP98 and eUCP

Review History & Process

*Seven Articles that have lead to nearly 60% of ICC Opinions are: - Article 9 - Article 13 - Article 14 - Article 21 - Article 23 - Article 37 - Article 48 Liability of Issuing and Confirming Banks Standard for Examination of Documents Discrepant Documents and Notice Unspecified Issuers of Contents of Documents Marine/Ocean Bills of Lading Commercial Invoices Transferable Credits

Page 5 5

Review History & Process

ICC National Committees were requested to vote on issues such as:

On its face, Reasonable time, Negotiation - leave out or retain Introduction of new articles, splitting of others, parties or banks, Discounting of deferred payment undertakings Degree of review for inconsistency or non conflicting

ICC unanimously approved 2007 Revision on 25th October 2006

Effective July 1, 2007

Page 5 6

Comparison with UCP 500

New terminology, concepts & wording introduced Re-organization of the rules Substantive & cosmetic changes Improved clarity, yet created new ambiguity

Whats not changed

Irrevocable Irrevocable Documentary Documentary

Independent Independent

Comparison with UCP 500

UCP 600 (39 Articles)

UCP 500 (49 Articles)

New:
Article 2 Article 3 Article 9 Definitions Interpretations Advising of Credits & Amendments Article 12 Nomination Article 15 Complying Presentation Article 17 Original Documents & Copies

Not included in new Revision:

Article 5 Instructions to Issue/Amend Credits Article 6 (part) Revocable Article 8 Revocation Article 12 Incomplete or Unclear Instructions Article 38 Other Documents Articles 2,6,9,10,20,21,22, 30,31,33,35,36,46,47 content merged or amalgamated

Comparison with UCP 500

No Change from UCP 500 legal status

Rules apply to LC by incorporation into the LC - not by operation of the law Rules may be overridden by express terms in the L/C Rules are subject to interpretation by national courts

Overview of UCP 600 Articles

General Provisions and Definitions Liabilities and Responsibilities Examination of Documents Documents Miscellaneous Provisions Disclaimers Transferable Credit & Assignment UCP 600 39 1-5 6 - 13 14 - 17 18 - 28 29 - 33 34 - 37 38 - 39 49

v. UCP 500

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Overview of UCP 600 Article 1

Applicable when the credit expressly indicates that is subject to these rules - (SWIFT changes have been made to bring in line).

Use of SWIFT: 40E: Applicable Rules UCP LATEST VERSION

Use of telex or letter: This credit is subject to the Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication No. 600. This credit is subject to UCP 600

11

Overview of UCP 600 Article 1

Binding on all parties unless modified or excluded by the terms of the L/C.

Contrary to article 32 of the UCP, this credit remains valid for subsequent installments despite any shipment or drawing not made within the period allowed.

Sub-Article 28(c) does not apply.

Documents must not be dated earlier than the date of the issuance of this credit.

12

Overview of UCP 600 Article 2

NEW

Article 2 Definitions (UCP 500 - Part of Art. 2, 7, 9, & 10) Certain terms are defined, so that they provide references when such terms are used in the articles
A Advising bank Applicant B Banking day Beneficiary C Complying presentation Confirmation Confirming bank Credit
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H I N

Honour Issuing bank Negotiation Nominated bank

Presentation Presenter

Overview of UCP 600 Article 2

Honour For credit available by Sight payment Deferred payment Acceptance Pay at sight Incur deferred payment undertaking Pay at maturity Accept bill of exchange Pay at maturity

Negotiation
Purchase by the nominated bank of drafts (drawn on another bank) and/or documents under a complying presentation, By advancing or agreeing to advance funds to beneficiary, on or before the banking day on which reimbursement is due to the nominated bank.

14

Overview of UCP 600 Article 2

Nominated Bank The bank with which the credit is available, or any bank in the case of a freely available credit
Issuing Bank Issuing Advising Bank Advising Beneficiary

Nominated Bank

Nominated Bank

Nominated Bank

L/C available with any bank Any bank is a nominated bank

Restricted L/C Bank named in the L/C

15

Overview of UCP 600 Article 3

NEW

Article 3 Interpretations

(UCP 500 - Art. 47 & part of Art. 2, 20, 46)

NEW

A credit is irrevocable even if no indication to that effect. For determining maturity date, the words from and after exclude the date mentioned (ISBP 45,d)

NEW

30 days from shipment date Shipment date: 1 AUG 2007

30 days after shipment date Maturity date: 31 AUG 2007

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Overview of UCP 600 Article 3

For determining a period of shipment, the words from and after have different meanings
From includes the date mentioned After excludes the date mentioned

Shipment to be effected from August 10th

= =

Earliest shipment date is August 10th

Shipment to be effected after August 10th

Earliest shipment date is August 11th

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Overview of UCP 600 Article 4

Article 4 - Credits v. Contracts
(UCP 500 - Art. 3)

Independence Principle - L/C is a separate transaction from the underlying contract

NEW

Banks should discourage any attempt to include contract as integral part of L/C L/C

Discouraged ??

Contract No.123

Details as per Contract No.123, which is appended and forms an integral part of the credit.

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Overview of UCP 600 Article 5

Article 5 - Documents v. Goods/Services/Performance (UCP 500 - Art. 4)

Banks deal with documents and not with goods, services or performances to which the documents may relate.

In Credit operations all parties concerned deal with documents, and not with goods, services and/or other performances to which the documents may relate. (UCP 500 Article 4)

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Overview of UCP 600 Article 6

Expiry date Last day for presentation of documents Place for presentation
Bank with which the L/C is available, or Any bank, if the L/C is available with any bank, and Issuing bank

L/C available with any bank

L/C available with Bank XYZ

Place for presentation 1. 2. Any bank Issuing bank 1. 2. Bank XYZ Issuing bank

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Overview of UCP 600 Article 9

Article 9 - Advising of Credits and Amendments
(UCP500 - Art.7, 11,b)

By advising an L/C, the advising bank signifies:

Its without any undertaking to honour or negotiate It has satisfied itself as to the apparent authenticity of the L/C or amendment The advice accurately reflects the L/Cs terms and conditions

NEW

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Overview of UCP 600 Article 10

Article 10 Amendments (UCP500 - Art. 9,d) Confirming bank must inform issuing bank of election not to extend confirmation to an amendment and may advise beneficiary of amendment without its confirmation

Partial acceptance = Notice of rejection

Disregard any provision that the amendment shall be in force unless NEW rejected by beneficiary within certain time

Presentation that complies with the credit and not yet accepted amendment deemed to be beneficiarys acceptance of the amendment

22

Overview of UCP 600 Article 12

Article 12 Nomination
(UCP500 - Art. 10,c)

Nomination does not obligate nominated bank to honour

NEW

By nominating a bank to accept a draft or incur a deferred payment undertaking, an issuing bank authorizes that nominated bank to prepay or purchase a draft accepted or a deferred payment undertaking incurred by that nominated bank L/C Available with Citibank N.A. by deferred payment at 90 days after date of shipment

Citibank N.A. is authorized to : 1. Incur a Deferred Payment Undertaking (DPU); and 2. Prepay its DPU (ie early payment before maturity)

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Overview of UCP 600 Article 14

Article 14 - Standard for Examination of Documents (UCP 500 - Art. 13, 21, 22) Must examine documents on their face to determine compliance Other than the commercial invoice, description of goods, services or performance, may be stated in general terms Disregard documents not required by L/C and may be returned Disregard non-documentary condition Documents may be dated prior to issuance date of LC, but not later than date of presentation

24

Overview of UCP 600 Article 14

UCP 500: Reasonable time, not to exceed SEVEN banking days following the day of receipt of documents UCP 600: Max. of FIVE banking days following day of presentation. Not curtailed or affected by other events.
M UCP 600 UCP 500 0 0 Tu 1 1 W 2 2 Th 3 3 F 4 4 Sa X X S X X M 5 5 6 7 Tu W

What is reasonable ?
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Overview of UCP 600 Article 14

Presentation Period Presentation including an original transport document must be made not later than 21 calendar days after date of shipment Transport document - Subject to Articles 19-25

Data Not Conflicting Data in a document must not conflict with data in that document, other stipulated documents or the L/C

26

Overview of UCP 600 Article 14

Unspecified Issuer or Content Other than invoice, transport document or insurance document, banks will accept the document if (1) its content appears to fulfill the function, and (2) it complies with 14(d) Example: L/C calls for Inspection Certificate Inspection Certificate Goods have been inspected and are certified to be in order.
Signed Dated 1 AUG 2007

Inspection Certificate Goods are certified to be of Singapore origin.

Signed Dated 1 AUG 2007

Goods have been inspected and are certified to be in order.

Signed Dated 1 AUG 2007

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Overview of UCP 600 Article 14

Addresses of Beneficiary & Applicant
NEW

Need not be the same between stipulated documents & the credit; but Must be within the same country as in the credit Disregard contact details of beneficiary and applicant (fax, phone, email) stated in the credit (ISBP 61) However, if they form part of consignee and notify party details in transport document, applicants contact details must be as stated in the credit

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Overview of UCP 600 Article 14

Shipper, Consignor, Transport Document Issuer Shipper or consignor of goods indicated on any documents need not be the L/C beneficiary, but must be consistent among all documents

NEW

Transport document may be issued by party other than carrier/ owner/ master/ charterer, provided it meets the requirements of articles 19, 20, 21, 22, 23 or 24

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Overview of UCP 600 Article 16

Article 16 Discrepant Documents, Waiver and Notice (UCP 500 Art. 14,b,c,d,e) Nominated/Confirming/Issuing bank may refuse to honour or negotiate discrepant documents Issuing bank, in its sole judgment approach applicant for waiver Notice of refusal must be given no later than close of the fifth banking day following day of presentation After providing notice of refusal
NEW

The bank may return documents to presenter at any time

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Overview of UCP 600 Article 16

Single Notice of Refusal must state:
the bank is refusing to honour or negotiate, each discrepancy in respect of the refusal, and one of the following:

The bank is holding documents pending presenters further instructions

NEW

The issuing bank is holding documents until it receives waiver from applicant and agrees to accept it, or receives further instructions from presenter prior to agreeing to accept the waiver The bank is returning the documents

NEW

The bank is acting in accordance with instructions previously received from the presenter

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Overview of UCP 600 Article 17

Article 17 Original Documents and Copies At least one original must be presented Original Document = apparent original signature, mark, stamp or label of issuer of the document Also an Original = written, typed, perforated or stamped by the document issuers hand; or on original stationery; or states that it is original L/C requires copies of documents, either originals or copies is acceptable Documents in duplicate, in two fold or in two copies, presentation of at least one original and remaining number in copies is acceptable.
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(UCP 500 - Art. 20,c,ii)

Overview of UCP 600 Article 18

Article 18 Commercial Invoice
(UCP 500 - Art. 37)

Invoice amount in excess of L/C May be accepted by the nominated bank, but must not be honoured or negotiated in excess of L/C amount

Issued by beneficiary, made out in the name of applicant, and need not be signed (except as provided in
article 38 Transferable L/C)

Description of goods, services or performance must correspond with L/C description

Must be in the same currency as L/C

NEW

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Overview of UCP 600 Transport Articles

UCP 600
19 Transport Document Covering At Least Two Different Modes of Transport Bill of Lading Non-Negotiable Sea Waybill Charter Party Bill of Lading Air Transport Document Road, Rail or Inland Waterway Transport Documents Courier Receipt, Post Receipt or Certificate of Posting

UCP 500
26 Multimodal Transport Document

20 21 22 23 24 25

23 24 25 27 28 29

Marine/Ocean Bill of Lading Non-Negotiable Sea Waybill Charter Party Bill of Lading Air Transport Document Road, Rail or Inland Waterway Transport Documents Courier and Post Receipts

34

Overview of UCP 600 Transport Articles

New SWIFT 700 fields for transport details: 44A 44E 44F 44B Place of Taking in Charge/ Dispatch from / Place of Receipt Port of Loading/ Airport of Departure Port of Discharge/ Airport of Destination Place of Final Destination/ For Transportation to / Place of Delivery

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Overview of UCP 600 Article 19

Article 19 Transport Documents Covering at Least Two Different Modes of Transport (UCP500 - Art. 26) Must appear to indicate name of carrier Signed by carrier, master or named agent If signed by agent, need to specify for whom - carrier or master - it is signed
ABC Forwarders As Agent ABC Forwarders As Agent

600 500

600 500

For Master

For Master,

Takashi Yanagawa

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Overview of UCP 600 Article 20 & 21

Article 20 Bill of Lading (UCP500 Art. 23) Article 21 Non-Negotiable Sea Waybill (UCP500 Art. 24) Must appear to indicate name of carrier Signed by carrier, master or named agent
If signed by master, name of master is not necessary

Master

600 500

If signed by agent, need to specify for whom, carrier or master - it is signed ABC Forwarders 600 As Agent 500
For Master

ABC Forwarders 600 As Agent 500 For Master, John Doe

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Overview of UCP 600 Article 22

Charter Party Bill of Lading (UCP500 Art. 25)

B/L containing indication that it is subject to a charter party Signed by master, owner, charterer or named agent If signed by master, or owner, or charterer, their names are not necessary
Master, Owner or Charterer 600

If signed by agent, need to specify for whom master, owner or charterer - it is signed

38

Overview of UCP 600 Article 22

Charter Party Bill of Lading (UCP500 Art. 25) Agent signing for owner or charterer must indicate name of owner or charterer ABC Forwarders 600 As Agent For Owner, John Doe As Agent For Charterer, John Doe ABC Forwarders 600

ABC Forwarders 600 As Agent For Master

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Overview of UCP 600 Article 22

Charter Party Bill of Lading (UCP500 Art. 25) Port of discharge may be shown as a range of ports, or geographical area, as stated in L/C (ISBP 106)
e.g. L/C calls for shipment to Asian ports

NEW

40

Overview of UCP 600 Article 23

Article 23 Air Transport Document (UCP500 Art. 27) Must appear to indicate name of carrier Signed by carrier or named agent If signed by agent, need to indicate that agent has signed for or on behalf of carrier Must indicate date of issuance, which will be deemed to be the date of shipment, unless.
NEW

Specific notation of actual date of shipment, even not called for in the credit, will be deemed to be the date of shipment

41

Overview of UCP 600 Article 24

Road, Rail or Inland WaterwayTransport Documents
(UCP500 Art. 28)

For rail transport document:

NEW

If it does not identify the carrier, any signature or stamp of railway company is accepted as being signed by the carrier (ISBP 172) Transport document marked duplicate is accepted as an original Transport document will be accepted as original whether marked as an original or not (also applicable to inland waterway transport) Road transport document marked for consignor or shipper or bear no marking for whom the document has been prepared is the original
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NEW

Overview of UCP 600 Article 28

Article 28 Insurance Document and Coverage (UCP500 Art. 34-36) Insurance document Insurance policy, insurance certificate or declaration under open cover Issued and signed by insurance company, underwriter or their agents or their proxies Signature by agent or proxy indicated as being for or on behalf of insurance company or underwriter

ABC Insurance Co. Ltd.

Agent for ABC Insurance Co. Ltd.

By proxy for ABC Insurance Co. Ltd.

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Overview of UCP 600 Article 28

Article 28 Insurance Document and Coverage (UCP500 Art. 34-36) All originals must be presented, if the document indicates that more than one original has been issued Cover Note not acceptable Insurance policy is acceptable in lieu of insurance certificate or declaration under open cover Issued no later than shipment date, or it appears from the document that cover is effective from a date no later than shipment date Insurance Policy Insurance Policy
Effective Date Effective Date 1 AUG2007 1 AUG 2007 Issued on 88 AUG 2007 Issued on AUG 2007

Bill of Lading Bill of Lading

Shipped On Board Shipped On Board 1 AUG2007 1 AUG 2007 Issued on 11 AUG 2007 Issued on AUG 2007

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Overview of UCP 600 Article 28

Article 28 Insurance Document and Coverage (UCP500 Art. 34-36) Min. 110% of CIF or CIP value, if L/C does not indicate insurance coverage required

If CIF or CIP value cannot be determined from documents take the greater of the following:
Amount for which honour or negotiation is requested; or Gross invoice value of the goods
NEW

Risks covered at least : Place of taking in charge or shipment as stated in the L/C Place of discharge or final destination

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Overview of UCP 600 Article 28

Article 28 Insurance Document and Coverage (UCP500 Art. 34-36) L/C should state type of insurance required and additional risks to be covered If L/C uses imprecise terms such as usual risks or customary risks, bank will accept insurance document without regard to any risks not covered If L/C requires insurance against all risks, bank will accept insurance document containing any all risks notation or clause, without regard to any risks stated to be excluded
NEW

Insurance document may :

Contain reference to any exclusion clause Indicate that cover is subject to franchise or excess (deductible)

46

Overview of UCP 600 Article 31

Article 31 Partial Drawings or Shipments (UCP 500 Art. 40) Partial drawings or shipments are allowed Presentation of multiple sets of transport docs evidencing shipment on the same means of conveyance (e.g. vessel, aircraft) from different ports/places on different dates and for the same journey to the same destination not partial shipment
Port A Port B B/L A AUG 1 AUG 1 AUG 7 AUG 7

Same vessel and voyage Same destination

Port D

B/L B

B/L C Port C

AUG 9 AUG 9 A BB C = L/C quantity A C

Take latest of the shipment dates as date of shipment (Aug 9 in the above example) (ISBP 89)
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Overview of UCP 600 Article 31

NEW

Presentation of multiple sets of transport docs evidencing shipment on more than one means of conveyance within the same mode of transport (e.g. shipment by truck) will be regarded as partial shipment, even if shipped on the same day for the same destination (ISBP 89)

Partial Shipment
Truck A Truck B Truck C AUG 1 AUG 1 AUG 1 AUG 1 AUG 1 AUG 1 Destination D A BB C = L/C quantity C A

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Overview of UCP 600 Article 37

Article 37 Disclaimer for Acts of an Instructed Party
(UCP 500 Art. 18)

Bank instructing another bank to perform services is liable for that banks charges Issuing bank is liable for charges that cannot be collected or deducted from the proceeds

49

Overview of UCP 600 Article 38

Article 38 Transferable Credits (UCP 500 - Art. 48)
NEW

Transferable credit An L/C may be made available by the transferring bank to a second beneficiary Applicant Applicant 1 First First Beneficiary Beneficiary 2 3 Second Second Beneficiary Beneficiary 4

Issuing Bank 1. 2. L/C application Transferable credit 3. 4.

Transferring Bank

(May be the Issuing Bank)

Request for transfer Transferred credit

(Credit has been made available to a second beneficiary)

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Overview of UCP 600 Article 38

Article 38 Transferable Credits (UCP 500 - Art. 48) Transferred credit must accurately reflect the terms and conditions of the credit, including confirmation Second beneficiarys documents may be sent to issuing bank if first beneficiary fails, on first demand, to:
Present its invoice (and draft, if any), or Rectify discrepancies in its invoice (where such discrepancies did not exist in second benes invoice)

NEW

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Overview of UCP 600 Article 38

Article 38 Transferable Credits (UCP 500 - Art. 48) 38 (k): Second beneficiarys documents must be presented to transferring bank

NEW

B C

Second beneficiarys documents First beneficiarys draft & invoice Documents after substitution
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Overview of UCP 600 Article 38

Bank not obligated to effect transfer All charges relating to the transfer are for the account of first beneficiary If L/C allows partial drawings or shipments, it can be transferred in part to more than one second beneficiary Transferred L/C cannot be transferred to any subsequent beneficiary Must determine the handling of subsequent amendments Rejection of an amendment by one or more second beneficiary does not invalidate the acceptance by any other second beneficiary Allowable changes: - credit amount - unit price - expiry date - period for presentation - latest shipment date - percentage of insurance coverage First beneficiarys name may be substituted for that of the applicant Honour or negotiation of transferred L/C may be in the second beneficiarys country

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Overview of UCP 600 Articles

Article 7 Issuing Bank Undertaking
(UCP500 part of Art. 9,a) (UCP500 - 9,c and part of Art.9,b)

Article 8 Confirming Bank Undertaking

Article11 Teletransmitted and Pre-Advised Credits and Amendments (UCP 500 - Art. 11,a,c) Article 13 Bank to Bank Reimbursement Agreements (UCP500 - Art.19) Article 15 Complying Presentation
NEW

Article 25 Courier Receipt, Post Receipt or Certificate of Posting

(UCP 500 Article 29)

Article 26 On Deck, Shippers Load and Count, Said by Shipper to Contain and Charges Additional to Freight
(UCP 500 Art. 31,i,ii and Art. 33,d)

54

Overview of UCP 600 Articles

Article 27 Clean Transport Document (UCP 500 Art. 32) Article 29 Extension of Expiry Date or Last Day for Presentation
(UCP 500 Art. 44)

Article 30 Tolerance in Credit Amount, Quantity and Unit Prices

(UCP500 - Art. 39)

Article 32 Installment Drawings or Shipments Article 33 Hours of Presentation

(UCP 500 - Art. 41)

(UCP 500 - Art. 45)

Article 34 Disclaimer on Effectiveness of Documents

(UCP 500 - Art. 15)

Article 35 Disclaimer on Transmission and Translation

(UCP 500 - Art. 16)

Article 36 Force Majeure

(UCP 500 - Art. 17)

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Any Questions?
Our Technical Trade Specialists are happy to answer your technical LC questions. Please mention that you attended our Introduction to UCP 600 for Importers Webinar!

Barbara Fernandez in Tampa, FL Phone: 1-813-604-7088 E-Mail: barbara.e.fernandez@citigroup.com

Victor Pena in Tampa, FL Phone: 1-813-604-7042 E-Mail: victor.a.pena@citigroup.com

Our Trade Bankers are available to provide additional information about our trade services, our trade finance capabilities, and our global network. Please contact:

Phyllis Kai-Kee in New York, USA Phone: 1-213-239-1749 E-Mail: phyllis.kaikee@citigroup.com

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