Why the UCP500 Was Revised
As has already been described, the UCP is intended to reflect practice, not to change practice. As such, the UCP needs to be revised periodically as practice changes. Historically, the UCP has been revised about every 10 years since its first publication by the ICC in 1933. The UCP500 (ICC publication number 500) was published in 1993, so the ICC took a look as early as 1999 at completing a revision by 2003. The fact is that the UCP500 was actually working pretty well, so revision was deferred for a while, and, when it was finally launched, focused mainly on the problems people had been having.
Probably the biggest concern with the UCP500 was the fact that the discrepancy rate that banks were experiencing was in the region of 75%. In other words, exporters presenting documents under letters of credit were getting the documents right only 25% of the time. While the overwhelming majority of letters of credit get paid despite discrepancies in the documentation, the issuing bank’s, and, if there is one , the confirming bank’s obligation to pay ceases if documents fail to comply. The job security of bankers who work with letters of credit depends on exporters viewing them as dependable, so this was viewed as problematic. The fact is that the UCP500 itself had been drafted with an objective of reducing discrepancy rates, which had been similarly high under the UCP400. That it failed to meet this objective was an issue to be considered: How might the UCP600 be worded to remove requirements that exporters had difficulty complying with, either because they were confusing or because they were difficult requirements to satisfy?
Other matters that concerned the drafting committee included:
seven particular articles in the UCP500 were generating repeated requests for clarification;
consternation among bankers that several court rulings involving letters of credit had been decided incorrectly, in their view;
a disturbing practice that was emerging among steamship companies of incorporating language in their transport documents that disclaimed liability for delivering goods to the wrong party.
The first two could presumably be resolved through better wording, while the third called for a new rule as there was nothing in the UCP500 to say how banks should deal with such disclaimers.