Business Essay: International Trade Final

International Trade Overview

Letter Of Credit

Both the parties have agreed to use Irrevocable Credit as the method of Payment. This method is used because it reduces the credit risk for Libya Iron and Steel. The buyer's bank, which is undertaking to pay the beneficiary, is The Citibank NY (Issuing Bank) correspondent bank in the exporter's country is Libyan Arab Foreign Bank.

The mode of transport in this case is sea; the importers can take the possession of goods without paying. Therefore the consignee for Shipping will be with instructions to collect payment against release of goods. The Citibank branch in New York would release funds when it receives and checks the entire document presented exporter to the correspondent bank. All the documents presented by Libyan Steel and Iron should confirm exactly the term of the L/C in order for the funds to be released.
Law and Arbitration

The agreement can be governed by in accordance with the Laws of the United States, any dispute that may arise, can be finally settled by arbitration in the US or in Europe. Three arbitrators, one appointed by the seller, one to be appointed by buyer and the third to be appointed by the two arbitrators, carry out the arbitration proceedings. The decision of the arbitrators is binding on both the parties. "The Rules of Conciliation and Arbitration of the International Chamber of Commerce govern arbitration"

The Role of UCP 500

The Uniform Customs 1993 Revision, ICC Publication No 500 applies to all documentary credits, which includes they be applicable. Documentary credit and Standby Letter of credit describes the arrangement that is described by the bank issuing the document of credit. The bank prepares these arrangements based on the customer's requirements. In our situation importers buy rights; imports would have to arrange for the credit on which they could process further documents for buying rice.

1. The arrangements are in order to make a payment to or the order of a third party (the beneficiary) or are to pay bills of exchange (drafts) drawn by the beneficiary.

Or
2. Authorize another bank to effect such payment, or to accept and pay such bills of exchange

Or
3. Authorize another bank to negotiate.

Against stipulated document, which are provided that the terms and conditions of the Credit are complied with. Credits are independent of the sales contract on which they are based. The bank's responsibility is to pay, accept and pay drafts or negotiate and or to fulfill any other obligation under the credit. The credit can be either revocable or irrevocable, therefore it should be clearly indicated the type of credit provided. If it is not specified the credit would be deemed irrevocable.

A credit may be advised to a Beneficiary through another bank, which is the advising bank, without engagement on part of the advising bank. The bank can analyze the feasibility of the credit. If the bank cannot establish apparent authenticity it must inform immediately to the bank from which the instructions are appeared to have come from.

Revocation of a Credit

A revocable credit can be amended or cancelled by the issuing Bank at any moment, without any prior notice to the beneficiary. But the bank must fulfill the following requirements:

¢ Reimburse another bank with which a revocable Credit with which payment is made available. Acceptance or negotiation for any payment, acceptance made by the bank.
¢ Reimburse another bank with which a revocable Credit has been made available for deferred payment. If the bank has, prior to receipt by it of notice of amendment or cancellation, taken up documents which appear on their face to be in compliance with the terms and conditions of the credit

Liability of Issuing and Confirming Banks

An irrevocable credit, assures definite undertaking of the issuing bank, provided that the requisite documents are presented to the Nominated Bank or the Issuing Bank and the following terms are complied with:

¢ Credit provides to pay at sight
¢ If the credit provides for deferred payment to pay the amount on the maturity dates, this is determined in the contract.
¢ If the credit provides for acceptance

(a) By the issuing Bank, to accept drafts drawn by the beneficiary on the issuing bank and pays the amount upon maturity.
(b) By another person's bank to accept and at maturity drawn by the beneficiary on the issuing bank if the credit provides for negotiation.

A confirmation of an irrevocable credit by another bank, which is the confirming bank, confirms the position on the undertaking of the Confirming Bank. The terms and condition of the credit should be compiled with:

¢ If the credit agreement requires the payment to be made at sight then payment must be paid at sight.
¢ Payment to be made on maturity.
¢ Credit requires acceptance.

The irrevocable credit cannot be amended or cancelled except for the provision in Article 48. The issuing bank is bound by amendments issued by or from the issuance of such amendments.

Types of Credit

All credits must indicate whether that is available by sight payment, by deferred payment, by acceptance or negotiation. Unless the credit clarifies that it is available only with the issuance bank. Under Article 11 in a situation where an Issuing bank instructs an advising bank, by a specific tele-transmission to advise credit or make any changes in it would be deemed to be the operative credit instrument. Article 12 states that incomplete or unclear instructions regarding credit the bank may need to give notification prior to the beneficiary.

Insurance

One of the more important risks involved in an export transaction is that of loss or damage to goods during their physical movement from seller to buyer. In most instances, full protection from the risk can be provided through special transportation insurance, such as marine insurance. Protection can be provided to cover all transport risks from the time the goods leave the factory or warehouse until they reach the final destination stipulated by the buyer. Such insurance will pay out the full value of the loss, less any excess. So universally is marine insurance necessary that most firms engage regularly in export business maintain open policy with a reliable marine insurance company. Therefore the exporters will secure the marine insurance coverage.

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