Letter of Credit Forum

Notice of the People’s Bank of China on Strengthening Settlement by International Letters of Credit

Promulgating Institution: People's Bank of China
Document Number: Yin Fa [1996] No. 151
Promulgating Date: 04/30/1996
Effective Date: 04/30/1996
Last year, a foreign bank presented documents for negotiation with respect to two usance letters of credit (L/C) issued by a sub-branch of the Bank of China. One of the documents did not bear the word "ORIGI-NAL" and, thus, the sub-branch refused to honor the L/C on the ground that the documents failed to meet the requirements of the Uniform Customs and Practice for Documentary Credit issued by the International Chamber of Commerce. The foreign bank brought a lawsuit in a foreign court, and the Bank of China won the lawsuit as adjudicated by the foreign court. In view of the fact that it is a common practice in the foreign trade sector of China to produce export documents by photocopying, carbon copying, printing and other means, the abovementioned case is very likely to become a precedent for dealing with future issues about documentary credits. The case concerns the security of export foreign exchange collection in China's foreign trade sector. As such, relevant issues are hereby notified as follows:

1. All the banks engaging in foreign exchange operations shall carefully review import/export documents in strict accordance with the Uniform Customs and Practice for Documentary Credit (UCP500) to avoid, as far as possible, unnecessary losses as a result of giving others an excuse due to their own negligence or fault.

2. Foreign trade exporters that have opened accounts with the said banks shall mark the documents made by photocopying, carbon copying, printing or other means with the word "ORIGINAL". In addition, the banks may prepare their own seals bearing "ORIGINAL", and affix the word on the documents when foreign trade exporters fail to mark the word thereon, so as to facilitate the timely and safe collection of foreign exchange. The above notice is requested to be promptly forwarded to all subordinate banks engaging in foreign exchange operations and foreign exchange exporters that have opened accounts therewith.