The International Chamber of Commerce (ICC), a global industry body which lays important guidelines and standardisation procedures for global trade, is in the process of refurbishing its existing rules and policies after discussion with stakeholders the world over.
ICC, often called the “engine room” for global trading system, recently came up with a revised set of demand guarantee rules that are essential for Indian construction companies and importers working with government tenders in different countries.
The revised Uniform Rules for Demand Guarantees (URDG), the first in 18 years, have been formally adopted by the ICC Executive board in New Delhi and will come into force on July 1, 2010. Moreover, the chamber, with around 400 Indian companies on board, will come out with revised commercial terms by March 2010.
“World trade practices have evolved and such evolution has made us revise various earlier standardisations. Revised guarantees are part of this work. We are also planning to come up with new commercial terms which will incorporate that the world trading scenario has undergone due to the introduction of e-commerce. The terms are already there but we will provide standard definitions for the benefit of companies,” said Victor Fung, chairman of ICC and Li & Fung Group of Companies.
The new URDG will affect around $14 trillion of international trade and these rules are globally accepted in the fields of banking, customs, marketing, advertising and trade finance. In international sales, a documentary credit assures the exporter of being paid upon the presentation of complying documentation showing that shipment is made. A demand guarantee by the exporter provides protection to the importer against non-performance and late or defective performance by the exporter.
The new rules provide for a more precise language for determining whether a presentation made under a guarantee is a valid or a complying presentation. These changes are expected to curb the rate of rejection of demands and increase the certainty of the process of providing guarantees.
“Demand guarantees are generally unconditional. If the importer feels there is some problem with the bank, they can go to the guarantor bank and demand cash without a court order. Typically, the guarantee covers for 5-10 per cent of the contract price. This is also subject to unfair demand. Our rules standardise procedures across countries and will prevent abuse on both sides (exporter and importer),” said Martin Wassell, director, ICC.
The rules are relevant for companies aiming at government projects in India. They will also be beneficial for Indian construction companies that make extensive use of guarantees. The process of revision had taken two-and-a-half years and has been formulated taking into consideration the views of representatives from 120 countries, including India.
Source : Business Standard