UCP 600 the successor to the UCP 500 which governs the working of Letters of Credit (Documentary Credit) is likely to be ready for implementation after the final voting in Paris at the ICC Banking Commission meeting on 24-25 October 2006. The new UCP contains only 39 articles compared to the 49 in UCP 500. The convention will be stricter than before in terms of laying down a definite number of days within which the bank has to decide upon whether the shipment documents are compliant with the LC conditions. The banks cannot delay the decision at the behest of the importer taking refuge behind the “reasonable time” clause in erstwhile UCP 500. Addresses of the beneficiary as well as the applicant are to be mentioned in the LC itself. The transport documents are redrafted and definitions of controversial terms like “honour” and “negotiations” which were not defined in UCP 500. The electronic transfer of funds will also be taken into account by the revised convention.

Unfortunately, the Indian exporters and importers are not in the picture, the LC convention remains the preserve of the banking sector. The Central Bank also speaks in the voice of the banks and docs little to enforce violation of LC norms in India and abroad. China, the world No. 3 is not a signatory to UCP and dishonours LCs without fear.

The users have little say in the framing of the UCP. In fact, the important convention is under the International Chamber of Commerce and has no legal sanction under the Negotiable Instruments Act. It is implemented by mere administrative instructions issued by the RBI, Indian Banks Association and FEDAI. It is time that the users of the UCP, that is the exporters and importers, are given the draft of the new UCP for comments before it is approved in Paris by the RBI and ICC India.

The main problem with the UCP 500 is that due to the fast communications and transport links, the buyer on the other side takes delivery of the goods based on house airway bills issued by the freight consolidator. Once the buyer has the goods in his warehouse, he starts raising disputes on minor points to pressurize the issuing bank on his side to dishonour the LC. The Indian Bank, that is, the negotiating bank, takes cover by using the “under reserve” clause to avoid his liability under UCP 500.

At the end of the day, the exporter does not get his money while the banks disown their responsibility, the LC remains a piece of paper. The provisions for accountability for the banks and transporters must be in place in UCP 600 to guard the interest of the weak exporters in developing countries.

Chrome ore concentrates canalized: Chrome ore has gone the way of iron ore with canalization of the remaining segment consisting of chrome ore concentrates to the public sector MMTC by a notification issued to this effect on 09 May 2006. With this, the entire segment of chrome starting from raw ore down to the value added concentrates is now through MMTC.
The move to canalize the ore through MMTC is on the demand of the domestic steel manufacturers who say that India should conserve its natural resources and non replenishable material such as chrome ore and iron ore should not be sent out of the country without check. The Tatas have a different view since the Group is a major exporter of chrome from their captive mines in Jaipur, Orissa.

Considering the poor viability of ferro chrome production in India, it may be cost effective to freely export chrome ore and import the power intensive ferro chrome alloy. The MMTC filter only adds to transaction cost without really benefiting unit value realisation from the import monopolies in China. India should develop the stainless steel industry as well as the electroplating sector a which are the major users of chrome along with the leather industry.

It may be recalled that the world prices of chrome, the main ingredient in the manufacture of stainless steel have risen in tandem with steel and iron ore prices. China has emerged as the main buyer of the ore. India is the third largest exporter of chrome ore in the world but it unable to encash its prime position in terms of manufacture of down stream ferro chrome alloy. The high power cost makes down stream prohibitively expensive compound to like China or East Asia. The Sarafs in FACOR Orissa have struggled with ferro chrome for years without much success.