The journey through Draft ICC Opinion TA927
During 3 ICC Banking Commission Meetings, Draft ICC Opinion TA927 has been on the agenda. The “case” is now closed – by the withdrawl of the Draft Opinion. However, the issue has not been solved. The purpose of this blog post is threefold: 1) To provide the background and explain the issue of TA927, 2) to provide a personal perspective of TA927 and finally 2) to offer some thoughts and reflection on how to solve the issue going forward.
As previously reported, Draft ICC Opinion TA927rev2 was withdrawn by the initiator at the July 2023 meeting in the ICC Banking Commission.
In their blog post “icc opinion ta927rev withdrawn – a personal perspective”, ICC Senior Technical Advisor David Meynell and ICC Technical Editor Gary Collyer have opened the floor to express “own strong viewpoints”. I guess in the context of being ICC Technical Advisor/Editor.
I am not sure I have “strong” viewpoints as such, but I do have viewpoints. More importantly though, during this “journey” I have had many reflections and I would like to share those.
First a bit of background
Query submitted
During September 2022 a new query ticked in. At a first glance it looked rather trivial. However, already during the drafting of the Opinion it was clear that this could be a Draft Opinion that would trigger some discussion.
ICC Banking Commission Meeting January 2023
The Draft Opinion was circulated in advance of the ICC Banking Commission Meeting to be held in January 2023. The Draft Opinion did for sure trigger many – and strong comments from some of the ICC National Committees. These comments were repeated at the meeting and based on the comments to the analysis received from the ICC National Committees it was decided that the Draft Opinion would be held over to the next meeting and that prior to the next meeting, the ICC Technical Advisors would provide a new Draft Opinion and allow for new comments by the ICC National Committees. This, notwithstanding the fact that around 2/3 of the ICC national Committees that had submitted comments indeed agreed to the Conclusion of the Draft Opinion. Link to the lcviews blog covering the meeting.
ICC Banking Commission Meeting April 2023
In advance of the ICC Banking Commission Meeting to be held in April 2023 an updated version of Draft Opinion TA927 was circulated to the ICC National Committees for comments. Although fewer comments received in advance of the meeting, there were still strong comments received from some of the ICC National Committees.
Those strong comments were again repeated at the ICC Banking Commission Meeting in April. It was not possible to reach a unanimous conclusion. It was therefore informed that the Technical Advisor team would revert with the next steps of this draft opinion. Link to the lcviews blog covering the meeting.
The vote
End April 2023, the ICC Banking Commission called for a “vote” as to the "fate" of TA927, and the ICC National Committees were given the following options:
* Accepted
* Accepted with reserve
* Inviting initiator for withdrawal for ISBP revision on the topic to occur
Link to the lcviews blog covering the message from the ICC.
ICC Banking Commission Meeting July 2023
In July 2023, TA927 was again a topic at the ICC Banking Commission meeting.
In total, 22 NCs had provided a “vote” in advance of the meeting. The results of that vote were:
* 9 NC’s voted to approve the Draft Opinion as is
* 2 NC’s voted to approve the Draft Opinion with comments
* 11 NC’s voted to withdraw the Draft Opinion
In addition, it was reported that the requestor of the query had decided to withdraw it. Hence the Opinion was withdrawn – and the issue will be considered for future ISBP updates.
Link to the lcviews blog covering the meeting.
The issue
The issue is a somewhat trivial question. Here is an overview:
Description of goods in the L/C:
“COOKING RANGE AND ITS SPARE PARTS AS PER PURCHASE ORDER NO. XXX DATED 05-MAY-2021. FOB ANY PORT IN CHINA”
In addition, the L/C required:
“SIGNED COMMERCIAL INVOICES IN 3 ORIGINAL AND 3 COPIES”
Presentation information:
The presented invoice included the following information (slightly reduced compared to the original query):
QUOTE
Commodity Item No. Unit Price Amount
Cooking range ABC xxx xxx
Spare parts 123 xxx xxx
Spare parts (f.o.c) 321 Free of Charge
UNQUOTE
Refusal information:
Issuing bank refused the presentation citing the following discrepancy:
“INVOICE EVIDENCE FREE OF CHARGE GOODS NOT ALLOWED AS PER L/C.”
The question is if this is a correct refusal.
In all versions of the Draft Opinion (TA927, TA927rev and TA927rev2) circulated for comments or vote, the conclusion was that the refusal was correct, i.e., that it was not permitted to include free of charge goods and the discrepancy was valid.
The crunch of the dispute is related to the reading of ISBP 745 paragraph C12(b) (ISBP 821 paragraph C13(b)), which reads:
[An invoice is not to indicate:] goods, services or performance not called for in the credit. This applies even when the invoice includes additional quantities of goods, services or performance as required by the credit or samples and advertising material and are stated to be free of charge.
The core question is if “free of charge” goods are always not allowed – or “only” when such “free of charge goods” are “not called for” by the L/C (or additional quantities of goods) - and if (in this case) if the free of charge goods are indeed considered "additional quantities of goods".
A personal perspective
I have been reading the paragraph many times, and simply cannot read it so that “free of charge goods” are prohibited per se.
However, the comments from the ICC National Committees suggest that 2/3 would agree with the Draft Opinion (some with added comments) meaning that there were a clear majority in favor of the Draft Opinion.
Personally, I do not have a strong feeling about the Conclusion – but I have had a strong opinion about the Analysis: It is key that the Analysis is in line with documented practice and leads naturally to the Conclusion. In that respect I was uneasy with the Analysis of the latest Draft Opinion, i.e., TA927rev2.
First, because it did suggest that ISBP 745 paragraph C12(b) does say that “free of charge goods” are not allowed per se (unless required by the L/C). As mentioned above, no matter how hard I try, I cannot read it like that.
Secondly, because it tries to explain why the “free of charge goods” are “additional quantities” (and thereby considered “goods not called for”) by different arguments, e.g., that there are 3 separate rows in the invoice, and the text “f.o.c” has been surrounded by parentheses, i.e. “(“ and “)”.
If ISBP 745 paragraph C12(b) actually did say that “free of charge goods” are not allowed, then these arguments would be redundant.
In my mind, based upon my reading of ISBP 745 paragraph C12(b) it actually comes down to the wording of the actual L/C (see above). Had the wording in the L/C been just a bit more precise, e.g., adding the “item number” for the spare parts – or the price of the spare parts, then for sure the free of charge spare parts would be considered “additional quantities” (hence goods not called for). Simply requiring “spare parts” makes it impossible to determine if there should be a price tag – or they would be included free of charge (which in fact is not that uncommon).
To me there were two ways this could be solved in an “ISBP 745 consistent” manner:
One was to accept the invoice (and deem the discrepancy invalid) based on the wording of ISBP 745 paragraph C12(b). The rationale for this – in the particular case – would be that based upon the “broad” goods description in the L/C it cannot be determined that the free of charge goods are not called for by the L/C. In that case, the ICC could have used the opportunity to send a message to applicants and issuing banks to be more precise in when drafting the goods descriptions.
The other was to acknowledge that this particular scenario is not covered by the ISBP 745 paragraph C12(b) and then create a new practice – that would deem free of charge goods prohibited unless allowed by the L/C. The rationale for this would be that the context of ISBP 745 paragraph C12(b) is goods that are “not called for in the credit” and hence it does not cover the situation where the free of charge goods cannot be considered “not called for in the credit” or for that matter “additional quantities”. This would also have made a coming update of the next ISBP easier.
In any case, this is water under the bridge as the Draft Opinion has been withdrawn by the initiator.
So, what now?
It has been suggested that the issue will be address at the next ISBP revision. However, at the previous ICC Banking Commission meeting there was not a strong mandate to update or revise the ISBP 821. So that may take some time.
See the notes from the July meeting in the ICC Banking Commission.
In any case, I would like to share some observations and thoughts that I have made during this “journey”:
* Banks should be careful about accepting free of charge goods – that are not called for in the L/C. If nothing else Draft Opinion TA927/rev/rev2 has shown that around 2/3 of the ICC National Committees would deem the inclusion of free of charge goods a discrepancy if not allowed by the L/C.
* A bit more “precision” in the goods description would be helpful in avoiding problems. In this case the goods description simply was “COOKING RANGE AND ITS SPARE PARTS…” Having added prices, quantities, item number or something else could have made this a clear-cut case.
* Since 2/3 of the ICC National Committees would consider “free of charge goods” a discrepancy, the ISBP should be updated/revised (whenever possible) to reflect that.
* One argument that was used, which I was not keen on at the time, was that from a financial crime prevention (FCP) perspective, free of charge goods should be considered a Red Flag. The reason that I was not too keen on that argument (for this case) is that what we are discussing (in respect of TA927) is if this would be allowed (discrepancy / no discrepancy) from a UCP 600 / ISBP 745 perspective (only). Then, on top of that, banks will of course have implemented their own FCP policies and controls that would consider this. These should however be two separate processes.
However, from a, ISBP 821 revision perspective, this actually is a valid point. By “forcing” the information about “free of charge” goods to the issuance of the L/C the banks would be able to perform the appropriate due diligence already at that time. After all, it is best to do the investigation of a Red Flag at the time of issuing the L/C – rather than when the documents are presented, and the L/C has already been issued and perhaps even confirmed.
In any case, if nothing else this “journey” of TA927 has shown that the ICC is an organization driven by consensus and it for sure allows the discussions to take the time needed. That is a good thing, so the only thing left is to thank the ICC National Committees and the ICC Banking Commission for taking good care of the L/C.
Kind regards
Kim
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