INTERNATIONAL SETTLEMENT

ThS. Nong Thi Nhu Mai

MINISTRY OF FINANCE
UNIVERSITY OF FINANCE- MARKETING
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INTERNATIONAL SETTLEMENT
DOCUMENTARY CREDIT
Group: Thinh and two friends
Members :
1. Đinh Công
Thịnh
2. Đặng Vân Anh
3. Vũ Anh Thư

Teacher: Th.S Nông Thị Như Mai

Ho Chi Minh City, 2016
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INTERNATIONAL SETTLEMENT

ThS. Nong Thi Nhu Mai

COMMENTS OF TEACHER

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CHAPTER 1: RATIONALE OF DOCUMENTARY CREDIT
1. Documentary Credit:

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1.1. Definition:
Document credit is an International trade procedure in which the credit
worthiness of an importer is substituted by the guaranty of a bank for a
specific transaction. Under documentary credit arrangement (also called
letter of credit arrangement) an issuing bank (usually in the importer’s or
buyer’s country) undertakes to pay for a shipment, provided the exporter
(beneficiary) submits the required documents. These documents almost
always include a clean bill of lading or air waybill, certificate of
insurance, certificate of origin commercial invoice, and certificate of
origin. To establish a letter of credit in favor of the seller or exporter
(called the beneficiary) the buyer (called the applicant or account party)
either pays the specified sum (plus service charges) up front to the issuing
bank, or negotiates credit within a specified period. In the US this
arrangement is called “commercial letter of credit.”
A letter of credit is a letter from a bank guaranteeing that a buyer's
payment to a seller will be received on time and for the correct amount.

In the event that the buyer is unable to make payment on the purchase,
the bank will be required to cover the full or remaining amount of the
purchase.
Significance of a credit
+ A legal document: any letters of credit which are not in documents are
invalid. A credit must be made by telegram, telex, SWIFT.
+ A credit is a commitment of payment or an acceptance of payment, not
a promise.
+ Payment basis of a credit is documents.
Nature of a credit
+ A credit by its nature is a separate transaction from the sale or other
contract on which it may be based.
+ Banks are in no way concerned with or bound by such contract, even if
any reference whatever to it is included in the credit.


1.2.

Type of letter of credit:

Letters of credit come in various forms. Some are for international trade, and
some serve more local purposes. Learning about different types of letters of
credit can help you choose which one to use and understand what you’re
working with.
- Stand-by Letter of Credit
This type of letter of credit is different: it provides payment if something
fails to happen. Instead of facilitating a transaction, a stand-by letter of credit
provides compensation when something goes wrong. Stand-by letters of credit
are very similar to commercial letters of credit, but they are only payable when
the payee (or “beneficiary”) proves that they did not get what was promised.

Standby letters of credit can be used to ensure that you’ll get paid, and they can
be used to ensure that services will be performed satisfactorily.
- Confirmed (and Unconfirmed) Letters of Credit
When a buyer arranges a letter of credit they usually do so with their own
bank, known as the issuing bank. The seller will usually want a bank in their
country to check that the letter of credit is valid.
For extra security, the seller may require the letter of credit to be 'confirmed'
by the bank that checks it. By confirming the letter of credit, the second bank
agrees to guarantee payment even if the issuing bank fails to make it. So a
confirmed letter of credit provides more security than an unconfirmed one.
When a letter of credit is confirmed, another bank (presumably one that the
beneficiary trusts) guarantees that payment will be made. Exporters might not
trust a bank that issues a letter of credit on behalf of a buyer (because the
exporter is not familiar with that bank, for example, and is not sure if payment
will ever arrive), so they might require that a bank in their home country
confirm the letter. If the issuing bank fails to pay – and the exporter is able to
meet all of the requirements of the letter of credit – the confirming bank will
have to pay the exporter (and try to collect from the issuing bank later).
- Back to Back Letters of Credit
A back to back letter of credit allows intermediaries to connect buyers and
sellers. Two letters of credit are used so that each party gets paid individually:
an intermediary gets paid by the buyer, and a supplier gets paid by the
intermediary. An arrangement in which one irrevocable credit serves as the
collateral for another, the advising bank of the first credit become the issuing


bank of the second credit. The final buyer and the intermediary use a first letter
of credit, and



the intermediary and supplier use a letter of credit based on the first letter of
credit.
- Revolving Letters of Credit
A revolving letter of credit can be used for multiple payments. If a buyer and
seller expect to do business continually, they may prefer not to obtain a new
letter of credit for every transaction (or for every step in a series of
transactions). This type of letter of credit allows businesses to use a single letter
of credit for numerous transactions until the letter expires (typically up to one
year).
- At Sight Letter of Credit
Payment under a sight letter of credit occurs as soon as the beneficiary
submits acceptable documents to the appropriate bank. The bank has a few days
to review the documents and ensure that they meet the requirements in the letter
of credit. This type of LC is the quickest form of payment for sellers (sellers are
typically exporters, and they might expect payment within 7 to 10 business
days).
- Deferred Payment Letter of Credit
With this type of letter of credit, payment does not happen immediately after
the documents are accepted. Some agreed-to period of time passes before the
seller receives cash. A deferred payment letter of credit is obviously a better
deal for buyers than for sellers. These are also known as term or usance letters
of credit.
- Red Clause Letter of Credit
With a red clause, the beneficiary has access to cash up front. The buyer
allows for an unsecured loan to be issued as part of the letter of credit, which is
essentially an advance on the rest of the payment. The seller or beneficiary can
then use the money to buy, manufacture, or ship goods to the buyer.
- Reciprocal Letter of Credit
A credit that is only effective when its counter credit is opened. Reciprocal
Letter of credit is often used in barter, and process method.

- Revocable Letters of Credit
A revocable letter of credit can be changed or cancelled by the bank that
issued it (the account party) at any time and for any reason without the approval
of the seller (the beneficiary). Since it does not provide any protection to the


seller, it is rarely used. (This type have been left, all the letters of credit is
irrevocable in case of L/C according to UCP600).


- Irrevocable Letter of Credit
An irrevocable letter of credit (ILOC) is correspondence issued by a bank
guaranteeing payment for goods and services purchased by the one
requesting the letter. An irrevocable letter of credit, or ILOC, cannot be
canceled or modified in any way without explicit consent by the affected
parties involved.
Almost all letters of credit now are irrevocable, because revocable letters
of credit simply do not provide the security that most beneficiaries want. For
example, the issuing bank has no power to change the terms of an ILOC
simply because the letter requester is having second thoughts. It should be
noted, however, that ILOCs are in effect only for a specified time period and
do, in fact, expire at a pre-determined point.
- Irrevocable without recourse Letter of credit
A type of irrevocable letter of credit bank which provides open L/C after
the organization has paid for the export shall not be permissions claim back
money for any reason any reason. When using a type of L/C is held exported
when drawer must write the sentence "Without recourse to drawers”
- Irrevocable Transferable Letter of Credit
Transferable letters of credit are particularly well adapted to the requirements
of international trade. A transferable letter of credit can be passed from one

“beneficiary” (person receiving payment) to others. They're commonly used
when intermediaries are involved in a transaction. They allow an intermediary
to transfer a letter of credit to a supplier, thus enabling the intermediary to
reduce the extent to which it uses its own funds to process business transactions.
- Transferrable credit
The exporter has the right to make the credit available to one or more
subsequent beneficiaries.
- Untransferable credit
A credit that an exporter cannot assign all or part of to another party


1.3.

Process:

- Step 1: The starting point of the letter of credit process is the agreement
upon the sales terms between the exporter and the importer. Then they
sign a sales contract. It is important to stress here that letters of credit are
not a sales contract. Actually, letters of credit are independent structures
from the sale or other contract on which they may be based. Therefore, it
should be kept in mind that a good sales contract protects the party, which
behaves in goodwill against various kinds of risks.
- Step 2: After the sales contract has been signed, the importer (applicant)
needs to submit some other documents and applies for its bank to issue a
letter of credit. The letter of credit application must be in accordance with
the terms of the sales agreement.
- Step 3: If the importer and its bank reach an agreement together on the
working conditions the importer's bank (issuing bank) issues its letter of
credit. In case the issuing bank and the exporter (beneficiary) are located
at different countries, the issuing bank may use another bank's services

(advising bank) to advise the credit to the beneficiary. So the issuing bank
send the L/C to the advising bank.


- Step 4: The advising bank advises the letter of credit to the beneficiary
without any undertaking to honor or negotiate. The advising bank has two
responsibilities against to the beneficiary. Advising bank's first
responsibility is satisfy itself as to the apparent authenticity of the credit
and its second responsibility is to make sure that the advice accurately
reflects the terms and conditions of the credit received. After receiving
the credit, the advising bank will examine the superficial veracity of the
credit.
- Step 5: The beneficiary should check the conditions of the credit as soon
as it is received from the advising bank. If some disparities have been
detected beneficiary should inform the applicant about these points and
demand an amendment. If letter of credit conditions seem reasonable to
the beneficiary then beneficiary starts producing the goods in order to
make the shipment on or before the latest shipment date stated in the L/C.
The beneficiary ships the order according to the terms and conditions
stated in the credit.
- Step 6: When the goods are loaded, the exporter collects the documents,
which are requested by the credit and forwards them to the advising bank.
- Step 7: The advising bank posts the documents to the issuing bank on
behalf of the beneficiary.
- Step 8: The issuing bank checks the documents according to the terms
and conditions of the credit. In addition, the governing rules, which are
mostly latest version of the UCP are taken into account. If the documents
are found complying after the examination the issuing bank honors the
payment claim.
- Step 9: The documents transmit to the applicant. The applicant uses these

documents to clear the goods from the customs.


1.4. Parties:
- Applicant:
Applicant (importer) is the buyer of the goods or services supplied by the
seller. Letter of credit is opened by the issuing bank as per applicant's request.
However, applicant does not belong one of the parties to a letter of credit
transaction. This is because of the fact that letters of credit are separate
transactions from the sale or other contract on which they may be based.
- Beneficiary:
Beneficiary (exporter) is the seller of the goods, the provider of the services
in a standard commercial letter of credit transaction or any person assigned by
the beneficiary. Letter of credit is opened by the issuing bank in favor of the
beneficiary.
- Issuing Bank/ Opening Bank:
Issuing Bank is the bank that issues a letter of credit at the request of an
applicant or on its own behalf. This is the representative bank of the applicant.
Issuing bank undertakes to honor a complying presentation of the beneficiary
without recourse.
- Advising Bank:
Advising bank is the bank that advises the letter of credit at the request of the
issuing bank and is often a correspondent bank of the issuing bank in the
beneficiary’s country. An advising bank that is not a confirming bank advises
the credit and any amendment without any obligation to honor.
- There are many other banks taking part in Documentary credit method as
follows:
+ Confirming Bank:
Confirming bank is the bank that adds its confirmation to a credit upon the
issuing bank's authorization or request. Confirming bank may or may not add its

confirmation to a letter of credit. This decision is up to confirming bank only.
However, once it adds its confirmation to the credit confirming is irrevocably
bound to honor or negotiate as of the time it adds its confirmation to the credit.
Even if the issuing bank fails to honor, confirming bank must pay to the
beneficiary.


+ Reimbursing Bank:
Reimbursing Bank shall mean the bank instructed and/or authorized to
provide reimbursement pursuant to a reimbursement authorization issued by the
issuing bank.
+ Nominated Bank:
Nominated bank is the bank with which the credit is available or any bank in
the case of a credit available with any bank.
+ Paying Bank
+ Negotiating Bank
+ Transferring Bank
+ Claiming Bank
+ Accepting Bank
+ Remitting Bank

1.5.

Conclusion:

As mentioned above, a letter of credit can be of various types depending on
its purpose. It is in the interest of both the buyer and the seller, to understand all
the different types thoroughly and then pick one which serves the purpose
completely.


1.6.

Advantages and disadvantages:

Importing and exporting involves risks. Exporters run the risk of buyers
failing to pay for goods, while importers may risk paying but never receiving
anything. Because of the distances involved, it may be difficult to resolve any
disputes.

1.6.1. Advantages:
- One way of reducing the risks is to use a letter of credit - sometime
known as ‘documentary credit’. This can offer a guarantee to the seller
that they will be paid, and the buyer can be sure that no payment will be
made until they receive the goods.


- The main advantage of using a letter of credit is that it can give security
to both the seller and the buyer.
- Letters of credit can be useful, it’s often best to avoid using one for a
transaction.
- Advantages for sellers
By asking for an appropriate letter of credit a seller is reassured that they will
receive their money in full and on time. A letter of credit is one of the most
secure methods of payment for exporters as long as they meet all the terms and
conditions. The risk of non-payment is transferred from the seller to the bank (or
banks).
- Advantages for buyers
When a buyer uses a letter of credit they get a guarantee that the seller will
honor their side of the deal and provide documentary proof of this.
- This agreement provides security to both parties – the buyer and seller:

+ The buyer knows that she won't pay anything until goods have been
shipped or services have been performed.
+ The seller knows that she will get paid as long as she does everything
specified in the letter.
- They are often used in international transactions to ensure that payment
will be received where the buyer and seller may not know each other and
are operating in different countries. In this case the seller is exposed to a
number of risks such as credit risk, and legal risk caused by the distance,
differing laws and difficulty in knowing each party personally. A letter of
credit provides the seller with a guarantee that they will get paid as long
as certain documentary delivery conditions have been met. For this
reason the use of letters of credit has become a very important aspect of
international trade.
- For sellers, letters of credit are especially beneficial because the seller
gets to rely on the strength of the bank – not the strength of the buyer.
When you sell something, how do you know you’ll get paid – especially
if you’ve never done business together before (and how many customers
overseas are willing to pay you in advance)? Even if you trust that your
buyer intends to pay, bad things can happen and your buyer might not
have cash on hand when it’s time for you to get paid.


- For buyers, letters of credit can help ensure that something has been done.
The seller didn't just accept your payment and fly the coop – he actually
shipped something.
- Instant liquidity
+ The terms of a letter of credit can specify that fax presentments are
allowed and that the draw must be honored (or notice of dishonor given) within
a few days or less.
+ In some cases where letters of credit secure bonds, commercial paper or

secure clearing obligations owed to commodities or security exchanges, the
letter of credit will be payable on the same day presentation is made. – Payment
is usually via wire transfer of funds by the issuer to the beneficiary’s account.
- Credit of a the Issuer Is Added
+ By use of a letter of credit, the beneficiary is assured that the payment
obligation is backed by credit of a bank which is substituted for or added to the
credit of a corporate or individual applicant.
- Independence of issuer
+ Except for material fraud, the issuer’s obligation to honor is independent of
the obligations of the parties (applicant and beneficiary) and their disputes over
the underlying contract which the letter of credit supports.
+ The issuer only looks to see if the documents presented are timely and
conform to the documentary conditions specified in the letter of credit.
+ The issuer does not and should not involve itself in issues or investigations
of whether the underlying contract has been properly performed.
- Automatic Stay and Preferences
+ A draw on a letter of credit to pay for an obligation of a bankrupt applicant
is not normally regarded as transfer of the bankrupt’s assets; rather the proceeds
transferred are regarded as funds of the issuing bank. – As a result, courts will
not normally enjoin a draw on a letter of credit even though the applicant has
filed for bankruptcy.
+ Because the draw on the letter of credit is of funds of the issuing bank, a
court will not normally set aside as preferential a paydown of a debt from a
draw on a letter of credit. Exception: Indirect preferences when a collateralized
LC is issued for an already existing debt.
- Pay now, litigate later


+ Courts have taken the view that if there is a problem with the underlying
contract or its performance while a draw is being made or about to be made on a

letter of credit, the beneficiary should be entitled to draw and hold or use the
proceeds until the dispute or litigation is resolved.
+ Courts have used the phrase – “pay now, litigate later” to describe the
beneficiary’s rights against the obligation of the issuer and applicant to allow
the beneficiary to draw on the letter of credit.
+ See Eakin v. Continental Illinois Nat. Bank & Trust Co., 875 F.2d 114 (7th
Cir. 1989); In re Sabratek, Corp., 257 B.R. 732 (Bankr. Del. 2000)
- Adaptability
+ As is shown from the variety of uses for letters of credit enumerated above,
a letter of credit can be tailored to secure almost any type of obligation. The
draw conditions can require elaborate or simple certifications identifying the
obligation secured and the events justifying the draw.
- Statute of Limitations
+ Some courts have held that even though an underlying obligation which a
letter of credit supports is no longer enforceable under a statute of limitations,
the LC can still be drawn upon by the beneficiary to pay the debt owed.
+ See Williams Service Group v. National Union Fire Ins. Co., 2012 WL
5233558 (11th Cir. Oct. 23, 2012).
- Payment against right to receive goods
+ Documentary credits used in international trade provide that the
beneficiary must present to the issuer shipping documents, including bills of
lading, to receive payment.
- These documents are passed along to the applicant to enable it to receive
the goods shipped which are being paid from a draw on the letter of
credit.
+ UCC §5-118 gives issuing, negotiating and confirming banks an automatic
perfected and in most cases prior security interest in documents presented when
they honor a draw on a letter of credit until they are reimbursed.



1.6.2. Disadvantages:
- They can sometimes result in expensive delays, bureaucracy and
unexpected costs.
- It’s important to be aware of the additional costs involved in using a letter
of credit. Banks make charges for providing them, so it’s sensible to
weigh up the costs against the security benefits.
- If you’re an exporter you should be aware that you’ll only receive payment
if you keep to the strict terms of the letter of credit. You’ll need to give
documentary proof that you have supplied exactly what you contracted to
supply. Using a letter of credit can sometimes cause delays and other
administrative problems.
- Stand-by LC's are treated by issuers like loans – the applicant must be
credit approved, set aside credit lines and frequently has to set aside
collateral to secure its duty to reimburse the issuer if there is a draw on
the LC.
- Other forms of credit support may be less costly, such as a bond, export
credit insurance, documentary collection, open account sales, a security
interest in collateral, or a corporate guaranty.
- For commercial letters of credit, the rules are complex, the documentary
requirements exacting and subject to differing applications at the issuing
bank level and as a result, discrepancy rates are very high – over 50% of
all presentments are nonconforming (discrepant), although in 99% of the
cases the discrepancies are waived or corrected.
- LC's have expiration dates to which attention must be paid.
- LC's sometimes require presentation of the original LC and all amendments.
- LC's must be amended each time there is a change in amount or terms.
- Rules and practice governing LC's, especially commercial LC's, can be
complex.
- LC's can be misused to take advantage of applicants. E.g.,Lloyds cases.
- LC's are only as good as the banks that issue them.

- LC's are sometimes difficult to terminate or cancel.


1.7.

Legal documents regulating activity of documentary credit:

Letter of credit is operated by business world based on the guidelines of
uniform customs and practice of documentary credit under notification 600
adopted on July 1, 2007 with a modification of UCP 500 followed previously.
• Legal bases:
 International Law: No
 International Practice:
+ Uniform Customs and Practice for Documentary Credits – UCP 600,
2007 issued by the International Chamber of Commerce (ICC).
There are following items in this Rule:
- Application of UCP and definitions
- Issuing and Confirming bank undertaking
- Advising of Credits and amendments
- Standard for Examination of Documents
- Documents
- Other articles like: Quantity, Credit amount, Unit prices. Partial drawings or
shipments, Instalment drawings or shipments.
-…
+ ISBP 745, 2013- ICC- International Standard Banking Practice for the
examination of documents under documentary credits.
+ eUCP 1.1,2007- Supplement to UCP600 for Electronic Presentation.
+ URR 725, 2008- ICC: The Uniform Rules for Bank - to - Bank
Reimbursement under Documentary Credits, effective from 1/10/2008.



2. Commercial documents in documentary credit method:
2.1. Commercial Invoice:
- Definition:
Commercial invoice is the center of the set of documents. Commercial
invoice is issued by the seller to the buyer after delivery of goods. It’s a
payment request from the seller to the buyer based on the total goods written on
the invoice.
It is the primary document used by most foreign customs agencies for import
control, valuation, and duty determination.
- The purpose of a commercial invoice:
In fact, one of the main purposes of the commercial invoice is for payment
documents: the seller claiming the buyer.
- Types of commercial invoice:
According to function, commercial invoices can be classified into:
+ Provisional Invoice: is used for preliminary payment for goods in some cases
such as: temporary price, partial payment (for partial delivery contract).
+ Final Invoice: the last invoice, usually sent after a project or order is completed,
which includes the total amount of money that is still owed.
+ Detailed Invoice: is an invoice to analyze in detail all parts of the price.
+ Proforma Invoice: An abridged or estimated invoice sent by a seller to a buyer
in advance of a shipment or delivery of goods. It notes the kind and quantity of
goods, their value, and other important information such as weight and
transportation charges. Proforma invoices are commonly used as preliminary
invoices with a quotation, or for customs purposes in importation. They differ
from a normal invoice in not being a demand or request for payment.
- Contents of a commercial invoice:
+ Date of issue
+ Name and addresses of the seller and the buyer.
+ Name of the goods or the services.

+ Precise denomination and quantity of the goods.
+ Unit price and total amount of the goods in the agreed currency.
+ Means and conditions of payment.


+ Number and kind of packages, marking.
+ Net weight, gross weight.
+ Contract number and date.
+ Date of shipment.
+ Term of payment.
+ Delivery terms of the goods (it refers to Incoterms published by the
International Chamber of Commerce). Nowadays the version in force is that of
the year 2010. Apart from the above mentioned data, which are demanded in the
regulation in force, this document must also include:
+ Seller´s and buyer´s identification for VAT purposes (in intra-communitarian
operations).
+ Order reference number.
+ Origin of the goods.
+ Tariff code of the goods.
+ Means of transport.
+ A signature by an authorized person at the seller´s company, if required by the
buyer´s government.
- Effects:
+ Used to check a draft (if accompanied with that draft)
+ Substitute a draft to claim money (if not accompanied with the draft)
+ A basis to calculate the customs duty
+ Supply the goods details to do statistic and compare with the contract


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2.2. Multimodal Transport document:
It is interesting to note that the article 19 applies even when the credit
does not call for a Multimodal transport document explicitly. If the port of
loading or the port of discharge required by the credit is not a port but is
an inland place, it is evident to all parties that more than one mode of
transport will be utilized and hence UCP Article 19.
A multimodal transport document is a bill of lading covering two or more
modes of transport, such as shipping by rail and sea or rail and road or
sea and road etc.
Article 19 of UCP 600 applies to cases where the credit calls for a
Multimodal or Combined transport documents and sometimes even to
cases where the credit does not explicitly call for a transport document
covering more than one mode of shipment or transport.
Its features:
+ Place of receive for shipment and place of delivery are started clearly
on the B/L; the issuer of this B/L must be carrier or business of multimodal transport.
+ It must be started on the B/L that transhipment is allowed, involve
means of transport, and place of transhipment.
+ The issuer of this B/L must be responsible for the goods from place of
receipt of the goods (may be located hinterland of the departure country)
to place of delivery (may be located in the hinterland of the destination

country).
Multimodal Transport Document are issued subject to the network
liability system whereby the existing mandatory rules governing
unimodal carriage will apply when the loss or damage to the goods occurs
on that particular mode. For example, if the container is lost overboard,
the carrier's liability will be determined in accordance with the Hague/
Hague Visby Rules, while if the container is lost in a road accident, the
liability will be determined in accordance with the CMR Convention.
Otherwise said, if the container with the goods is lost or damaged during
the sea carriage liabilities under the Multimodal Transport Document are
the same as under a Bill of Lading, while if that occurs during road
carriage liabilities are the same as under a CMR Consignment Note.


2.3. Packing List:
- Definition:
Packing list is an itemized list of articles usually included in each shipping
package, giving the quantity, description and weight of the contents, prepared
by the shipper/exporter and sent to the consignee for accurate tallying off the
delivered good.
- The packing list is required when packaging goods. Packing slips are
placed in packaging so that buyers can easily find, also when carried in a
pocket mounted on the outside packaging.
- Packing list is issued into 3 copies:
+ One for the shipment to the consignee can check the goods in the event
when necessary, it is to collate evidence from actual goods by the seller to
send the goods.
+ One accompanies commercial invoice and other documents made in the
documents presented to the bank as the basis for payment for goods.
+ One sets records remaining.

- Content:
+ Name of the seller, name of goods
+ Invoice number, ordinal number
+ Weight (Net weight & Gross weight)
+ Volume of packs
+ Factory’s name
+ Packer
+ Technical inspector
+ Ref no
+ Port of Loading and Destination
+ Remark.
- Besides the usual format, we have:
+ Detailed packing list (Detailed packing list) if goods are complexly
packaged and shipped by more container.
+ Neutral packing list (Neutral packing list) if its content does not indicate
the name of the seller.
+ Packing slips statements cum weight (Packing and Weight list).


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2.4. Certificate of Origin (C/O):
Definition:
+ A Certificate of Origin (CO) is an important international trade

document attesting that goods in a particular export shipment are wholly
obtained, produced, manufactured or processed in a particular country.
+ COs also constitute a declaration by the exporter. Virtually every
country in the world considers the origin of imported goods when
determining what duty will be assessed on the goods or, in some cases,
whether the goods may be legally imported at all.
+ A certified of origin is issued by the entity stated in the credit which is
often a Chamber of Commerce. When a credit does not indicate the name
of an issuer, any entity may issue a C/O such as a Chamber of Commerce,
Chamber of Industry, Association of Industry…
Contents:
+ Name and address of the buyer, the seller
+ Name of the goods
+ Quantity
+ Weight
+ Marking
+ The goods owner’s statement
+ The Chamber of Commerce’s authentication on the origin of the goods.
Classification:
+ Certified of Origin directly:
C/O levels directly by the country of origin, country of origin which
can also be exporter.
+ Certified of Origin back (back-to-back C/O):
C/O levels indirectly by the exporting country is not the country of
origin. Exporter in this case called hybrid origin countries.
The purpose:
+ Preferential Tariffs: identify the origin of goods that can distinguish
between imported goods preferential treatment to apply the preferential
regime under the trade agreement was signed between the countries.
+ Apply the anti-dumping duties and subsidies: In the case of a country

when goods are dumped in other markets, the determination of origin that
the anti-dumping action and countervailing duty applying price becomes
feasible.
+ Trade Statistics, and maintain the quota system: The determination of
origin that the compilation of trade statistics for a country or for a region
easier. On that basis, the trade body can maintain the quota system Trade promotion.


- Many types of Certified of Origin:
+) Certificate of Origin granted under non-preferential rules of origin:
+ Form B: used for all countries.
+ Form X: used for exporting coffee to other countries not of the World
Coffee Association.
+) Certificate of Origin granted under preferential rules of origin:
+Form A: apply for GSP (General System of Preferences).
+Form D: used for CEPT (Common Effective Preferences Tariff).
+Form T: used for exporting Vietnamese textile products into EU.
+Form O: used for exporting coffee to other countries of the World Coffee
Association.
+ Form E (ASEAN - Chinese).
+ Form AK (ASEAN - Republic of Korea).
+ Form AJ (ASEAN - Japan).
+ Form VJ (the Vietnam - Japan).
+ Form AI (ASEAN - India).
+ Form AANZ (ASEAN - Australia - New Zealand).
+ Form VC (the Vietnam - Chile).
+ Form S (Vietnam - Laos, Vietnam - Cambodia).

3. Irrevocable Letter of Credit
3.1. Definition:

- An irrevocable letter of credit (ILOC) is correspondence issued by a bank
guaranteeing payment for goods and services purchased by the one
requesting the letter. An irrevocable letter of credit, or ILOC, cannot be
canceled or modified in any way without explicit consent by the affected
parties involved. Almost all letters of credit now are irrevocable, because
revocable letters of credit simply do not provide the security that most
beneficiaries want.
+ For example, the issuing bank has no power to change the terms of an
ILOC simply because the letter requester is having second thoughts. It
should be noted, however, that ILOCs are in effect only for a specified
time period and do, in fact, expire at a pre-determined point.
- An irrevocable letter of credit is a guarantee from a bank, issued in the
form of a letter. These letters allow companies (and individuals) do to
business with confidence. Without some type of guarantee, doing deals is
risky. Irrevocable letters of credit can reduce risks for both buyers and
sellers.
3.2. Some notices upon use of this credit:
- A credit is irrevocable even if there is no indication to that effect


 Article 3 UCP 600
- Amendment must be subject to Article 10 UCP 600


INTERNATIONAL CHAPTER 2: ANALYSING PAYMENT PROCESS BY
DOCUMENTARY CREDIT OF HN CO., LTD
1. Overview of HN CO., LTD:
1.1. The formation and development process:
1.1.1. A brief information:
Company Name


HOANG
NAM
CONSTRUCTION
SERVICE
TRADING PRODUCTION COMPANY LIMITED

Founded Date

01/15/2001

Transaction Name

HN CO., LTD

Tax Registration

0302202186

Number
Granted Date

02/07/2001

Status

Going

Registry


District tax department District 1

Registered Office

81 Nguyen Thi Minh Khai Street, Ben Thanh Ward, District
1, Ho Chi Minh City, Vietnam

Tel

+84-8-3863 3634

Fax

+84-8-3863 3635

Legal
Duong Quoc Nam
Representatives –
Director