Page 239 - DMGT547_INTERNATIONAL_MARKETING

International Marketing

Notes 16. The customs ....................... are charged with the responsibility of verifying compliance on
the part of the exporters with all types of regulations in force in the country.

Case Study Letter of Credit Risk Management

efore the outbreak of the Second Gulf War, a Naijing Company sold 2000 tons
ethotic plastics (worth 2.18 million USD) to a Singapore company. After the contract
Bwas sealed, the seller received the letter of credit from the buyer and then made the
delivery according to the article of the contract. What is unexpected is that the Gulf War
did not set the price of the oil products soaring, instead, the price plummeted. After
receiving the goods, the buyers claimed that the goods are defective; therefore, it asked
for a 200 dollar price cut. Otherwise, they would refuse to pay. However, when the buyer
submitted the letter to the bank, there is no consistency within the letter of the credit. And
the bank did not reject the documents or refuse to pay until 11 days later. And according to
above situations, buyers choose to sue the bank, and as a result, the Supreme Court of the
Singapore rules in favour of the seller
In this case, the contract stipulated that the payment shall be made according to the
irrevocable sight letter of credit. In accordance with the provisions of the Uniform Customs
and Practice for Documentary Credits, in the letter of credit business, the bank processes
only documents, not related goods and documents. Therefore, so as long as the documents
are consistent, the bank should make payment according to vouchers. In this case, when
the seller submitting the documents to the bank, there is no discrepancy at all, therefore,
the banks have no reason to refuse to pay the purchase price.
According to general practice, when the documents are inconsistent with each other, the
bank should notify the customer as soon as possible. According to the Singapore
jurisprudenc, the bank should reject the documents in 3-4 days notice to customers. In this
case, the bank refused to accept the documents and pay the purchase price 11 days after it
received the documents, which is clearly inconsistent with the general practice and local
precedents.

It should be noted that in this case the buyer demanded for lower prices on the grounds the
quality of the goods are inferior, and asserted that it would refuse to make the payment if
the seller would not lower the price, under this circumstances, the seller has not bring a
lawsuit with the buyer, instead it choose to prosecute the bank. And as its claim is well
justified, the results is in favour of the seller. It is the proof that its decision is wise and its
approach effective.
Questions
1. Pen down your views on the above case study.
2. Highlight the important facts of the case study.

Source: http://www.chinaimportexport.org/case-study-letter-of-credit-risk-management/
13.5 Summary

This unit attempts to give an overview of the functions in as simple manner as possible.
Export documents have to be prepared for various purposes like declaration of export as
per exchange control regulations of the country, transportation of goods, customs clearance
of the goods and other purposes.

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