Letters of credit remain an important tool for financing and settling international trade transactions. They enjoy wide acceptance in the trading community because they are considered to carry low financial risk. Letters of credit are subject to specific rules that were first codified by the International Chamber of Commerce (ICC) in 1929 and since updated on a regular basis. In October 2006, the ICC announced that a new revision of these rules, the ICC Uniform Customs and Practice for Documentary Credits 2007 Revision (UCP 600), would become effective from 1 July 2007.

In this paper, a contextual background to the contracts and mechanisms emanating from letter of credit transactions is firstly provided, followed by discussion of both select major changes to the existing rules and the challenges associated with their implementation. Comments on other associated rules that may impact on the UCP 600 are also incorporated in the discussion. The paper concludes that the ICC’s revision of the UCP 600 has, in some respects, resulted in improvements over current rules, however these may not produce the desired effects, because of the imprecise definition of international standard banking practices leading, in particular, to payment uncertainty for exporters.