On The Issues Of Draft Under Letter Of Credit

With the continued expansion of global trade, the L/C becomes more and more popular in international trade, since its emergence in the 19th century. The origin of L/C is closely connected with draft, draft is always used under L/C. As an instrument for payment, draft has already been used under L/C since the early stage. Under this payment mechanism, the beneficiary has to present the draft and documents to the issuing bank for payment and the issuing bank would only honor a complying presentation.Beneficiaries under L/C could get financing conveniently with draft, and financing banks are better protected as bone fide holders by Negotiable Instrument Law. Therefore, the L/C plays an important part in international payment. However, after many years' development, the draft under L/C becomes more and more special. Because in L/C practice, the parties concerned pay more attention on documents rather than draft. When the function of draft is gradually weakening, many issues concerning draft came one after another. This caused controversy over whether the draft should be excluded from L/C.The key point of this dissertation is that the draft should be treated specially rather than be excluded from L/C.This dissertation takes above point as a research theme and adopts the Literature Research Method combined with cases. There are of five chapters:Chapterâ… :Preface. This chapter elaborates the significance of this research, the relevant literatures and evaluations, research contents and framework, research methods, innovations and inadequate.Chapterâ…¡:Outline of L/C and draft. Firstly, this chapter discusses the history of L/C and draft. From the history of both, we can find that there are some connections between L/C and draft. The generation of L/C adds banks' credit into draft. Secondly, this chapter compares L/C with draft from three aspects which are independence, abstraction and circulation.Thirdly,this chapter makes a comparison between the draft under L/C and the draft in the sense of Negotiable Instrument Law.Chapterâ…¢:Application of draft in L/C practice. This dissertation discusses the functions of draft under L/C and the current situation of the application of draft under different kinds of L/C. The draft under L/C can serve as settlement instrument, financing instrument and credit instrument. However, with the development of L/C, the functions of draft are weakening. Therefore, there is always no draft in sight payment and deferred payment L/C. As for negotiation L/C, because the negotiating bank can seek protection from Negotiable Instrument Law when fraud took place, draft is always used. Acceptance L/C has to use draft because acceptance is an act of bill.Chapterâ…£:Issues arising during the application of draft under L/C.This chapter focuses on some issues of draft under L/C which will take place. These issues are related with draft which has not been separated from L/C, because once the draft is separated from L/C, it has no difference with draft in the sense of Negotiable Instrument Law. One origin of these issues is that parties under L/C neglect the specificity of draft under L/C, they handle draft problems with Negotiable Instrument Law directly. Another origin of these issues is that parties under L/C lack the knowledge of Negotiable Instrument Law, they adopt the Practices under L/C and can't realize the risks.Chapterâ…¤:Ponderings and suggestions for solving the issues on draft under L/C. This chapter provides two solutions for settling the issues concerning this research, one is to exclude draft from L/C,another is to treat draft as special. After analyzing the cost caused and gains brought about by draft, the author thinks that the draft should not be excluded from L/C, it should be treated specially.From those discussions above, the author gets some conclusions as follows:(1)Draft under L/C has the essential characteristics with draft in the sense of Negotiable Instrument Law, but it bears some peculiarities because of the arrangement of L/C.(2)Draft can not be excluded from L/C when discussing those issues on draft under L/C, it should be put in L/C practice.(3)These peculiarities should be taken into consideration when settling those issues. The conventional practice of international banks as well as rules of negotiable instruments shall bear equal importance to satisfy the internationalization of L/C.(4)Draft should be used under L/C,although its functions are weakening gradually.