Standby And Related Practices

The Standby Letter of credit was created by American bankers for purpose of evading the prohibitive law that banks should not provide guaranties for others. Therefore, in its origin, Standby was a substitution of bank guaranties. At present, Standby, as an international financial device having dual function of both guarantee and payment, is widely used in international economic activities. To regulate its use and change the situation of unclearness and disunity brought by different legal systems, the United Nations Commission on International Trade Law (UNCITRAL) and the International Chamber of Commerce (ICC) formulated a convention and several practices for it, which are the Uniform Rules for Demand Guarantees (URDG), the Uniform Custom and Practice for Documentary Credits (UCP), the United Nations Convention on Independent Guarantees and Standby Letters of Credit, and the International Standby Practices (ISP98).Of these convention and practices UCP500 and ISP98 are accepted widely. The UCP500 reinforced the independence and documentary character of the Standby. However, it has long been apparent that the UCP was not fully applicable nor appropriate for Standby. ISP98 reflects generally accepted practice, custom, and usage of Standby. The formulation of Standby practices in separate rules evidences the maturity and importance of this financial product.Since 1980' last century, Chinese banks have been using Standby. But the study of its legal systems has not yet been made both comprehensively and profoundly so far. Therefore, enhancement of the Standby is not only a great help for practical sections of international business trade to know it both profoundly and systematically, but of vital importance to advance the use of Standby in other international and home trade, and quicken the course of merging our country into international unification.This paper is divided into four parts.Part one introduces Standby tersely and concisely. After the definition of,analysis of and inquire into the concept , kinds of Standby , this article expounds emphatically the unique of Standby by making a comparison of Standby with documentary credit and independent bank guarantee respectively.The second part makes a penetrating analysis of legal relation between every parts and the operation of Standby to expound the means to guard against the risk every part facing with.The third part, using the way of comparison, with the focus on the clauses of ISP98, makes a thorough research on the difference between UCP500 and ISP98. It also clarifies some clauses that are usually subject to be ignored by users.The last part makes a simple comment on the status and problems of our country's lawmaking. This article, by analyzing the defects and inadequacy of our country 's lawmaking and legal practice, makes preliminary suggestions in legal systems and application of Standby.