Research On The L/C Soft Clause Problems

Letters of credit has always been accompanied by the development of international trade since its birth, which make international transactions more secure, convenient and faster, maintain the international economic order, and protect the legal rights and interests of businessmen of different countries. However, the emergence of the "soft clause" weaken the safety and reliability of the L/C, and also shake the status of the letter of credit in the international settlement.This article mainly focus on the concept of the soft clause, reasons, hazards, legal issues, types and prevention measures. The definition of the "soft clause" is not unified at home and abroad. Domestic scholars have different opinions, some scholars believe that the "soft clause" is pure "fraud" or "trap"; Some scholars argue that the "soft clause" refers to those terms that can limit initiative of exporters and affect the negotiation. I agree with the latter definition, in some degree, it can be called "generalized" definition, while the former can be called "narrow" definition.In my opinion, of the causes leading to the L/C "soft clause", the most important reason is:the L/C operating mechanism itself is not perfect, which provide the maximize protection to exporters and ignore the importers’ demand. That is, the protection from the L/C is imbalance, making the importers to struggle for interests in their own way, which gives rise to the "soft clause". Of course, in addition to the operating mechanism, the emergence of the "soft clause" can also be distributed to other objective reasons, such as bad behaviors, poor living environment, and exporters cannot fully grasp the letter of credit process and so on.The form of the "soft clause" in L/C is full of variety, and it can be said that the biggest feature is no characteristic. Obviously, the damage of the "soft clause" both directly harm the interests of exporters and affect the international trade order. But it is affecting the "Destiny" of L/C payment that is the most serious consequence, because the "soft clause" changes the survival basis of the letter of credit-bank credit, and also changes its irrevocable. In the third chapter, we analyze the "soft clause" from the legal perspective. Both from the International Chamber of Commerce and from the current law of countries around the world, there is no direct law of the letter of credit payment, except for the Uniform Commercial Code. The key point that the "soft clause" can be added is that there is no uniform standard format on the letter of credit. Although the international community has been committed to this, it is still no significant results. Then, the legality of the "soft clause" is analyzed from both the law and the judicial practice perspective and the practice of the ICC. Usually, the effectiveness of the "soft clause" is recognized in judicial practice and current laws, at the same time, there is no clear prohibition in the ICC regulations. So the L/C with "soft clause" is legitimate in general.Followed by the most important two parts of this article:the types and identification of the "soft clause" and response measures. According to the processes of international trade practice (commodity inspection, shipping, negotiation, etc.), the "soft clause" is divided into six types, In each category, classic wording of this "soft clause" will be listed, as well as targeted simple analysis. The inevitable "soft clause" cannot be ignored, nor can talk about the mere mention of the "soft clause". Identifying and understanding background of the "soft clause" is very critical.In response to the "soft clause" in the letter of credit, the International Chamber of Commerce should effectively assume responsibility. Re-designing the letter of credit operation mechanism which can resolve the imbalance of letters of credit protection mechanism perhaps can significantly reduce the frequent occurrence of the "soft clause". Banks, as an important part in the L/C, can make use of their own resources and advantages to develop new products,such as "Super Service", which can provide services for importers and exporters. Furthermore, banks should take a prudent approach in order to prevent risk in daily business.Measures from exporters themselves are the most important response to the risk of the "soft clause". Exporters can follow several measures, such as investigating the issuing bank and the applicant’s qualifications, examining the L/C strictly, formulating the terms of the contract carefully, using insurance and factoring, and training qualified foreign trade talent, to prevent the "soft clause". Once exporters suffer losses, they can take appropriate legal remedies. So, the "soft clause" can be selectively accepted within the prevention capacity of exporters in the practice.