UCC's affect on international commerce - Essay Example

UCC’s effect on international commerce UCC’s effects on international commerce Introduction The Universal Commercial Code (UCC) is a set of statutes that govern the conduct of business, negotiable instruments, sales, warranties and loans secured by personal property (Hinkelman & Shippey, 2004). UCC comprises of nine articles. The first article provides the general provisions while the 2nd article covers the rules governing the sale of goods. The third article provides for the transactions in commercial papers such as negotiable instruments and promissory notes (Hinkelman & Shippey, 2004).

The other provisions are also important in trade since they provide guidelines on issues such as bulk transfers, secured transactions and dealings in investment securities such as stocks and bonds. The UCC applies to national trade, but would have positive effects if applied to international commerce. The UCC is designed for quick references on laws regarding formation of business contracts, expert analysis of the impact of various commercial transactions and easy handling of court decisions regarding disputes emanating from trade (Hinkelman & Shippey, 2004).

The first effect of UCC on international commerce is facilitation of international transactions in the sale of goods. UCC will ensure that cross-border merchants have faith in sale of goods contracts due to the uniformity in the regulatory laws. The increase in foreign direct investments and growth in technology has led to emergency of new type of business transactions that require a uniform form of contractual agreements and legal protection (Hinkelman & Shippey, 2004). For instance, technology has allowed companies to sell digital products across national borders and multinational companies to list their stocks in different national stock exchange markets.

In this case, uniform commercial code would be helpful in fostering international commerce (Hinkelman & Shippey, 2004). Uniform commercial code in the international commerce would be useful in curbing instances of international economic crimes such as money laundering and dumping. The UCC would be capable of offering legal guidelines that address issues relating to diversion of cargo in the high seas, counterfeiting and fraudulent insurance claims that are common in maritime trade. UCC will be useful in global tendering processes (Hinkelman & Shippey, 2004).

The provisions will be important in ensuring uniformity of global tenders such as government tenders. This will ensure that contracting parties receive high quality services due to good faith requirements and transparency of the process (Hinkelman & Shippey, 2004). UCC will ease the international transfer of funds through creating uniform requirements in bank collections, settlements of financial securities and fund transfers among the international trade participants. UCC will create legal performance obligation to transactions involving a secured party.

The code of business will guide the transfers of dematerialized securities. In this case, the final investors in the investment securities will have adequate security entitlement and right to receive any dividends accruing from their ownership of the security. Article 8 decomposes the security rights thus creditors are protected from the possibility of the investor of transferring such stake without informing the creditor who has some interest in the concerned security (Hinkelman & Shippey, 2004).

The impact of securing the transactions is to provide a relief to the lender through a security interest in the collateral and an assurance in the default by the borrowing party. In most states, the secured transactions use personal property, fixtures and intangible property as the collateral in the case of default. This code will facilitate bankruptcy settlements thus facilitating international trade transactions (Hinkelman & Shippey, 2004). Articles 5 of the UCC provide guidelines on the issuance of letters of credit by financial institutions.

The letters of credit are useful in international commerce since they guarantee the seller payments from the buyer (Hinkelman & Shippey, 2004). In this case, introducing these provisions in international trade will guarantee the quality and standards of goods as outlined in the sale of goods contract. Uniformity of letters of credit such as Uniform Customs and Practice for Documentary credits will reduce risks associated with late shipment, non-delivery of goods and foreign exchange movement risks (Hinkelman & Shippey, 2004).

Conclusion UCC would be useful in attaining uniformity in international commerce transactions thus enhancing the integrity of trade contracts and increasing the volumes of trade. UCC would also control international trade crimes such as fraudulent insurance claims, money laundering and dumping of goods. Accordingly, UCC would be ensure decline in the costs of international trade through reduction in law suits, transport costs, contract legal fees and high competition. UCC is useful in ensuring international trade in secured transactions, issuing of letters of credit, leases of goods, international bank deposits, bulk transfers, cross-border transfer of investment securities and trade in negotiable instruments such as banknotes and bank drafts.

The international merchants will benefits from high trade integrity, low transport costs and reduction in business risks. References: Hinkelman, E.G & Shippey, K.C. (2004). Dictionary of international trade: handbook of the global trade community. Novato: World Trade Press.