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算授課教師：XXXInternationalSettlementCatalogue01Introduction02NegotiableInstrument03Remittance04CollectionCatalogue05LetterofCredit06StandbyLetterofCredit07LetterofGuarantee08InternationalFactoring Catalogue09Forfaiting10DocumentsinInternationalSettlement11ExaminationofDocumentsCatalogue12FinancinginInternationalSettlement13RisksinInternationalSettlementChapter7LetterofGuarantee7.1DefinitionofLetterofGuarantee

Ininternationalbusiness,obstaclesdoexistbetweenthebuyerandthesellertofulfillthetransaction.Asellermightfinditdifficulttoassessthebuyer’swillingnessandabilitytopay,whilethebuyermightnotbesureabouttheseller’scredit

worthinessandwhetherthesellerhasadequatefinancialandtechnicalresourcestofulfillthecontractobligation.7.1DefinitionofLetterofGuarantee

Inordertofacilitatethetransaction,athirdparty,normallyacommercialbankwillparticipateinthebasictransaction,usingitsownreputationandabundantfundstoensurethatacertainpartywillfulfilltheresponsibilityandobligationundertheunderlyingcontract.Thebank’sletterofguaranteethencameintobeing.7.1DefinitionofLetterofGuarantee

Letterofguarantee(L/G)isawrittenundertakingmadebytheguarantorattherequestoftheapplicanttothebeneficiary,guaranteeingthattheapplicantwillperformobligationsunderthecontractsignedbetweentheapplicantandthebeneficiary.Inthedefinition,theguarantoristhepartythatmakesguarantee,anditisusuallyabank;theapplicantisthepartythatappliesfortheletterofguarantee.Differentfrompreviouspaymentmethods,theapplicantisnotfixed.Itcanbeeitherthebuyer(importer)ortheseller(exporter).7.1DefinitionofLetterofGuarantee

TheapplicablerulesfortheguaranteearetheUniformRulesforDemandGuarantees(ICCPublicationNo.758)andtheUniformRulesforContractGuarantees(ICCPublicationNo.325).BytheUniformRulesforDemandGuarantees,ademandguaranteemeansanyguarantee,bondorotherpaymentundertaking,howevernamedordescribed,issuedbyabank,insurancecompanyorotherbodyorperson(theguarantor)inwriting,promisingthepaymentofmoneyonpresentationinconformitywiththetermsofthewrittendemandattherequest,orontheinstructionoftheprincipal.7.1DefinitionofLetterofGuaranteeFromthedefinition,wecanseethatademandguaranteeiscallablemerelyuponthebeneficiary’sstatementthattheapplicantisinbreachofcontract.BytheUniformRulesforContractGuarantees,contractguaranteesareguaranteesspecificallygivenbythebanks,insurancecompaniesandotherguarantorsintheformoftenderguarantees,performanceguaranteesandrepaymentguaranteesinrelationtoprojectsinanothercountryinvolvingthesupplyofgoodsandservices,ortheperformanceofwork.7.2CharacteristicsandFunctionofLetterofGuarantee7.2.1CharacteristicsofLetterofGuarantee7.2.1.1AssurableTheissuingbankwillassuretothebeneficiarythattheapplicantwillfulfilltheresponsibilityandobligationofthecontractwithhisownreputation,onlywhentheapplicantbreachesthecontractcanthebeneficiaryclaimreimbursementontheissuingbank.Whenthecontracthasbeenfulfilled,theguaranteewillbeastandbydocumentandwillceasetobevalidatmaturitydateautomatically.Letterofguaranteeservesasaguaranteeinstrument,notbeingapaymentinstrument,thisisthebiggestdifferencefromthecommercialletterofcredit.7.2.1.2Independent

Letterofguaranteeisissuedonthegroundofthebasictransactioncontractbetweentheapplicantandthebeneficiary.Onceitisissued,itwillnotbeboundbythebasiccontract,itwillconstituteanindependentdocumentandbeartheindependentlegaleffect.7.2.1.3Documentary

Paymentunderletterofguaranteeisbasedonthedocumentspresentedbythebeneficiaryaccordingtotheguaranteeregulationclause.Itincludesbeneficiary’scertificate,applicant’sdefaultdeclarationandotherrelativedocuments.Bankswillnotbeinvolvedinthespecificmattersofthebasictransaction,banksonlydealwithdocuments,notwithgoodsorobligationperformanceoftheapplicant.7.2.2FunctionofLetterofGuarantee7.2.2.1AssisttheBiddertoAwardTender

Ininternationaltradeandinternationalcontractproject,inordertogetthemostandbestcommodityandservice,normallytheimporterortheprojectownerwillinvitetheexporterandthecontractortobidopenly.Thetenderwillrequirethebiddertosubmitabidbond(tenderguarantee),preventthebidderfromcancelingthebidoramendingthepromisedprice,andalsoguaranteethatwhenawarded,thebidderwillsignsuppliercontractwiththetender.7.2.2.2FacilitatetheConclusionofContract

Submittingbidbond(tenderguarantee)isthepreconditionofthetransaction,whiletheperformanceguaranteeisthenecessityconditiontosignthecontractandexecutethetransaction.Whenthebidderisawarded,itisnecessarytosubmitperformanceguaranteeswithin30dayswhenawardedtosignthebusinesscontract.7.2.2.3PromotetheStartofProject

Ininternationalcargotrade,theexporterwillrequiretheimportertomakedownpayment,thentostartthepurchaseandmanufactureofthecaptionedgoods.Theimporterwillthenrequiretheexportertoofferaprepaymentguarantee,promisingthathewilldeliverthegoodsaspercontractstipulation.

Besidestheabovementionedfunctions,letterofguaranteecanalsobeusedtopromisethequalityoftheproject,paymentofthecontract,therepaymentofloanprincipalandinterest,etc.Underthegeneralbusinesscontract,whenonepartydoesnotfulfillthecontract,anotherpartycanaskforcompensationbyusingletterofguarantee.7.3PartiestoLetterofGuarantee7.3.1Applicant

Itisthepartythatappliesforletterofguaranteetothebank.Hecanbeeitherthebuyerortheseller.Itisthepartythatbearsresponsibilityintheunderlyingcontract.Hepaysbacktheguarantorafterhispaymenttothebeneficiary.HefillsintheformofapplicationforL/Gandthusbearsrelativecommission.Sometimesiftheapplicantdoesnothavegoodreputation,hehastoprovideacounter-guaranteefromanotherbanktomaketheL/Gavailable.7.3.2BeneficiaryItistheacceptorofL/G.HecanexecuteitsrecourserighttotheguarantorunderL/G.Heisnormallyanotherpartyoftheunderlyingcontract.Iftheapplicantdoesnotfulfillhisduty,thebeneficiarycanuseL/Gtoaskforcompensationfromtheguarantor.7.3.3GuarantorItisthepartythatacceptstheapplicant’sentrustandopenstheL/G.Aguarantorisoftenabank.Hisliabilitiesare:whenthebeneficiarypresentsdocumentsorcertificatesoftheapplicant’sbreachingofcontract,hemustmakepaymentorcompensation.Afterthis,hecanmakeclaimstotheapplicantorthecounterguaranteebank.7.3.4AdvisingBankItisthepartythatacceptstheapplicant’sentrustandopenstheL/G.Aguarantorisoftenabank.Hisliabilitiesare:whenthebeneficiarypresentsdocumentsorcertificatesoftheapplicant’sbreachingofcontract,hemustmakepaymentorcompensation.Afterthis,hecanmakeclaimstotheapplicantorthecounterguaranteebank.7.3.5CounterGuarantorItisthepartythatopenscounter-guaranteefortheapplicant.Inordertoavoidrisks,theguarantorcanrequireathirdpartytoguaranteetheL/G(nottheapplicanthimself).Thethirdpartyiscalledcounterguarantor,whichcanbeabank,abureauoragovernmentorganization.Whenthebeneficiaryclaimsrightstotheguarantor,afterthepayment,theguarantorcanusecounterguaranteetomakeclaimstothecounterguarantor.Thecounterguarantorhasloweredtheriskofguarantor.Underthecounterguarantor,ifthebeneficiaryclaimsrecourse,therouteis:beneficiary-guarantor-counterguarantor-applicant.7.3.6ConfirmingBankItisthebankthatconfirmstheL/G.Itguaranteesthattheguarantorwillexecutecompensationliability.Itcompensatestothebeneficiarywhentheguarantordoesnotfulfillhisobligation.ThecharacteristicsoftheconfirmingbankofL/Gissimilartotheconfirmingbankundercredit.7.3.7ReissuingBankReissuingbankisthepartythatissuesletterofguaranteetoitsdomesticbeneficiaryaspertherequestoftheforeigncounterguarantor.Reissuingguaranteeisalwaysestablishedasperthelaworregulationofthebeneficiary’scountryortherequestofthebeneficiary.7.4ContentsofLetterofGuarantee7.4.1BasicContentsofaBankGuarantee

Thecontentsoftheguaranteeshouldbeclear,accurate,andavoidtobetoodetailed.Ingeneral,letterofguaranteeistypicallycomposedoffollowingtheitems:(1)Thenameandaddressofthebeneficiary.(2)Thenameandaddressoftheapplicant.(3)Thenameandaddressoftheadvisingbank.(4)Thename,nationalityanddetailedaddressoftheguarantorbank.7.4.1BasicContentsofaBankGuarantee(5)Thetypeandpurposeoftheguarantee.(6)Therelativecontractnumber,agreementnumber,tendernumberandtherelativereferencenumberoftheproject.(7)Thecurrencyandamountoftheguarantee.(8)Thedurationorexpirydateoftheguarantee.7.4.1BasicContentsofaBankGuarantee(9)Theclaimingconditionandclaimingmethod.Claimingconditionisthespecificconditionunderwhichtheguarantorundertakestopay.Itisthespecificdocumentsrequirementwhenclaimoccurs.Claimmethodmeanswhichway(T/Treimbursementormailreimbursement)istobeused,whethertheclaimingroutewillbepassedbytheadvisingbank.(10)Thehighestcompensationamountandcurrency.7.4.1BasicContentsofaBankGuarantee(11)Theguarantorbank’sliability(primaryobligationoraccessoryobligation).(12)Bankingchargeclauses.(13)Thestipulationtolanguageusedinguaranteeandclaimdocuments.(14)Thelaw,regulationorarbitrationclausetheguaranteeissubjectto.7.4.2BasicContentsofaCounterGuaranteeInpractice,thecontentsofacounterguaranteearenotasdetailedasthoseofaguarantee.Itwillnotcontainvariousdetaileddescriptionsbutthegeneralundertakings.Acounterguaranteemainlycontainstwoclauses:theauthorizationinstructionclauseandthereimbursementclause.Thevalueofacounterguaranteeisusuallythesameasthatoftheoriginalguarantee,buttheexpirydateofacounterguaranteeisusually15dayslongerthanthatoftheguarantee,ensuringthereissuingbanktohaveenoughtimetoclaimreimbursementfromtheissuingbankintheeventthatthebeneficiaryclaimscompensation.7.4.3AdditionalClauseofaLetterofGuaranteeInadditiontotheabovementioneditems,abankguaranteecanalsocontainsomeadditionalclause,stipulatingtherightsandliabilitiesoftheguarantor.7.4.3.1TheValidityClause

Thisclauseistodefinewhenandatwhatcircumstancetheguaranteewillbeeffective.Ifthereisnovaliditydateshownontheguarantee,theissuingdatewillbedeemedasthedatefromwhichtheguaranteebecomesoperative.Inordertoavoidthepossibledisputesandrisks,theguarantorbankusuallyincorporatesavalidityclauseintothetextoftheguarantee.7.4.3.2AutomaticExtensionClause

Sincesomeguaranteesmaturitydatescannotbedeterminedatthetimeofissuing,orthebeneficiariesarenotassurableofthetimewhentheprojectswillbecompleted,thebeneficiariesmayrequiretheissuingbankstoaddautomaticextensionclauses.7.4.3.3UnconditionaltoPayClause

Thisclauseguaranteesthattheguarantortakestheprimaryliabilitytopayuponpresentationofthecomplieddocuments.Guaranteesarepayableondemandunconditionally.7.4.3.4NoChangeorAdditionClause

Toensuretheguarantee’sresponsibilitynottobechangedaspertheexecutionoftheunderlyingtransaction,thebeneficiarymayrequesttheissuingbanktocontainaclauseintheguaranteetomakesurethatallthetermsandconditionsoftheguaranteeshouldnotbechanged,addedordeducted.7.4.3.5TheValueReductionClause

Underabankguarantee,theguarantor’sliabilitywillnotbealwaysthesame.Itmaychangeaccordingtothefulfillmentoftheunderlyingcontract.Toindicatethispoint,thevaluereductionclausewillalwaysbeincorporated.7.4.3.6ReturnClause

IncountriessuchasJordan,PakistanandThailand,thelawsstipulatethat,byaguaranteeissuedtoagovernmentorquasigovernmentdepartment,eveniftheguaranteeexpires,thebeneficiaryshouldstillhavetherightofclaimingwithinacertainperiodoftime.Facedwithsuchconditions,aguarantorwillhavetocontainareturnclauseintheguarantee.7.4.3.7LegalClause

Itisaboutthelawapplicabletoabankguarantee.Sincedifferentcountrieshavedifferentlaws,itisaquestionwhichoneshouldbeapplicable.Inordertoassuretheapplicablelaworjurisdiction,abankguaranteeusuallycontainsalegalclause.7.5BasicProceduresofLetterofGuarantee7.5.1DirectL/G

Itisthepartythatappliesforletterofguaranteetothebank.Hecanbeeitherthebuyerortheseller.Itisthepartythatbearsresponsibilityintheunderlyingcontract.Hepaysbacktheguarantorafterhispaymenttothebeneficiary.HefillsintheformofapplicationforL/Gandthusbearsrelativecommission.Sometimesiftheapplicantdoesnothavegoodreputation,hehastoprovideacounter-guaranteefromanotherbanktomaketheL/Gavailable.7.5.1DirectL/G

PleaseseeChart7.1fortheproceduresofdirectL/G.7.5.1DirectL/G①Thebeneficiaryandtheapplicantsigntheunderlyingcontract,andthebeneficiaryrequirestheapplicanttoopenanL/G.②TheapplicantappliesforanL/G,andtheguarantoropensanL/G.③TheguarantorsendstheL/Gtothebeneficiary.④Underthebreachingofcontractoftheapplicant,thebeneficiaryusestheL/Gtoaskforcompensationfromtheguarantor,andtheguarantormakespayment.⑤Theguarantorasksreimbursementfromtheapplicant.7.5.2IndirectL/G

PleaseseeChart7.2fortheproceduresofindirectL/G.7.5.2IndirectL/G①Thebeneficiaryandtheapplicantsigntheunderlyingcontract,andthebeneficiaryrequirestheapplicanttoopenanL/G.②TheapplicantappliesforanL/G,andtheguarantoropensanL/G.③TheguarantorsendstheL/Gtotheadvisingbank.④TheadvisingbanksendstheL/Gtothebeneficiary.⑤Underthebreachingofcontractoftheapplicant,thebeneficiaryusestheL/Gtoaskforcompensationfromtheguarantorthroughtheadvisingbank,andtheguarantormakespayment.7.5.2IndirectL/G⑥Theguarantoraskspaymentfromtheapplicant.Theletterofguaranteeisactuallyguaranteeinstrumentopenedbytheguarantorbankobligingitselftopaythebeneficiaryunderthespecifiedconditionuponreceiptofawrittendemandforpaymentinaccordancewiththetermsandconditionsoftheguarantee.Ingeneral,threeseparatecontractsareinvolvedinabankguaranteetransaction:acommercialcontract,acreditagreement,andtheguaranteeitself.7.5.2IndirectL/GThecommercialcontractistheunderlyingbusinessarrangementbetweentheapplicantandthebeneficiaryofaguarantee.Thecreditagreementisthedocumentationbetweentheguarantorbankandtheapplicant.Beforeissuingoftheguaranteedocument,thebankwillrequireitscustomer(theapplicant)tosignasecurityagreement(i.e.counterguarantee)obliginghimselftoreimbursetheissuingbankforthepaymentmade.7.6TypesofLetterofGuarantee7.6.1ConditionalL/GandDemandL/G

ConditionalL/Gmeanstheapplicantsetssomerestrictionstoclaimingrightsandaccepting.DemandL/Gmeanstheapplicantdoesn’tsetanyrestrictionstoclaimingrightsandaccepting,itisanunconditionalL/G.

TheapplicantismorewillingtoacceptconditionalL/G,whilethebeneficiaryismorewillingtoacceptunconditionalL/G.7.6.2IndependentL/GandAccessoryL/GIndependentL/Gisissuedbasedonunderlyingcontract,butithasindependentlegaleffect.Theguarantorbearsthefirstpayingliabilitynomatterwhethertheapplicantiswillingtopay.IndependentL/Gmeanstheguarantorshouldpaywithoutinvestigatingtheactualperformanceofunderlyingcontract.7.6.2IndependentL/GandAccessoryL/GAndaccessoryL/Gisanattachedagreementtotheunderlyingcontract,whoselegaleffectcoexistswiththecontract.Theguarantorbearssecondaryliability,whichmeansthepayingobligationoftheguarantorisbasedontheliabilityoftheapplicantintheunderlyingcontract.Onlywhentheapplicantbreachesthecontract,theguarantorisresponsibleforcompensation.7.6.3DirectL/GandIndirectL/GDirectL/Gisissuedbytheguarantordirectlytothebeneficiaryandmaybeadvisedthroughalocalbankbutwithoutanyresponsibilityonthepartofthelocalbank.UnderanindirectL/G,however,abankrequestsalocalbanktoissuetherequiredguaranteeinfavorofthebeneficiaryandthebankissuesacounterguaranteeinfavorofthelocalbankinwhichitundertakestoirrevocablypaythelocalbanktheamountpaidbyitunderitsguarantee.7.6.4SettlementL/GandCreditL/GAsperthebasicfunction,bankguaranteecanbeclassifiedintosettlementguaranteeandcreditguarantee.SettlementL/GistheindependenttransactionsettlementinstrumentthattheguarantorbanktakestheprimaryliabilitytoeffectpaymentwhilecreditL/Gbearsthenatureofstandby,theguarantorbanktakestheprimaryoraccessoryliabilitytocompensatethebeneficiaryintheeventthattheapplicantfailstofulfilltheperformanceoftheunderlyingtransaction.7.6.5LimitedAmountL/GandUnlimitedAmountL/GLimitedamountL/Gmeansthattheguarantorwillonlyberesponsibleforthepaymentliabilityofaspecificamount(theamountcanbeaccumulativeorun-accumulative),anyclaimexceedingthisamountwillnotbeconsidered.Ininternationalfinancialguarantee,normallythelimitedamountguaranteewillbeadopted.7.6.6RevocableL/GandIrrevocableL/GRevocableL/Gmeanswithouttheconsentofotherrelatedparties,theguarantorcanhavetherightstocanceloramendtheissuedletterofguaranteeathisdiscretionwhileirrevocableL/Gmeansthatwithouttheconsentofalltherelatedparties,theletterofguaranteecannotbecanceledoramended.7.6.7LimitedDurationL/GandUnlimitedDurationL/GLimiteddurationL/GisonekindofL/Gthatstipulatesthevalidityperiodintheguarantee.Thebeneficiarymustmakeclaiminthestipulatedperiod,otherwise,theguarantorwillrefusetoeffectpayment.Validityperiodregulationisnecessarytotheguarantor.IfthereisnoclauseconcerningterminationtimeofL/G,theguarantorwillforallthetimefacetheunpredictablerisks.Unlimiteddurationguaranteeistheguaranteethatdoesnotstipulatethevalidityperiod.Unlessthespecificlegitimateeventoccurs,oralltheclaimsofthebeneficiaryhavebeensatisfied,thebeneficiaryhastherighttoclaimontheguarantorbankatanytime.7.6.8ExportingL/GandImportingL/GAccordingtodifferentapplicants,L/GcanbeclassifiedintoimportingL/G,withimporterastheapplicant,andexportingL/G,withexporterastheapplicant.7.6.8.1ExportingL/G

7.6.8.1.1TenderGuarantee/BidBondIninternationalmarket,majorprojectusuallyopensbiddingsoastoattractqualifiedcompanies.ThetendererhastoprovideL/Gofsomeamountsoastoindicateitssincerity.Thebankguaranteesthatthetendererwillfulfillthefollowingresponsibilities:first,itwillnotmodifyquotedpriceandwithdrawbid;second,itwillsigncontractandprovideL/Gofperformanceuponitsacceptanceofthebid.Theamountoftenderguaranteeisusually1%~5%ofthequotedpricewithaneffectiveperiodof3~6months.7.6.8.1ExportingL/G

7.6.8.1.2PerformanceGuaranteeTheapplicantusesperformanceguaranteetoassurethebeneficiarythatitwillperformcontractanddelivergoodsatthescheduleddatewithquantityandquality.Theamountoftheguaranteeisusually10%ofthecontract.IfitisanL/Gofprojectundertaking,theamountwillamountto10%~25%ofthecontract.7.6.8.1ExportingL/G

7.6.8.1.3AdvancePaymentGuaranteeItisalsocalledtherepaymentguaranteeordownpaymentguarantee.Underthisguarantee,thebankpromisesthatifthebeneficiarycannotfulfillorrefusestofulfillitsperformanceofcontract,thebankwillreturntotheapplicant’sadvancedpaymentplusinterest.TheamountoftheL/Gisoftentheamountoftheadvancepayment.7.6.8.1ExportingL/G

7.6.8.1.4QualityGuarantee/MaintenanceGuaranteeInthecontractofindustryproduct,mechanicalequipment,vessel,airplane,etc.,inordertoguaranteethequalityofcargo,theimporternormallyaskstheexportertoapplyaqualityguarantee.Itmeansifthegoodscannotmeettherequirementsofthecontract,thebankwillcompensatetheimporterforhislosses.7.6.8.1ExportingL/G

7.6.8.1.4QualityGuarantee/MaintenanceGuaranteeAmaintenanceguaranteeprovidesforthemaintenanceand/orrepairofequipmentduringthespecifiedperiodoftimeafterinstallation.Normallytheapplicantwillrequireamaintenanceguaranteeascompensationintheeventthattheequipmentdoesnotperformasspecified,andtheperformancedeficiencies,ifany,couldnotbecorrectedbythebeneficiary.7.6.8.1ExportingL/G

7.6.8.1.5RetentionMoneyGuaranteeRetentionmoneyguaranteeisasubstituteformaintenanceguarantee.Aspertheresponsibilityandliabilityoftheguarantorbank,theretentionmoneyguaranteeisinessenceamaintenanceguarantee.

7.6.8.1.5RetentionMoneyGuaranteeWhendealingwithimportandexportofcompletesetsofequipment,thebuyerwillalwaysrequiretoretainaportionofthepaymentfromthesellerinordertocovermaintenanceandrepaircostaftercompletionoftheproject.Thiswilloccupythesellersoperatingcashflowandtightenthesellersliquidityfunds.Sometimes,thesellerwillrequiretheretentionmoneytobepaidwhengoodsaredeliveredandtheequipmenthasbeeninstalledbyprovidingaretentionmoneyguaranteetothebuyer.Theguarantorbankwilltaketheresponsibilitytocompensatethebuyerwhenmaintenanceorrepaircostoccurs.7.6.8.2ImportingL/G

7.6.8.2.1PaymentGuaranteeInsightpaymentguarantee,theguarantorguaranteesthatuponthereceiptofshippingdocuments,hewillmakepaymenttothebeneficiaryonpresentation.Paymentguaranteeisatypical“ondemand”guarantee.Itbearsthesamefunctionasletterofcredittopromisethepaymentfromtheimporter.7.6.8.2ImportingL/G

7.6.8.2.2LeaseGuaranteeWhenimportingmachineryequipmentortransportationvehiclebymeansofleasing,theguarantorbankguaranteestothebeneficiarythatthelesseewillpaytherentinaccordancewiththetermsandconditionsoftheleasingagreement.Shouldthelesseefailtopaytherentwithinthetimelimitasstipulatedintheleaseagreement,thebankundertakestomakepaymentfortherent.Normallythetotalamountoftherentisequaltothecommoditypriceplusfinancinginterest.Whentherentispaidoff,theownershipofthecommoditywillbetransferedtothelessee.

7.6.8.2.3CompensationGuarantee/AssemblyandProcessingGuaranteeIncompensationtrade,attherequestoftheimporter(equipmentpurchaser),theguarantorbankwillissuecompensationguaranteeinfavoroftheexporter(equipmentsupplier),promisingwhentheimporterhasreceivedtheequipmentinaccordancewiththecontractterms,hewilldelivertheproductproducedbytheimportedequipmenttotheexporterorthedesignatedthirdpartytoreimbursethevalueoftheimportedequipment.Iftheimportercannotdelivertheproductstotheexporterordesignatedparty,norcanhepayofftheequipmentamountincurrency,theguarantorbankwillreimbursewhenclaimdocumentsarepresentedbytheexporter.

7.6.8.2.3CompensationGuarantee/AssemblyandProcessingGuaranteeAsimilaronetocompensationguaranteeisassemblyandprocessingguarantee.Intheassemblyandprocessingoperation,guarantorbankwillissueguaranteeattherequestofthepartywhoneedsthematerialsandcomponentstothepartywhoprovidesmaterialsandcomponents,promisingwhentheimporterhasreceivedtherawmaterialsandcomponentsthatmeetthecontractrequirements,hewillusetherawmaterialsorcomponentstoproducethestipulatedproductsanddeliverthemtotheexporter.Iftheimporterfailstodoso,theguarantorbanktakestheresponsibilitytomakecompensation.7.6.8.3OtherTypesofL/G

7.6.8.3.2CustomsGuarantee

Customsguaranteeisissuedbytheguarantorbanktotheforeigncustoms,guaranteeingthattheimportedgoodswillbewithdrawn,thentaxwillbehandedwhentransportingthegoodsintotheforeigncountry.Customsguaranteenormallywillbeadoptedintwosituations.

7.6.8.3.2CustomsGuaranteeOneisunderforeignprojectcontracting,wherethecontractorwilltransportsomeconstructionequipmenttothecounterparty’scountry,andtheguarantorbankwillissueaguaranteeinfavoroftheforeigncustoms,promisingtheconstructionequipmentwillbeshippedbackwhentheprojectcompletes.Otherwise,theguarantorbankwillmakeupthetaxinarrears.Anothersituationiswhenmakingexhibitioninforeigncountry,theguarantorbankwillalsobeneededtopromisetheexhibitsandappliancetobeshippedback.Onepointneedstomentionisthatwhentheexhibitswillbesoldattheexhibitionplace,thenthetaxincurredmustbepaid.

7.6.8.3.3OverdraftGuarantee

Overdraftguaranteeisissuedbytheguarantorbankattherequestoftheoutwardsprojectcontractingcorporation,forthepurposeofopeningoverdraftaccountsintheforeignbank.Whenthecontractingcorporationisconstructedintheforeigncountry,normallyithastherequesttoopenoverdraftaccounttogetmorecreditfacilitiesfromthelocalbank.Theoverdraftguaranteeisthenecessarydocumentsfortheopeningofoverdraftaccount.Overdraftguaranteewillpromisethecorporationtomakeuptheoverdraftamountaspertheoverdraftagreement.Ifthecorporationfailstodoso,theguarantorbankwilltaketheresponsibilitytomakeuptheoverdraftamount.

7.6.8.3.4BailBond