The Uniform Rules for Demand Guarantees (URDG) regulate international business practices and provide a method of securing payment for commercial contracts. Direct guarantees offer more security to beneficiaries than indirect guarantees, and the ICC, which established the URDG, has been involved in international business practice since 1919. The ICC has competing organizations in defining arbitration and mediation for bank agreements, and while the United Nations grants the ICC permanent observer status, there are no provisions for representation or voting rights.
The Uniform Rules for Demand Guarantees (URDG) is publication number 458 issued by the International Chamber of Commerce (ICC) in 1992 in Paris, France to regulate international business practices. Essentially, it is a method of securing payment for commercial contracts under non-ancillary bank agreements, which are popularly known as payment first, he further argues. From the point of view of a beneficiary to a commercial agreement, URDG non-ancillary agreements offer more security than an ancillary agreement, since they are generally unconditional and do not require additional documentation to be produced for payment to be made.
Direct guarantees backed by the URDG rules also offer more security to the beneficiaries, since they are generally issued directly by the Principal Bank to the beneficiary. Indirect guarantees are another subset of these business rules, where the Host Bank directs a local bank or issuer in the beneficiary’s country to perform or guarantee the transaction. Such secondary transactions are considered less secure as the Master or Principal Bank making the actual payment must issue a counter-guarantee to the Issuing Bank or Home Bank, which authorizes a claim by the beneficiary after settlement by both banks.
Although the URDG rules set by the ICC are voluntary, the organization has been established in international business practice since 1919, with participation in more than 140 countries. It also plays an important role in the international arbitration of commercial disputes in more than 86 countries. The ICC World Council is structured similar to many United Nations (UN) organizations, with a general assembly made up of top intergovernmental business executives and national committees that appoint delegates to the Council. This includes a Secretary General, who is appointed by and heads the World Council.
Links to UN organizations by the ICC include recognition of URDG standards by both the World Bank and the United Nations Commission on International Trade Law (UNCITRAL). Despite this fact, the ICC has competing organizations on the international stage, especially in its role in defining arbitration and mediation for bank agreements, such as the URDG covers. Other prominent organizations in the field of international finance include the American Arbitration Association, the London Court of International Arbitration (LCIA), the Singapore International Arbitration Center (SIAC), and the Stockholm Chamber of Commerce in Sweden. Officially, the United Nations grants the ICC and its procedures, such as the URDG, permanent observer status, which means that such rules and policies are accepted based on common practice. However, there are no provisions for representation or voting rights and there is no legal binding to such ICC-based agreements under the articles of the United Nations Charter.
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