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What Is URDG?

URDG stands for the Uniform Rules for Demand Guarantees, a set of guidelines established by the International Chamber of Commerce to standardize the use of demand guarantees worldwide. These rules ensure clarity and fairness, reducing risks in international trade. By adopting URDG, parties can navigate complex transactions with greater confidence. How might URDG impact your global business dealings? Let's examine further.
Ray Hawk
Ray Hawk

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 govern international trading practices. Essentially, it is a method of securing payment for trading contracts under non-accessory banking agreements, which are popularly known as pay first – argue later. From the point of view of a beneficiary to a trading agreement, URDG non-accessory agreements offer more security than an accessory agreement, as they are usually unconditional, requiring no additional documentation to be produced for payment to take place.

Direct guarantees supported by URDG rules also offer more security to beneficiaries, as they are generally issued directly by the Principal Bank to the beneficiary. Indirect guarantees are another subset of these trading rules, where the Principal Bank instructs a Local or Issuing bank in the beneficiary's country to carry out the transaction or guarantee it. Such secondary transactions are considered less secure as the Instructing or Principal Bank that makes the actual payment must issue a counter-guarantee back to the Issuing or Local Bank, which authorizes a claim on the part of the beneficiary after it is cleared by both banks.

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Man holding a globe

Though URDG rules established by the ICC are voluntary, the organization has been established in international trading practices since 1919, with involvement in over 140 countries. It also plays a major role in international arbitration of business disputes in over 86 countries. The ICC World Council is structured similar to many United Nations (UN) organizations, with a general assembly made up of major intergovernmental business executives, and national committees that name delegates to the Council. This includes a Secretary General, who is appointed by the World Council and heads it.

Ties to UN organizations by the ICC include recognition of URDG rules by both the World Bank and United Nations Commission on International Trade Law (UNCITRAL). Despite this fact, the ICC does have competing organizations on the international stage, especially in its role in defining arbitration and mediation for banking agreements, such as URDG covers. Other prominent organizations in the international finance field include the American Arbitration Association, the London Court of International Arbitration (LCIA), the Singapore International Arbitration Centre (SIAC), and the Stockholm Chamber of Commerce in Sweden. Officially, the ICC and its procedures such as URDG are given permanent observer status by the United Nations, which means such rules and policies are accepted based on common practice. There are, however, no provisions for representation or voting rights and no legal binding to such ICC-based agreements by articles of the United Nations Charter.

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