The Effectiveness of Documentary Credit as a Tool to Secure International Trade Transactions in Palestine under Occupation Constraints

Abstract

This study examines the effectiveness of documentary credit as a tool to secure international commercial transactions, with a particular focus on the Palestinian context and the restrictions imposed by the Israeli occupation on foreign trade. Opening a letter of credit at the relevant bank entails a set of mutual legal obligations between the two main parties: the bank and the applicant. Upon opening the credit, the bank is obliged to examine the documents submitted by the beneficiary, such as shipping documents and invoices, through a superficial review without delving into their substantive authenticity, and then to forward them to the applicant for inspection and verification of their compliance with the agreed terms.

The study highlights the nature of these obligations, from both the banks and the applicant’s sides, and emphasizes the importance of Palestinian traders and companies being aware of these legal aspects before engaging in international commercial transactions. It also discusses the bank's responsibility as a professional entity in handling documents, and the subsequent obligations on the applicant, such as paying the value of the credit and covering transaction costs.

Moreover, the study brings to light the practical challenges that undermine the effectiveness of documentary credits in Palestine, most notably the restrictions imposed by the occupation on the movement of goods, financial transfers, and banking infrastructure, in addition to the complexities of electronic trade in an unstable legal environment. The study concludes that activating the documentary credit system in Palestine requires addressing these challenges through legal reforms and practical facilitation measures that ensure legal and economic security for Palestinian parties involved in international trade.