Uniform Rules for Demand Guarantees (URDG)
Candlefocus EditorThe URDG is an essential tool for international business. The global sales of goods and services are made daily and without the URDG these transactions may become very complicated, as each nation and its legal system may have different rules. The URDG in theory creates uniformity in the laws governing such contracts, ultimately protecting parties from the possibility of their counterparty not delivering on their promise.
The URDG sets rules and regulations in order to clarify the responsibilities and rights that parties involved in international contracts have. The rules contain procedures to guarantee payments and performance. The URDG also clarifies the duties of all parties involved in the process such as (1) the guarantor, who provides security and guarantees payment and performance of the contract, (2) the beneficiary, who receives a guarantee covering certain risks, (3) the obligor, who is obligated to the performance of the contract and any associated involved parties.
It is important to note that the URDG is not a binding contract, but a set of rules designed to provide guidance, understanding, and clarity around international transactions. For instance, it contains a provision that states that a guarantee must be confirmed to be effective - meaning that it must be communicated and approved by the issuer’s authorized signatory. It also goes into detail about the required procedures around dispute resolution, including the involvement of third-party arbitrators.
The URDG has become widely accepted as the standard set of guiding principles for international contracts. The acceptance and authority of this set of guidelines continues to grow as more and more countries, institutions, and individuals come to rely upon the URDG in their international endeavors. With this increasing reliance, the URDG continues to provide secure and trusted guidance for trading parties all over the world.