the risk management in the international trade through the contracts
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The Risk Management In The International Trade
Through The Contracts15.11.2012
Aalto UniversitySchool of Business
Jukka-Pekka NiemeläAttorney at Law
Law Firm Lindblad Ltd
Risks
• No business contract exists without risks
• Minimization of risks is utmost important
• Risks may be managed to a certain extent through a risk control
– Careful choice of a good business party
– Good and careful drafting of a business contract
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CAREFUL CHOICE OF A BUSINESS PARTY
• Careful choice of a business party
– Reliability of a business party
– Obtaining the relevant information of a business party• E.g. Credit Agencies, Trade Registrar, Creditors, Bankruptcy and Restructering Agencies,
bankruptcy information from the Courts of Law, Trade Associations, Commercial Embassies, Competitors
• Protection of Good Faith and Fair Dealing• Protection recognised all over in the world
– Principle of Loyalty • Principle of loyalty recognised all over in the world
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GENERAL COMMENTS
• Trade customs– Vary from country to country– Vary from business to business– Established trade customs
• between parties• in business field concerned
• Culture– Traditions
• Language– Communication– Choosing the negotiation and contract language
• Other Customs – Manners and habits
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GENERAL COMMENTS
• Legislation of a foreign country
• Right and same understanding of issues between the parties
– Terms and provisions of a business contract
– Linguistic understanding
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FREEDOM OF CONTRACT
• Freedom of Contract– Freedom to conclude or not to conclude business contracts– Freedom to choose the form of a business contract
• Verbal contracts• Written contracts• Standard contracts (ICC, Orgalime, IT etc. )
– Freedom of contents• Freedom to choose the terms and provisions of the business contract e.g.
– buyer´s rights and obligations– seller´s rights and obligations– contract price– payment terms and currency– payment delay– inspection of goods and reclamation– Warranties– delivery terms (Incoterms, NL, Finnterms, ECE etc) – applicable law– dispute settlement – etc.
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FREEDOM OF CONTRACT
• Non-disclosure agreements
– Business and trade secrets
– Validity period
• before negotiations
• after negotiations
– Insertion of a secrecy clause in the business contract
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COMMERCIAL RISKS AND RISK CONTROL
• Payment of the Contract Price– before delivery
• Down payment• Advance payment• Installments
• Open account– e.g. open account 30 days
• Documentary Credit i.e. Letter of Credit (ICC, International Chamber of Commerce)– Indication of the buyer´s solvency
• The buyer´s creditworthiness in the buyer´s bank
• Debt Collection• The seller´s bank collects the contract price from the buyer
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COMMERCIAL RISKS AND RISK CONTROL
• Payment currency– currency clause against currency fluctuation
• Delay intrest for the late payment– e.g. 8 % per annum
• Delivery terms and payment terms- Incoterms (ICC, International Chamber of Commerce)
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GUARANTEES
• Retention of title– Transfer of the title to the goods against the full payment of the contract
price
• Payment bond or Bank guarantee– to ensure the payment of the contract price
• Performance bond– to ensure the performance of the obligations of the business contract
• Advance payment bond
• Escrow account
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INSURANCES
• Property
• Delivery and Transportation
• Product liability
• Credit risks
• Political risks
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DISTRIBUTORSHIP AGREEMENTS
• Object of the Agreement
• Agreement between the Supplier and the Distributor– the Distributor is an independent trader
• Supplier´s rights and obligations e.g.– to demand the payment of the delivered goods– reports from the distributor– production changes– training– information duty– sales targets– trademarks
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DISTRIBUTORSHIP AGREEMENT
• Territory• Products• Exclusivity/ non-exclusivity• Validity period• Termination• Rescission• Applicable law• Dispute settlement• Etc.
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AGENCY AGREEMENT
• Object of the Agreement• The Agreement is between the Principal and the Agent• The Principal´s rights and obligations e.g.
– commission payment to the Agent– commission calculations– marketing information to the Agent– the Principal´s information duty of production changes etc.– sales targets– immaterial property rights
• The Agent´s rights and obligations e.g.– sales promotion– attainment of sales targets– reports
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AGENCY AGREEMENTS
• Non-competition• Secrecy• Territory• Products• Exclusivity/non-exclusivity• Validity period• Termination• Rescission• Applicble law• Dispute settlement• Etc.
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