ecsei international sale contract

8/8/2019 ECSEI International Sale Contract

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The Egyptian Center for Studies of Export & Import

www.ecsei.com www.ecsei-eg.com Email: [email protected] [email protected]


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This Report's is Guide to Drafting the International Sales Contract is an essential

resource for anyone involved in the international purchase of goods or services.This includes importers, exporters, foreign manufacturers and brokers. The reportis also extremely useful for domestic attorneys without international experiencewho are called upon to draft a sales/purchase contract for clients tradinginternationally.

International Sales Contract

Contracts provide the formal written understanding between buyers and sellers intransactions for the sale and purchase of goods. In the last decade, properinternational sales contracts have become of increasing importance, even in

countries where business was traditionally done simply with a handshake.Understanding international sales contracts is vital to anyone involved in thecross-border sale or purchase of goods.

Abbreviations and Explanatory Notes

Conditions

Means these Standard Conditions of Contract.

Container

Means any container, trailer, transportable tank, pallet, flat rack, bolster or anysimilar article used to consolidate and carry cargo.

CONTRACT

Means the Order together with these conditions and any documents attached or

referred to there in.

Contractor

Means the person firm or company detailed in the Order to whom this contract is

issued.

Cost of Warranty

The Supplier must meet all costs of an occurrence incidental to the discharge ofwarranty obligations, including any packing, freight, disassembly and reassemblycosts.

Customer

Means the person at whose request or on whose behalf the Company provides the

Services.

Standard Conditions of International Sale Contract

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Dangerous Goods means

Goods which are volatile or explosive or which are or may become dangerous,inflammable, explosive, volatile, offensive or which may become liable to damage

any property or person whatsoever.

DELIVERY

Time, Place and Manner.

Delivery of the Goods must be made at the time, place and in the manner,specified in the Purchase Order.

LATER DELIVERY.

The Commonwealth can specify in writing a later time for delivery.

INCLUSIVE PRICE

Taxes, Duties, Imports and Extras. The price of Goods includes:

(a) All Taxes, Duties and other imposts for which the Supplier is liable;(b) All insurance costs;

(c) All amounts payable for the use (whether in course of manufacture or usageof goods) of patents, copyright, designs, trade marks and other intellectualProperty rights; and

(d) All charges for supply of the Goods, and no extra charges will be made forTesting, inspecting, packing, delivery, insurance or otherwise.

Goods

Means any cargo or items which any part of any Services have been or are to be

performed and any receptacle, container, packaging or pallet or item in or on

which they are contained or with which they are stored or handled.

Government Agency

Means a government or government department or other body, a governmental

or semi-governmental or judicial person or a person (whether autonomous or

not) who is charged with the administration of a law.

LEGISLATION

Means all applicable statutes, codes of practice, regulations of any local,statutory, public or lawfully constituted body having authority, whether in force orsubsequently enacted.

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PACKING

The Goods must be packed so as to ensure their safe delivery.

Premises

Means the location where the Services are to be performed or the Goods are tobe delivered as specified in the Order.

Price

Means the price for the Services and/or Goods detailed on the Order.

QUALITY

Free from Defects. The Goods must be free of defect in materials and

workmanship; and at least of merchantable quality.

Services

Means the services to be provided as specified in the Order and shall, where thecontext so admits, include any materials articles and Goods to be supplied thereunder.

SPECIAL CONDITIONS

The contract conditions include any Special Conditions, referred to in thePurchase Order or in the Request for Tender and agreed to by the Supplier and, ifany such Special Conditions are inconsistent with these Standard Conditions, theformer will to the extent of the Inconsistency prevails.

Specifications

Means the technical and other specifications, plans, drawings, examples.

Subcontractor

Means any other person who pursuant to a contract or arrangement with anyother person (whether or not the Company) provides or agrees to provide the

Services or any part of the Services.

Supplier

Means the person, firm or company to whom the Official Order is addressed.

Temperature Controlled Goods

Means Goods which require temperature control.

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THE GOODS SUPPLIED UNDER THE CONTRACT SHALL

a) Be of good and sound design, materials and workmanship.b) Be of suitable quality and fit for the purpose(s) for which they are supplied

under the CONTRACT.c) Conform as to description, specification and quality with the particulars stated

in the CONTRACT.d) Be free from any defect in title.

The UN Convention on Contracts for the International Sale of GoodsExplained.

The 1980 United Nations Convention on Contracts for the International Saleof Goods (CISG) established a comprehensive code of legal rules regarding

contracts for international sales of goods, including the obligations of the buyer

and seller and remedies for breach of contract.

The Applicability of CISG

CISG applies to contracts of sale of goods between parties, whose places ofbusiness are situated in different states when these states are Contracting States,i.e. have ratified CISG.

CISG contains rules regarding the offer (the proposal for concluding a contract)and the acceptance (indication of assent).

In international transactions, the contract usually includes transport of the goodsto the buyer.In that case, if no particular place for delivery is determinable from the contract,

the seller's obligation consists only in handing the goods over to the first carrierfor transport to the buyer.

Passing of Risk

The passing of the risk of loss of or damage to the goods from the seller to

the buyer means that the buyer from the moment of the passing runs allthe risks and costs for the goods.

This responsibility covers for example accidents.

After the risk has passed to the buyer, loss of or damage to the goodsdoes not discharge him from his obligation to pay the price.

It is natural that the risk of loss of or damage to the goods is connected tothe access to the goods.Therefore, when the contract of sale does not involve carriage of thegoods, the risk usually passes to the buyer when he takes over the goods.

When the contract of sale involves carriage of the goods, the risk during

the transport must be distributed between the seller and the buyer.

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According to the CISG regulations, the risk passes to the buyer when the

goods are handed over by the seller to the first carrier for transport to thebuyer, unless the parties have concluded an arrival or destination contract.

Thus, the passing of the risk for the goods is in general connected to the

fulfilled delivery of the goods.

In case of loss or damage, the party who is bearing the risk of the goodsin transit has the possibility to turn to the carrier and claim compensation.

This claim has to be based on the contract of carriage, since CISG is onlyapplicable between the buyer and the seller of the goods.

However, since carriers' liability is limited, transport insurance could benecessary.

No Contract without All Three Essential Elements:

1. OFFER

2. ACCEPTANCE3. CONSIDERATION

1. Offer- Conditional promise

- Can be withdrawn before acceptance

- Can have time limit

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2. Acceptance

- Assent to offer on its terms- Any means ok unless specified- Material change = counter-offer3. Consideration- Value exchanged- Adequacy not an issue- If unspecified, no contract

Special Issues with Contracts

1. Modification

- If contract exists, no modification unless all parties agree.- Discussion, assurance, promise, expectation, reasonableness all

Insufficient.

2. Authority

- Be sure representative has authority.

- If representative says so, and is not obviously without authority, thats

Enough.

3. Applicable Law

- Most states have equivalent law.- Does not affect jurisdiction.

4. Arbitration/Mediation

- Anythings better than litigation (unless its not).

- Very dependent upon system/personnel.

Special Issues with Contracts for Meetings1. Their form or yours

- Rarely an option- Adhesion doctrine inapplicable- Alternative: addendum

2.Block vs.Reservation

- Standard -- facility commits to hold space if sponsor commits toPromote use.

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- Alternative: sponsor agrees to use- Failure to use subject to cancellation/ penalty

Provisions.

3. Cancellation

- Usually subject to conditions

- Penalties depend upon timing- Force Majeure excuses cancellation

4. Attrition

- Penalties if inadequate use

- Mitigation

Contract Review

1. Warranty

- What precisely will be provided?- Include due dates for performance

- Include standards/criteria- Include who will perform- Must rely for breach or leverage- INSIST THAT IT BE DETAILED

1. Intellectual Property

- Must include:

(1) Whose providing copyrights, trademarks, mailing lists?(2) Under what terms and(3) Who owns what?

- For copyrights, use license (permission) or assignment (transfer) unless work-For-hire.

- For trademarks, use license and rules

2. Payment

- Clear statement of payment terms, including schedule- Consider payments stretched over time of performance- Retain some amount until performance is concluded

3. Indemnification

- Vendor/provider will protect association from claims arising fromVendor/providers Services.

- Usually mutual, although association rarely has much risk.

- If vendor/provider is small or poorly capitalized, consider alternatives other

Vendors, insurance, limited engagement, closer scrutiny, acceptance of risk.

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4. Termination

- Clear statement of term and end of contract- Doesnt have to be equivalent- Specify return of materials, delivery of partially-completed work, and

Relinquishment of IP whether or not theres a dispute:

- Pros and cons of arbitration/mediation

- Anticipate and address worst case

The Essential Elements of International Sales Contracts

No one contract serves as a model for all export

situations. There are, however, minimum generalrequirements for an export contract, outlinedbelow:

Name and addresses of the parties.

State clearly and fully the parties to the contract

Product, standards and specifications

State the product name, as well as technicalnames (if any); sizes in which the product is tobe supplied (if relevant); applicable national or international standards and

specifications; specific buyer requirements; and sample specifications.

Quantity

Specify units of measure in both figures and words.

Inspection

State the nature, manner and focus of the envisaged inspection, as well as the

inspection agency. A number of goods are now subject to pre-shipment inspectionby designated agencies, and foreign buyers may stipulate their own inspectionagencies and conditions for inspection.

Total value

State the total contract value in words and figures, and specify the currency.

Terms of delivery

State the delivery terms, based on one of the Incoterms 2000.

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Taxes, duties and charges.

Clarify responsibility for all taxes. The prices quoted by the seller may beinclusive of taxes, duties, and charges. Levies in the country of importation(if any) may be the buyers responsibility.

Delivery.

Specify the place of dispatch and delivery. Also state whether the period ofdelivery will run from the date of the contract, from the date of notification of the

issue of an irrevocable letter of credit, or from the date of receipt of the notice ofissuance of the import licence by the seller.

Part-shipment, trans-shipment and consolidation of cargo.

State whether the parties to the contract have agreed on part-shipment or trans-

shipment. Indicate the port of trans-shipment and the number, if any, of partialshipments agreed. If the goods are likely to be shipped under a consolidation ofexport cargos scheme, mention this in the contract.

Packaging, labelling and marking.

Note all packaging, labelling and marking requirements in the contract.

Terms of payment:

Amount, mode and currency. When quoting different payment terms, theexporter should specify whether the prices are based on the current rate ofexchange of in-country currency, or on the basis of another currency (such as USdollars). Address payment terms for exchange rate fluctuations as well.

Discounts and commissions.

Specify the amount of discount or commission to be paid and by whom (by theexporter or by the importer). Stipulate the basis of calculation of commission andrate to be applied. Discount or commission rates may or may not be included inthe export price agreed upon by the exporter and importer.

Licenses and permits.

State whether the export transaction will require any export or import licences,and whose responsibility and expense it will be to obtain them. Import licencesmay be difficult to obtain in the buyers country.

Insurance.

A contract should provide for the insurance of goods against loss, damage, or

destruction during transportation. Specify the type of risk covered and the extentof coverage.

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The quantity of goods in question including the number and kindsof Packaging involved.

The external dimensions, cubic capacity, weight, numbers andcontents of each package shipped.The total price of the goods (and unit price where applicable)usually Quotes as a CIF/FOB price.

The currency in which the goods will be sold (e.g. US dollars or)The type and amount of discount given.The likely delivery schedule and delivery terms.The payment methods, for example cash in advance or L/C.The payment terms, for example 30 days on sight.The Incoterm to be used.Who is responsible for the banking fees and other related costs

(Insurance and freight costs are covered by the incoterm inquestion).What the freight and insurance charges are?The exporter's banking details.

A declaration of the country of origin of the goods.

The expected country of final destination.Any freight details such as the port of loading and discharge.

Any transshipment requirements.Any other information relevant to the order.

Packing list

This is a formal document that itemizes quite a number of details about theCargo such as:

Exporter's name and contact details.The importer's/consignee's/buyer's name, address and contact

details.The gross, tare and net weights of the cargo.The nature, quality and specifications of the product beingshipped.

The type of package (such as pallet, box, crate, drum, carton, etc.)The measurements/dimensions of each package.The number of pallets/boxes/crates/drums, etc.The contents of each pallet or box (or other container)

The package markings, if any, as well as shipper's and buyer'sReference numbers.

Certificates of origin

A Certificate of Origin (C/O) is required by some countries and isIntended to certify to the importing authorities as to which

country the Products being imported were manufactured in - thatis, the C/O certifies that the imported product meets the 'Countryof Origin' requirements set by the importing country and which areexpected of their foreign Suppliers.It may be required that the C/O include information such as localMaterial and labour content.In many cases, a statement of origin printed on company

letterhead will suffice, although the document may need to becertified in some way.

In other instances, specific types of C/Os may be required, such asthe Generalized System of Preferences (GSP) Form A and theChamber of Commerce C/O.

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The list is not exhaustive

Pre-shipment inspection certificateCertificates of healthFumigation certificate

Phytosanitary CertificateEnvironmental PermitCertificate Of WeightSpecification List

Certificate of Surveillance or InspectionCertificate of AnalysisCertificate of RadiationCertificate of Hygiene

Certificate of Free SaleCertificate of AuthenticityCertificate of Fitness for Human Consumption

Product guarantee.

Fix and specify the length of the period of guarantee.

Delay in delivery.

Define the damages due to the buyer from the seller in the event of late deliveryowing to reasons other than force majeure.

Force majeure or excuse for non-performance of contract.

Include provisions in the contract defining the circumstances which would relievepartners of their liability for non-performance of the contract.Such provisions are called force majeure and are intended to identify the relief

which may be available to either party to the contract should superveningcircumstances occur during the period of validity of the contract.

Remedial action.

As defaults in contractual obligations by any of the parties can occur, it is alwaysadvisable to include in the sale or purchase contract certain specific remedialactions.

These remedial actions should reflect the mandatory provisions of the lawapplicable to the contract.

Applicable Law.

State the law of the country which is to govern the contract.

Arbitration.

Include an arbitration clause to facilitate amicable and quick settlement of

disputes or differences that may arise between the parties.

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Signature of the parties.

The signing of the contract indicates the agreement of both parties to the termsand conditions of the contract.

INCOTERMS 2000

During the process of revision, which has taken abouttwo years, ICC has done its best to invite views andresponses to successive drafts from a wide-ranging

spectrum of world traders, represented as thesevarious sectors are on the national committeesthrough which ICC operates.

Indeed, it has been gratifying to see that this revision process hasattracted far more reaction from users around the world than any of theprevious revisions of Incoterms.

The result of this dialogue is Incoterms 2000, a version which whencompared with Incoterms 1990 may appear to have effected few changes.

It is clear, however, that Incoterms now enjoy worldwide recognition andICC has therefore decided to consolidate upon that recognition and avoidchange for its own sake.

On the other hand, serious efforts have been made to ensure that thewording used in Incoterms 2000 clearly and accurately reflects tradepractice.Moreover, substantive changes have been made in two areas:

The customs clearance and payment of duty obligations under FAS and

DEQ; and The loading and unloading obligations under FCA.

All changes, whether substantive or formal have been made on the basis

of thorough research among users of Incoterms and particular regard hasbeen given to queries received since 1990 by the Panel of IncotermsExperts, set up as an additional service to the users of Incoterms.

Incorporation of Incoterms Into the Contract of Sale.

In view of the changes made to Incoterms from time to time, it isimportant to ensure that where the parties intend to incorporate.

Incoterms into their contract of sale, an express reference is always madeto the current version of Incoterms.This may easily be overlooked when, for example, a reference has beenmade to an earlier version in standard contract forms or in order formsused by merchants.

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A failure to refer to the current version may then result in disputes as towhether the parties intended to incorporate that version or an earlier

version as a part of their contract.Merchants wishing to use Incoterms 2000 should therefore clearly specifythat their contract is governed by Incoterms 2000.

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Buyer and Seller ObligationsIncoterms groups all obligations related to a given trade term into tensections. Each obligation is mirrored with respect to the same subjectmatter between buyer and seller.

A The Seller Must B The Buyer Must

A1 Provision of Goods inConformity with the Contract

B1 Payment of the Price

A2 Licenses, Authorizations and

Formalities

B2 Licenses, Authorizations and

Formalities

A3 Contract of Carriage andInsurance(a) Contract of carriage(b) Contract of insurance

B3 Contract of Carriage andInsurance(a) Contract of carriage(b) Contract of insurance

A4 Delivery B4 Taking Delivery

A5 Transfer of Risks B5 Transfer of Risks

A6 Division of Costs B6 Division of Costs

A7 Notice to the Buyer B7 Notice to the Seller

A8 Proof of Delivery, TransportDocument or EquivalentElectronic Message

B8 Proof of Delivery, TransportDocument or EquivalentElectronic Message

A9 Checking - Packaging -Marking

B9 Inspection of Goods

A10 Other Obligations B10 Other Obligations

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ditUCP 600: Rules for Letters of Cre

The Uniform Customs and Practice for Documentary

Credits (the UCP)

By a unanimous vote of 91 to 0, the ICC Banking

Commission on 25 October, 2006 approved UCP 600.

The Uniform Customs and Practice for DocumentaryCredits (the UCP) is a set of rules governing the use of

letters of credit.

It was first published by the International Chamber of Commerce in 1933

and has been revised five times since then. Commercial letters of creditare said to be the life blood of the international trade system, and formore than 70 years, the International Chamber of Commerce (ICC) hasoperated a sound system of rules governing documentary creditsworldwide.

UCP 600 is the latest revision of the rules replacing UCP 500 which hasregulated International trade for nearly 6 years since it came into force on

1 January, 1994.UCP 600 has heralded its arrival with a bang and is due to take effect from1 July,2007.

Major Changes

Reasonable time and without delay have been deleted.Banks are simply allowed 5 days to examine documents.Assert any discrepancies (new Articles 14(b) & 16(d))

New rule regarding when addresses of applicant and beneficiarymust be as in the L/C (new Article 14(j)).Issuing bank allowed to refuse documents and then release them.

Upon obtaining waiver of discrepancies (new Article 16(c)(iii))

Letters of Credit

1. Importer applies for Letter of Credit2. Opening Bank sends LC, through

Correspondent or Branch, Which Advises Exporter of Receipt of LC.

3. Exporter Sends Goods and Documents to Freight Forwarder.4. Freight Forwarder Dispatches Merchandise and Provides Documents

To the advising bank.5. Advising Bank Forwards Documents to negotiating Bank, which Checks

Document against LC, and authorizes Payment if no discrepancies are found.The Importer's account is debited.

6. Importer's bank gives him the documents with which he can claim theMerchandise.

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Methods of Payment in International Trade

ECSEI explains the different methods of getting paid

and the different levels of risks involved.Getting paid for providing goods or services is criticalfor any business However, getting paid for an

international transaction can be a very differentexperience from securing payment on business.

Payment Risk Ladder

It is often a good idea, during, or even before contract negotiations, to considerwhere, on the diagram below, you and your customer will be comfortable in

placing yourselves.

Sources: SITPRO Financial

Documents against Payment (D/P)

Usually used where payment is expected from the buyer immediately,otherwise known as "at sight".

This process is often referred to as "Cash against Documents".

The buyer's bank is instructed to release the exporter's documents onlywhen payment has been made.

Where goods have been shipped by sea freight, covered by a full set ofBills of Lading, title is retained by the exporter until these documents areproperly released to the buyer.

Unfortunately, for airfreight items, unless the goods are consigned to thebuyer's bank no such control is available under an Air Waybill or AirConsignment Note, as these documents are merely "movement

certificates" rather than "documents of title" (N.B. Under URC522, goodsshould not be consigned to a bank without prior approval).

Similarly there is no such control available for road or rail transport.

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Documents against Acceptance (D/A)

Used where a credit period (e.g. 30/60/90 days - 'sight of document' orfrom 'date of shipment') has been agreed between the exporter andbuyer.

The buyer is able to collect the documents against their undertaking to

pay on an agreed date in the future, rather than immediate payment.

The exporter's documents are usually accompanied by a "Draft" or "Bill ofExchange" which looks something like a cheque, but is payable by (drawnon) the buyer.

When a buyer (drawee) agrees to pay on a certain date, they sign

(accept) the draft.

It is against this acceptance that documents are released to the buyer.

Up until the point of acceptance, the exporter may retain control of thegoods, as in the D/P scenario above.

However, after acceptance, the exporter is financially exposed until the

buyer actually initiates payment through their bank.

Bills for Collection are used in certain markets (particularly Asian) to fulfil

Exchange Control Regulations.

They are a cost-effective method of evidencing a transaction for buyers,where documents are handled (and reported) via the banking system.

Letters of Credit (L/Cs)

A Letter of Credit (also known as aDocumentary Credit ) is a bank-to-bankcommitment of payment in favour of anexporter (the Beneficiary), guaranteeing

that payment will be made against certaindocuments that, on presentation, are foundto be in compliance with terms set by thebuyer (the Applicant).Like Bills for Collections, Letters of Credit

are governed by a set of rules from the ICC.In this case, the document is called;

"Uniform Customs and Practice" and the latest version is documentnumber 600.In short, it is known as UCP600 and, again, over 90% of the world's banksadhere to this document.

Irrevocable:

The terms and conditions within a L/C cannot be changed without the expressAgreement of the Beneficiary. Under UCP600, revocable L/Cs are no longer

acceptable under any circumstances.

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Unconfirmed:

The payment commitment within the L/C is provided by the Applicant's issuingBank.

Confirmed:

If an exporter has any concerns about the circumstances which may preventpayment being made from either the Issuing Bank or buyer's Country, the addingof "Confirmation" moves the bank/country risk issues to the bank which adds itsconfirmation (the confirming or advising bank) and notifies the DC to the

exporter.

The price of such a confirmation will obviously depend upon the level of perceivedrisks to be covered.Banks can often provide indicative pricing for confirmations prior to the arrival ofthe DC, so that costs can be estimated.

Main Types of Money Transfers

SWIFT Inter-Bank Transfer:

Now firmly established as standard practice in the major trading nations.The buyer will instruct their bank to make payment to any bank account specifiedby the exporter.Therefore, it is good practice for the exporter to include their account details ontheir invoice heads.

Buyer's Cheque:

An unsatisfactory method of settlement for the exporter as it carries the risk ofdishonor upon presentation as well as the added inconvenience of being slow toclear.There is also the very real danger of the cheque being lost in transit as well.

A cheque is also unsatisfactory if it is in the currency of the buyer, as this willtake longer to clear and will involve additional bank charges.Exporters should only use this method if they have an established trading historywith their customer or in cases where the profit margin has been increased tooffset cash flow problems anticipated by the delay in receiving payment.

Banker's Draft:

This is arranged by the buyer who asks their bank to raise a draft on itscorresponding bank in the exporter's country.

Provides additional security to a buyer's cheque, but they can be costly toarrange and they do run the risk of getting lost in transit.

International Money Orders:

These are similar in nature to postal orders. They are pre-printed thereforecheaper to obtain than a Banker's Draft, although again there is the risk of loss intransit.

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