TERMS & CONDITIONS

TERMS & CONDITIONS IMPORT & EXPORT OF INTERNATIONAL TRADE,
Incoterms, short for International Commercial Terms, are a set of 11 globally recognized trade terms that define the responsibilities of buyers and sellers in international trade, covering aspects like costs, risks, and obligations during the shipment of goods.

ASWP : Any Safe World Port. It is quite common for commodity sellers to offer delivery to any safe world port of the buyer’s choice.

BCL: – Bank Comfort Letter Also known as a Bank Capability Letter, or Bank Confirmation Letter, this is a letter from the buyer’s bank, confirming his ability to meet a certain level payment requirements. This letter states that the buyer has sufficient funds to cover the cost of the order. It should however be understood that this does not imply any guarantee of payment.

BOL or B/L : Bill of Loading. This is the receipt given by the shipping company when goods are loaded onboard the vessel. This is an important document and gives title to the goods. It is needed by the buyer to obtain the goods from the port.

CFR : Cost and Freight. The price includes the cost of the goods, loading, and freight to the named Destination Port. This does not include unloading charges.

CIF : Cost, Insurance and Freight. This is the same as CNF, but also includes insurance to the named destination port. e.g. CIF Miami.

DC : Draft Contract, A draft contract is an initial contract which is drawn up and sent from the seller to the buyer. The buyer has the opportunity to make amendments and send it back to the seller for consideration. This process continues until both parties are satisfied with the terms of the contract.

DDP : Delivered Duty Paid to the named Destination (which can be customer’s works) e.g. DDP New York. All delivery charges and duties to the named destination are paid by the exporter.

EXW : Ex-Works, The buyer pays all costs of transport from pickup at the suppliers premises. e.g. EXW Hong Kong.

FAS : Free Alongside Ship, The supplier pays costs only to the port of loading. Loading and shipment are responsibility of the Buyer. However the supplier must clear the goods for export. e.g. FAS Los Angeles.

FOB : Free on Board, This means that the supplier pays only to the point where the goods are loaded on board the carrying vessel. The seller must clear the goods for export. As soon as the goods are over the ship’s rail they become the responsibility of the buyer. e.g. FOB London.

FCA : Free Carrier, The supplier must deliver the goods, cleared for export, to the carrier nominated by the buyer at the named place.

FCL : Full Container Load, The goods fill a container, no other purchaser’s goods will share the container. Often suppliers will not supply less then one full container.

FCO Full Corporate Offer. Issued by the seller after the preliminary stages of negotiation are complete, such as a letter of intent having been issued by the buyer, and a soft probe having been conducted on their accounts by the seller. A full corporate offer is a document which outlines the conditions of the sale.

ICPO : Irrevocable Corporate Purchase Order. This is a document drawn up by commercial buyers, and contains the quantities and type of commodity required, and other conditions that the buyer would like the sale to proceed under. Once submitted to the seller, this is deemed to be binding and the corporation is obliged to complete the sale.

L/C or LOC : Letter of Credit, Letter of Credit is a document issued from the buyer’s bank to the seller which guarantee payment to the beneficiary of the letter of credit (the seller), as long as the terms and conditions set out in the letter of credit are met. L/C are almost always irrevocable, can be transferable, and subject to terms (e.g. on SIGHT, 30 days, 60 days, 180 days, etc.). For regular shipments a revolving L/C is often utilized.

The various types of Letters of Credit can be defined as follows:

CL/C : (Confirmed Letter of Credit) A letter of credit, issued by a foreign bank, with validity confirmed by a first class (usually US or European) bank. A seller with CL/C terms is assured of payment even if the foreign buyer or the foreign bank defaults.

DL/C : (Documentary Letter of Credit) A document issued by a bank which guarantees the payment of a buyer’s drafts for a specified period and up to a specified amount. The Documentary Letter of Credit provides a more secure means of carrying out transactions in import-export trade than by documentary bills collection (see Bill of Exchange). A letter of credit when transmitted through a bank, usually in the seller’s country, becomes the means by which the seller obtains payment. The necessary documents, correctly completed, are presented to a bank by an agreed date. If the terms of the credit are met, a seller can receive payment from a bank immediately.

IL/C : (Irrevocable Letter of Credit) An Irrevocable Letter of Credit cannot be amended or cancelled without the consent of the issuing bank, the confirming bank (if confirmed), and the beneficiary. The payment is guaranteed by the bank if the credit terms and conditions are fully met by the beneficiary. The words Irrevocable Documentary Credit or Irrevocable Credit may be indicated in the L/C. It means that once the buyer’s conditions in the letter have been agreed to by the seller, they constitute a definite undertaking by the buyer’s bank and cannot be revoked without the seller’s agreement.

Revocable Letters of Credit are rarely used as the terms of the credit can be cancelled or amended by an overseas buyer at any time without notice to the seller.

RL/C : (Revolving Letter of Credit) When a letter of credit (L/C) is specifically designated a Revolving Letter of Credit, the amount involved when utilized is automatically reinstated, that is, the amount becomes available again without issuing another L/C and usually under the same terms and conditions within a period of time (usually several months to one year). This saves administration when multiple shipments are involved.

SL/C (Stand-by Letter of Credit) is a financial guarantee or performance bond issued by a bank on behalf of a buyer. i.e. a written obligation of the issuing bank to pay a sum to a beneficiary on behalf of their customer in the event that the customer himself does not pay the beneficiary. The SL/C is regulated by the ICC-500 rules.

LOI : Letter of Intent, Letter of Intent is a document issued from the Buyer to the Seller which indicates that the Buyer would like to enter into negotiations with the Seller in the hope of purchasing commodity. The letter of intent is not legally binding, but it does provide a starting point for negotiations.

PB : Performance Bond, This is a type of bank guarantee which is issued from the Seller to the Buyer. It guarantees that the Seller will meet the terms of the contract. Normally issued in the amount of 10% to 15% of the total amount of the contract, a performance bond can be drawn upon by the Buyer in the event that the Seller breaks the contract and fails to provide the product which was stipulated in the contract.

POP : Proof of Product, A Proof of Product (‘POP’) is often requested by customers or agents who believe it will give them some guarantee of the existence of the product and ability of the supplier to deliver the product. In practice many POPs are false. POP offers no proof at all, because once a POP has been drafted it is automatically out of date – the product could have been sold to another buyer and therefore no longer exists. Nevertheless, a POP is still occasionally requested as apparent proof that a seller/broker has the product, which is possibly not the case.
A POP is realistically provided only when the Buyer’s bank issue a Bank Confirmation Letter (BCL) to the Seller’s bank via SWIFT. Then the Seller’s bank can check the availability of funds in the Buyer’s bank and issue a POP to the Buyer’s bank within an agreed time period (e.g. 5 days). In reality, the best and only real proof of product is when the Seller can demonstrate the products in his possession at the dock side.

RWA : Ready, Willing and Able, This is a document which is issued by the Buyer’s bank. The bank confirms that their client has the sufficient funds in their possession and is ready, willing and able to engage in the contract

SWIFT : Society for Worldwide Interbank Financial Telecommunication
a global service which is responsible for facilitating communication between banks. Most payments are made via SWIFT.

CONDITIONS

international trade contract

Vienna convention Incoterms Contract Payment Transport

The export or import operation requires the consent of the two parties (buyer and seller). This agreement takes shape generally by means of a sale contract, which aims at dividing the expenses and risks between the seller and the buyer. The drafting of this contract is of prime importance, for, it facilitates the trade and exchange and especially avoids disputes. The international sale contract is governed by different rules having the objective of harmonising and facilitating international trade and exchange.

Vienna convention

The Vienna Convention, developed under the aegis of United Nations, regulates international trade and exchange of merchandise. Signed in April 1980, it counts today 87 signatory countries. It is applied exclusively in the case of problems linked with formulation of a contract of sale and regulates the duties and obligations of contracting parties. Taking into account the problems posed by the choice of duty applicable, the said convention allows the choice of a neutral right. The application of Vienna convention depends entirely on the willingness of the two parties. The companies can either exclude it totally or apply it partially. As a matter of fact, the companies desiring to develop an international activity; must take cognizance of the legal system in the target country and the Vienna Convention.

Incoterms® 2020

The Incoterms are trade acronyms which regulate the problems relating to international logistics and to the transfer of property rights in merchandise. They allow distribution of expenses and risks in the onward journey of the goods from the seller to the buyer. The Incoterm constitute today the basis of the rules of international trade.

Contract

In order to carry out the contract, it is necessary that the two parties are in absolute agreement. The agreemement between the contracting parties depends on the offer price, general condition of sale and acceptance.

Offer price and pro forma invoice

The commercial offer is the basis of sale contract.It has to be firm, clear and without any ambiguity. An offer price is based on a written document and must be drafted in a language perfectly understood by the client.

The pro-forma invoice is the document which gives shape to the trading offer. It it considered as a rate schedule which determines the general outline of the sale. The pro-forma invoice includes all the elements found in a trade invoice and affords to the buyer to take cognizance of specifications relating to the offer. Finally, if everything is normal, the contract must define legal relationship between the two parties, and that is the aim of the general conditions of sale.

Parties to the contract
Write the exact references of contracting parties along with, if possible, the name of respective representatives of the two companies.

The aim
To prepare a detailed description of the product or service, with all the technical aspects and the details of packing (volume, weight, and packing)

Transport Modalities
To determine the Incoterm, transport mode and the precised period required for delivery

Price
The price must be detailed (unit price, etc.), final and binding in order to avoid any misunderstanding. The buyer and the seller must define at this point of time the mode and period of settlement of bills.

General Conditions of Sale

The general conditions of sale allow the companies to define the legal frame work of their trade relations. The general conditions of sale are specific to each exporter. They define the duties of the buyer while allowing him to defend is own interests.

The general conditions must be written down in a clear manner and free from equivocation. They are written down either in the language of the country of the buyer, or in English. The exporter must go to the essential and give emphasis on the most important points such as price, conditions of payment, period of delivery and modalities connected with settlement of legal disputes.

The buyer must take cognizance of general conditions of sale before signing the contract. Otherwise, they would bo considered legally ineffective.
In fine, one must know that some countries lay down general conditions of purchase. As a geneal rule, they oppose the conditions of the seller. In that case, the two parties must negociate and analyse the general conditions from legal point of view governing the contract. Every buyer who would not have denounce the general conditions of sale is supposed to have accepted them and would only have the general conditions of purchase for being able to oppose them.

Acceptance

Acceptance of an offer constitutes an agreement with the client and allows finalisation of the sale contract. The contract assumes concrete shape only at the time when the offer is followed by its acceptance. So long as it has not been accepted, the offer can be withdrawn. An acceptance must be transmitted in a written form so that the seller obtains a certain guarantee and a proof in case of legal disputes. In that precise case, acceptance takes the form of a trade bill or a trade contract.
Oral acceptance is not advised due to the fact that there is no proof available unless the contract is simple and is executed by persons who are loyal and of good faith. In spite, of any thing, written confirmation is always recommended. One has to pay attention in the case of legal dispute to the acceptance by Email or fax which does not constitute sufficient proof. Companies also have recourse to typical contracts for formalising the agreement between two parties. Typical contracts are practical means but, the only inconvenience is that they cannot be negociated. The surest means is to prepare tailor-made contracts for each client.

Contractual Clauses Parties to the contract
Identifying parties to the contract (buyer/seller) : Name of the companies, their Head Offices addresses detailed addresses and the name of respective representatives.

Nature of the contract
Defining aim of the contract (product or service)
Describing technical aspects, quantity, volume, weight and eventually mode of packing, as the buyer can communicate his requirements.

Prices and modes of payment
Specifying price in your currency or foreign exchange (risk of exchange rate being included)
Price is accompanied by Incoterm determining distribution of expenses on transport, custom duty, insurance and the time of transfer of property.
The price of merchandise will be defined (unit price and total price).
Provide for a code of settlement which gives a maximum security to the seller.
Down payment of advances guaranteeing the order.
In case of documentary credit, the seller notes the opening demand
In fine, if law permits, a cause for reservation of propriety can be inserted into the contract.

Methods of transport
Specifying the mode of transport consistant with nature of merchandise, destination and security.
Depending on the Incoterm, respective obligations of the contracting parties are stated.

Methods of delivery
Specifying date, place of loading and delivery.
Defining details according to the date of contract coming into force : respect for delivery period is one of the major obligations of the seller. One must provide and impose in advance penulties for delay.

Force majeure
Indicating the force majeure for unforeseeable events. In principle, one should avoid accepting the case of force majeure resorted to by the seller to the extent to which he does not impose it.

Guarantees
Defining the obligations of the two parties in regard to guarantee. Eg : guarantee of restoring advance for the seller.

Jurisdiction in case of legal dispute
Specifying the law applicable to the settlement of legal disputes.

Language
Specifying language of the contract, which must be mastered by both the parties. However, attention has to be paid to the problems of translations.

AGREEMENTS

General conditions agreements act as a legal contract between buyer and seller, if the buyer accepts the terms and conditions, they enter into a contract with the seller.

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