IMPORT AND EXPORT

CONTRACTSPresented to:Dr. Abha Rishi

Presented by:Shrissshti VashisthSwati RajShivika AnandUpendra PandeVinu XavierYashaswini Shetty

INTRODUCTION When the export contract is made quickly and informally, often some of the conditions are either assumed or clarified later

This situation may lead to dispute or misunderstanding. This can be avoided by using the General Standard Conditions

These are standardized contract terms that permit the parties to refer to a pre established set of rules that can be incorporated into their contract

Once such General Standard Conditions have been adopted, they are legally binding whether or not both parties are aware of and understand every provision

THE CONFLICT OF LAWS In export transactions two nations are involved. Important to define which country’s law will apply

A set of rules are developed by each country’s law. The courts consider this while deciding the issue. This commonly known as ‘conflict of laws’ situation

Conflicts can be taken care of in advance by incorporating some specific provisions with respect to jurisdiction & applicability of law in the sales contract

VIENNA CONVENTION UN Convention on contracts for the International Sale

of Goods (CISG). Held in 1980, came into force in 1988. Put in place in order to harmonize trade system. 71 countries excluding India have signed, adopted and

ratified the CISG system. 2/3rd of world trade under CISG.

VIENNA CONVENTION CONTD.Drawbacks:

Major drawback of CISG is that it lacks the role of an independent body free from national jurisdictions and having non-partisan role in trade promotion through a body of uniform rules, thus faces problems in emerging powers.

Provision of the neutral right to contracting parties for accepting rules and regulations.

Parties are free to apply it totally or partially based on mutual agreement.

WRITTEN VS. CONSTRUED CONTRACT

There are sometimes situations when the agreement takes place in piece meal by e-mail, fax, etc but it is not developed into an agreement putting all terms & conditions in a single document.

In such a case, the exporter/importer can establish existence of a contract by stitching together various pieces of documents

The Indian Evidence Act recognizes commercial & regulatory documents, provided exporter can prove through various communications he has exchanged with the importer.

Such unwritten contract is referred to as ‘construed contract’

LODGING OF CLAIMS Contract should stipulate the number of days after the goods

are delivered to the Buyer within which any claim relating to the quality or quantity must be lodged by the buyer with the seller.

The date of delivery of the goods will be the one indicated in the transport document

In case of deferred payment agreement, any such claim should not entitle the buyer to reject any payment.

INTERNATIONAL SALES CONTRACTS

Classification: Legal and regulatory issues relating to international sales

contracts. Legal and regulatory issues relating to the relationship between

the exporter and agents/distributors. Legal and regulatory issues relating to products, viz., trademarks,

patents product liability and promotion. Legal and regulatory issues relating to payment terms,

particularly for Letter of Credit.

FOREIGN TRADE (DEVELOPMENT AND REGULATION ) ACT 1992 exports and imports are regulated by the Foreign Trade

(Development and Regulation) Act, 1992, which replaced the Imports and Exports(Control) Act, 1947, and gave the Government of India enormous powers to control it.

Foreign trade policy Under section 5 of Foreign Trade (Development and

Regulation ) Act 1992. determines and prescribes the does and don’ts to the

export. It is revised every five years and updated on annual basis The policy determines whether the particular commodity is

in open category, restricted category/canalised category or under the prohibited category

SALIENT FEATURES OF THE FOREIGN TRADE (DEVELOPMENT AND REGULATION ) ACT Empowered the Central Government to make provisions for development and

regulation of foreign trade by facilitating imports into, and augmenting exports from India and for all matters connected therewith or incidental thereto.

The Central Government can prohibit, restrict and regulate exports and imports, in all or specified cases as well as subject them to exemptions.

Authorizes the Central Government to formulate and announce an Export and Import (EXIM) Policy and also amend the same from time to time, by notification in the Official Gazette.

Provides for the appointment of a Director General of Foreign Trade by the Central Government for the purpose of the Act. He shall advise Central Government in formulating export and import policy and implementing the policy.

Every importer and exporter must obtain a ‘Importer Exporter Code Number’ (IEC) from Director General of Foreign Trade or from the officer so authorised.

The Director General or any other officer so authorised can suspend or cancel a licence issued for export or import of goods in accordance with the Act. But he does it after giving the licence holder a reasonable opportunity of being heard.

PRINCIPAL OBJECTIVES OF THE POLICY

To facilitate sustained growth in exports of the country so as to achieve larger percentage share in the global merchandise trade.

To provide domestic consumers with good quality goods and services at internationally competitive prices as well as creating a level playing field for the domestic producers.

To stimulate sustained economic growth by providing access to essential raw materials, intermediates, components, consumables and capital goods required for augmenting production and providing services.

To enhance the technological strength and efficiency of Indian agriculture, industry and services, thereby improving their competitiveness to meet the requirements of the global markets.

To generate new employment opportunities and to encourage the attainment of internationally accepted standards of quality.

Date Notification no. Subject

26-09-2014Notification No 92 (RE-2013) / 2009-2014 Amendment in export policy of iron ore pellets manufactured by KIOCL

21-08-2014Notification No 91 (RE-2013) / 2009-2014 Export Policy of Onions.

21-08-2014Notification No 90 (RE-2013) / 2009-2014 Amendment in Para 4.1.15 of FTP, 2009-2014.

06-08-2014Notification No 89 (RE-2013) / 2009-2014 Export benefits / incentives against exports to Iran.

04-07-2014Notification No 88 (RE-2013) / 2009-2014 Export policy of sugar

26-06-2014Notification No 85 (RE-2013) / 2009-2014 Export policy of Potato

23-06-2014Notification No 84 (RE-2013) / 2009-2014 Prohibition on import of milk and milk products from China.

20-06-2014Notification No 83 (RE-2013) / 2009-2014 Export of Pig Bristles and Hair to EU.

17-06-2014Notification No 82 (RE-2013) / 2009-2014 Export Policy of Onions

SOME NOTIFICATIONS ISSUED BY DGFT

FEMAThis act came into effect fr0m June 1, 2000It replaced the foreign Exchange Regulation act.

Various rules issued under F.E.MA act 1999 such as F.E.M (Authentication of documents) Rules, 2000 F.E.M (Current account transaction) Rules. , 2000 F.E.M (Export and Import of Currency) Reg., 2000, F.E.M (Realization, Repatriation and Surrender of Forex),

2000 F.E.M (Manner of Receipt and Payment) Reg., 2000, F.E.M (Export of Goods and Services) Reg., 2000 etc

These are important on the terms used in international sales contracts regarding the

realization of payment, manner of payments , declaration of exports, agency commission in trade, filing of statutory documents, export on elongated credit terms, export of goods on lease, hire etc. , project exports etc.

THE PARTIES TO THE CONTRACT

An Export contract is entered into between an exporter and an importer.

Parties may include any third party i.e. middlemen or agent/ canalized agency

Both parties declare an interest in the sale and purchase of specified goods.

The names and addresses of all signing are fully and clearly stated.

QUALITY STANDARDS Product Standards and specifications. The product name, generic as well as technical (if any). Sizes in which the product is being supplied (if relevant). Applicable national or international standards and

specifications. Specific buyer requirements Sample specifications

MODE OF PAYMENT/ PAYMENT TERMS Amount, mode and currency. When quoting different payment terms, the exporter

should specify whether the prices are based on the current rate of exchange of in-country currency, or on the basis of another currency (such as US dollars).

Payment terms for exchange rate fluctuations.

PACKING AND PACKAGING OF GOODS The gross, tare and net weights of the cargo The nature, quality and specifications of the product being shipped 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's

reference numbersIt is also important that the details on the packing list (such as shipper's/importer's details, number of items involved, etc.), match what is stipulated on the commercial invoice and bill of lading/airway bill. 

CREDIT PERIOD, IF ANY Sight Credits Usance Credits Transferable Credits Revolving Credits Back to back Credits Standby Credits

DETAILED DESCRIPTION OF THE PRODUCT The detailed description of the product including the

origin and constituents if they are of organic or inorganic nature should be drawn in the contract to avoid any issues arising due to specific products and derivatives thereof being banned in specific countries.

TOTAL VALUE OF THE ORDER The total value of the contract may also be put in both

figures and words specifying the currency along with the name of the country.

MARKING AND LABELLING REQUIREMENT  The exporter contract must be explicit as possible about

the type of package and particulars labels and marking requirements.

These requirements are normally quite different in case of export consignments and as such involve additional cost necessitating and upward revision in export prices.

The language, color of labels and even marking have to be taken care as of required by the buyer.

MODE OF TRANSPORT/ SHIPMENT The mode of transport has to be agreed on by the

exporter and the importer at various stages of the journey of the goods from the exporter to the importer and should be explicitly mentioned in the contract.

QUALITY CONTROL AND PRE SHIPMENT INSPECTION

Should be either by exporter himself or any agency easily available.

If the buyer desires the inspection to be done by an agency/agent of his choice, financial and physical aspects of inspection should be examined and communicated to the buyer.

If compulsory pre-shipment inspection by Indian Export Inspection Agency is required, the buyer should be informed about the applicable scheme.

PROPER LAW OF THE CONTRACT Problems in international business contracts can occur

because of differences in the laws of the countries involved.

When different laws are applied, results may be inconsistent, and substantive rights may depend on whose law applies. For example, one law may require that a contract be written, whereas another may not.

Hence a proper law of contract is required.

PASSING OF PROPERTY(TITLE AND TRANSFER ISSUES)

Several factors hinge on the exact legal moment when the buyer takes ownership of the goods (in formal terms, when title passes or is transferred from you to the buyer):

Risk – the transfer of title affects the parties' rights in case of total or partial loss, damage or destruction of the goods.

Rejection – once it has occurred, transfer of title may preclude your buyer from rejecting the goods, despite valid complaints regarding quality, quantity or description.

Price – once your buyer takes title, you can sue him or her for the full unpaid price, rather than merely for the lost profit.

Rights of Action – after taking title, the buyer can enforce his or her property rights through court action or other methods.

AVAILABILITY/ NON-AVAILABILITY OF EXPORT-IMPORT LICENSES Obtaining import licences in the buyer’s country may be

more difficult in some countries than others.  Parties to the contract should therefore clearly state

whether the export transaction will require any export or import licenses and whose responsibility and expense it will be to obtain them.

Failure to obtain export license will not come under Force Majeure Clause.

CURRENCY IN WHICH ORDER IS INVOICED Payment of the purchase price shall be made without

offset or other deduction and shall be made in United States currency unless otherwise specifically provided.

While quoting different payment terms the exporter should specify whether the prices are based on a current rate of exchange of the currency on the basis of another currency (e.g., US dollar). Fluctuations in the rate of exchange should be addressed as well.

TAX AND CHARGES The prices quoted by the seller may be inclusive of taxes,

duties and charges. Levies, if any in the country of importation may be the

buyers responsibility. Responsibility for payment of all such taxes should be

clearly specified in the contract.

INCOTERMS It stands for International Commercial Terms. Its for passage of risks as agreed between parties. It helps the exporter and importer to divide the

individual responsibilities and obligations of trade deal. Thus they both can take necessary precautions to

minimize their risks associated with particular transactions through careful planning and execution.

JURISDICTION IN CASE OF DISPUTES International disputes are settled in a completely different

manner because the jurisdictions of the exporter and importer are different.

Hence its important for both the exporter and importer to make clear the arbitration process in the international sales contract.

They should be careful not to accept arbitration process to be followed in case of disputes in the countries that are known for their corrupt systems and judiciaries.

For this they can refer to the “Transparency International Corruption Perception Index” which measures the degree to which corruption is perceived to exist among a country’s public officials and politicians.

So the arbitration system and procedure along the arbitration country should be made clear in the international sales contract itself to avoid any future confusion.

SETTLEMENT OF DISPUTES: ICC The International Chamber of Commerce is an

international body working for devising, designing and synchronizing the international commercial practices and procedure norms related to trade mechanism, regulatory frame work has detailed some precautions for entering into an arbitration clause.

In case of any dispute, it has to be settled as per the provisions of the ICC by one or more appointed arbitrators in the International Court of Arbitration, Paris.

FORCE MAJEURE

It literally means all those events, causalities or losses occurred which are beyond the control of exporter, importer and insurer.

Its basically a clause which are also known as “Acts of God” as exporters, importers and insurers are helpless to fulfill the contract obligations due to events such as war, rebellion, tsunami, earthquake, floods etc.

It enables the seller to avoid his contractual obligations without paying a compensation or penalty.

In the international purchase agreement, the exporter will be responsible and liable for all foreseeable consequential damages that result to the importer from defective products.

Consequently, it is common for the exporter to try to eliminate all or most warranties.

The agreement should specify exactly what warranty the exporter is giving for the products, whether the products are being sold ‘’as is’’ with no warranty, whether there is a limited warranty such as repair or replacement, whether the warranty claim must be made, and/or whether there is any limitation on consequential damages.

The period of warranty should be fix and specific.

WARRANTIES

On CIF sales, and if requested by importer in advance on non-CIF

sales, exporter shall procure a policy of marine insurance against the risks of carriage involved in the contract.

The insurance shall be contracted for on F.PA.E.C. (Free of Particular Average English Conditions) terms but with risk cover, if obtainable. Additional risks requested by importer will, if obtainable, also be covered and importer will be notified if any such additional risks are unobtainable.

Said policy of marine insurance will cover the CIF or contract price, as the case may be, plus ten percent (10%). For non-CIF sales, and if not otherwise requested by importer, exporter may nevertheless, in its sole discretion, elect to procure a policy of marine insurance as above for importers account and expense, unless importer shall furnish exporter, prior to shipment, with a certificate of such insurance or other valid proof of the writing of a policy of marine insurance covering the contract satisfactory to exporter.

MARINE INSURANCE

International trade although risky, offers greater returns and better prices on commodity and services.

Hence an exporter should quote handsome prices in the international sales contract that enables him to cover all expenses and risks after making provisions of profits for the company and offer better terms of trade by satisfying his customers in competitive market.

PRICE PER UNIT OF THE GOOD

Documents required by the importer and which the exporter agrees to provide, should be stated.

When the exporter is required to take the marine insurance, it is important that he should provide the a certificate of insurance, rather than the policy, to enable him to ship consignments under an open policy

TRADE DOCUMENTATION AS REQUIRED IN THE COUNTRY

Documents required for international trade transactions can be divided into four broad categories: Documents required for exportation and subsequent

importation of goods Documents needed by the buyer for taking delivery of the

goods Documents relating to payment Special documents depending upon the nature of goods and

conditions of sale (e.g., certain engineering goods may involve documents relating to assembly, repair, and maintenance)

 Common export documents include the bill of exchange; commercial invoice or any other kind of invoice; bill of lading or air way bill; insurance policy; and letter of credit

DELIVERY: PLACE AND SCHEDULE INCLUDING PORT OF ORIGIN AND

DESTINATION Terms of Delivery: The international Chamber of commerce has come up with 13

incoterms in its incoterm 2000 revision. The Incoterm chosen for trade deals by exporter and importer must indicate the name of the port of destination. Incoterms make the responsibilities and obligations of exporter as well as importer clear and therefore, care must be taken in choosing them as an error may result in financial losses beyond the control of exporter or the importer.

• Terms and Conditions may be included in an international sales contract by the exporter and importer on the basis of their mutual agreement.

• Some additional terms and conditions can be of the following types:-

• Certain items are under the restricted or canalized list of items traded. In this case the importer has to obtain a special import license from the authority concerned. It shall be the responsibility of the importer to obtain such import license from the authorities. In case the importer can not do so, the exporter has the right to terminate the contract. In such circumstances there should be provision of redemption in the sales contract so that the exporter is not forced to bear any losses in case the importer has failed to obtain the special import license.

OTHER TERMS IN EXPORT SALES CONTRACT

During trade transactions, if the exporter and importer feel that they need to make some amendments and supplements in the existing contract on the basis of mutual consent, all changes should become an integral part of the present contract. Such changes must become effective from the date of signing of such supplements by the parties.

It shall be incorporated in international sales contract that any amendments will automatically supersede the previous clauses in international sales contract once it is mutually agreed and signed by the exporter and importer.

In international sales contract the parties can not delegate or transfer their rights nor obligations under the existing international sales contract to any third party without the written consent of the other party.

The international sales contract shall clearly mention the name of the place where the parties have signed such contract.

6. Any other clause which the exporter and importer find are mandatory in the execution of the contract , should be included in the international sales contract.

OTHER IMPORTANT ISSUES IN INTERNATIONAL SALES CONTRACTUse Plain English• Both parties should take care to avoid the use of poetic and

artistic language. The use of expressions, idioms, slang or any vernacular word should be avoided as it will insert ambiguity in the contract text. Abbreviations to be used to the minimum in International sales contracts.

Different Date Formats• To avoid confusion which can occur due to different date

formats, it is advised to write the date in complete numerical and alphabetical form.

Units Of Measurement• The unit of measurement is different in some countries as

compared to India. India follows the metric system of measurement popularly known as MKS (Meter, Kilo and second). Britain follows FPS (Foot, Pound, and Second)

Its important to note that these clauses are intended as an excuse on the part of the trading entities only in the case if its acceptable that the exporter or importer has taken sufficient measures to avoid the mishap and that such circumstances were really beyond their control.

Few Examples:o Tsunami in South India and Indonesiao Katrina Hurricane in USo Gulf Waro Failures of Contracting Parties

In case of delayed shipment or non-delivery due to a generally recognized force majeure, the seller must advise the buyer immediately, and within 15 days thereafter the seller must airmail to the buyer a certificate of the incident issued by the competent government authorities of the place where the incident occurred.

The seller shall not be absolved from his responsibility unless such an incident is acknowledged by the buyer.

In case conditions of force majeure continue to stretch over and above 90 days, the buyer shall have the right to cancel the contract.

OTHER IMPORTANT ISSUES IN INTERNATIONAL SALES CONTRACTS

Currency• International trade transaction are conducted in free foreign exchange.

The point to be considered is that currency chosen shall not be volatile in the market. Hence the exporter should trade in hard currency which is relatively stable in through short period of time, and is highly liquid in the forex market. Eg: Euro, Dollar, Yen

Interpretation Or Translation• Accuracy of business translation is crucial for effective and efficient

execution of the contract between the parties. The point of caution is that different language in different countries can have entirely different meaning and can cause costly disputes. In some cases the importer or consignee requests that the international sales contract should be bilingual; for instance; in Chinese and English

Signing Of The Contract• Incase there is more than one page in an international sales contract;

all pages should be signed by the contracting parties as per mandatory requirement of ICC

PREPARATION OF THE EXPORT SALES CONTRACT• The exporter should take the advice of or legal opinion of a legal expert

or lawyer in case he has any doubt regarding any terms and conditions as engrained in ISC

• If the exporter feels that there is any ambiguity, uncertainty or misunderstanding he should contact the importer and clarify those terms and conditions

• Litigation in international trade is a costly process and all efforts should be made to avoid misunderstanding

• Every trade decision in todays era of globalization is based on a trade off between the exporter and importer in deciding the various terms to be used in sales contract

• As a precautionary measure, it is advisable to add the acronym E and OE stated for “Errors and Omissions Expected”

• The exporter should also make it clear that all typographical errors are subject to errors and omissions

DISTRIBUTION OF RESPONSIBILITIES AND OBLIGATIONS

• Mode of payment

• Delivery date

• Credit period expected by importer

• Quality issues

• Port of shipment

• Port of Destination

• Mode of transit

• Insurance policy clauses

• Preferential Benefits

DISTRIBUTION OF RESPONSIBILITY FOR I.S.C. UNDER COMMONLY USED

INCOTERMSDetermination Criteria EX

WFAS FOB CFR CIF DDP

Exporter’s factory or premises EBI I I I I IInvoice and Packing List & Certificate of Origin ER ER ER ER ER ERLoad on to carrier, Inland transport/insurance costs, Demurrage charges, Export Documents, Formalities, Unloading Cargo at port

I ER ER ER ER ER

Payment of port dues I ERBI ER ER ER ERNotice of Name of vessel/ Sailing Date, Loading Berth, Delivery Time

I I I ER ER ER

Load on Ship I I ERBI ERB ERB ERBBill of Lading/ Airway Bill I I ER ER ER ERMarine/ Air Insurance Charges I I I I ER ERCost of Ocean/ Air-Shipment I I I ER ER ERUpload at Port of import, Port of Authority charges I I I I I ERCustoms duties and taxes Demurrage charges at port of destination, Import Documentation formalities E: Exporters Expenses R: Exporters ResponsibilityB: Point were importers assumes risksI: Importers Responsibility

THANK YOU