trade term

Trade Terms of International trade

The Concept

Trade Terms of International trade are also known as terms of trade and price terms. In international trade, the obligations assumed by the buyer and seller affect the price of goods. In the long-term international trade practice, gradually formed to put certain and price closely related to the terms of trade and price directly linked to the formation of a number of models of quotation. Each model specifies the obligations assumed by the buyer and seller in certain terms of trade. The term used to describe such obligations is called a term of trade.

The terms of trade expressed in trade terms are divided into two main aspects: one, to state the composition of the price of goods, whether it includes the main ancillary costs other than cost, i.e. freight and insurance; the other, to determine the terms of delivery, i.e. to state the division of responsibilities, costs and risks assumed by buyers and sellers in the delivery of goods to each other.

Trade terms are an essential element to express prices in international trade. The use of trade terms in the opening offer clarifies the respective responsibilities, costs and risks to be borne by both parties in the delivery of goods, and explains the composition of the price of goods. Thus, it simplifies the procedures of trade negotiations and shortens the transaction time. Since the international practice specifying the trade terms provides a complete and exact explanation of the obligations to be assumed by the buyer and seller, it avoids certain disputes that may arise in the performance due to inconsistent understanding of the contract terms.

Relevant legal provisions

For the use of Incoterms, the Incoterms rules are used internationally for regulation. The purpose of Incoterms (hereinafter referred to as Incoterms) is to provide a set of international rules for the interpretation of the most commonly used trade terms in international trade in order to avoid uncertainty arising from different interpretations in different countries, or at least to reduce such uncertainty to a considerable extent.

Purpose of the provision

It is often the case that parties to a contract are not aware of each other’s trade customs in the other country. This can lead to misunderstandings, disputes and litigation, resulting in wasted time and expense. In order to solve these problems, the International Chamber of Commerce (ICC) first published a set of international rules for the interpretation of trade terms in 1936, called Incoterms 1936, and later in 1953, 1967, 1976, 1980 and 1990, and this time in the 2000 version to make additions and amendments in order to adapt these rules to the current international trade The development of international trade practice.

It should be emphasized that the scope of Incoterms is limited to the rights and obligations of the parties to the sales contract in relation to the delivery of goods sold (referring to “tangible” goods, excluding “intangible” goods, such as computer software) matters.
About Incoterms, there seem to be two very common particular misconceptions. One is that Incoterms is often thought to apply to contracts of carriage rather than contracts of sale. The second is that people sometimes mistakenly assume that it provides for all the liabilities that the parties may wish to include in a sales contract.

First, as ICC has always emphasized, Incoterms only relate to the relationship between the buyer and seller in the sales contract, and that is limited to some very clear aspects.
For importers and exporters, consider the actual relationship between the various contracts required to complete the international sale is of course very necessary. The completion of an international trade requires not only a sales contract, but also a contract of carriage, an insurance contract and a financing contract, while Incoterms deals with only one of these contracts, namely the sales contract.
That said, when the parties agree to use a specific trade term, there will inevitably be an impact on other contracts. To illustrate, when a seller agrees to use CFR and CIF terms in a contract, he can only perform the contract by sea, because under these two terms he must provide the buyer with a bill of lading or other sea documents, and these requirements cannot be met if other modes of transportation are used. Moreover, the documents required by the documentary credit will necessarily depend on the mode of transport to be used.

Secondly, Incoterms involve a number of specific obligations set for the parties, such as the seller to put the goods at the disposal of the buyer, or the obligation to deliver the goods or at destination, as well as the division of risk between the parties.

In addition, Incoterms involves the obligation to import and export customs clearance of goods, packaging of goods, the buyer’s obligation to take possession of the goods, as well as the obligation to provide proof that the obligations are fully performed. Although Incoterms is of great importance to the execution of the sales contract, but the sales contract may give rise to many issues are not covered, such as the transfer of ownership of the goods and other property rights, breach of contract, the consequences of breach of contract and exemption from liability in certain circumstances. It should be emphasized that Incoterms are not intended to replace the standard terms or agreed terms that need to be included in a complete sales contract.

Generally, Incoterms do not address the consequences of breach of contract or exemptions due to various legal impediments, these issues must be addressed through other provisions in the sales contract and applicable law.

Incoterms have been used primarily for the delivery of goods sold across national borders, and as such, it is a set of international commercial terms. However, sometimes Incoterms are also used in contracts for the sale of goods in purely domestic markets. In this case, Incoterms A2, B2 and any clauses related to import and export of course become redundant.

Revision process

The main reason for successive revisions of Incoterms is to adapt them to contemporary business practices. 1980 revision introduced the terminology of goods to the carrier (now FCA), the purpose of which is to adapt to the situation that often arises in maritime transport, that is, the point of delivery is no longer the traditional FOB point (goods over the side of the ship), but before loading the goods on board the ship to a point on land, where the goods loaded into a container for onward transportation by sea or other modes of transport (so-called combined or multimodal transport).

In the 1990 revision, the provisions dealing with the seller’s obligation to provide proof of delivery allow electronic data interchange (EDI) messages to replace paper documents when the parties agree to use electronic means of communication. There is no doubt that the drafting and presentation of Incoterms has been improved in order to make it more conducive to practical operation.

The latest changes

In the two-year revision process, the ICC made its best efforts through the ICC national committees to draw on the comments and suggestions of international trade practitioners in various industries, to complete the revision of the draft of several revisions. It is gratifying to note that during this revision of Incoterms, ICC received more feedback from users around the world than ever before. the result of the exchange between ICC and Incoterms users resulted in the Incoterms 2000 version, which appears to have changed very little compared to Incoterms 1990. The reason is obvious, that is, Incoterms currently has been recognized worldwide, so ICC decided to consolidate Incoterms worldwide recognition, and to avoid change for the sake of change. On the other hand, in the revision process, ICC tried to ensure that the language in Incoterms 2000 clearly and accurately reflect the international trade practices.

The new version makes substantial changes in the following two areas.

  1. the obligation to clear customs and pay duties under the FAS and DEQ terms.
  2. the obligation to load and unload cargo under FCA terms.

Both substantive and formal changes are made on the basis of an extensive survey of Incoterms users, and the advice received by the Incoterms Expert Panel (a body dedicated to providing additional services to Incoterms users) since 1990 has been given due consideration.