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International Purchasing

Rules-of-the-RoadTerms and Conditions in the

International Marketplace

Charles E. Rumbaugh, JD, CPCM

May 1, 2000NAPM International Purchasing Conference

New Orleans, Louisiana

2000 Charles E. Rumbaugh [email protected]


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Need for InternationalSources of Supply

AS CLOSE AS YOUR KEYBOARD!

Attribute of World Class Customers

Consolidation of Purchasing through Internet

Automotive, Aerospace,Medical/Hospital purchases, etc.

Recognition of Greater Need to Know your

Supplier, Cultural differences, EthicalConduct/Rules, etc. 2


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Private International Law

Role of different national legal SystemsCivil law & Common Law

Socialist & Islamic lawConflict of laws

3


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Public and Private International Law

The Role of International

Organizations

International Monetary

Fund

World Bank

GATT and WTO

ICC

Convention/treaty that

affects private transactions

Tax treaties

Friendship treaties

Law of the Sea Convention

NAFTA

Convention for the

Convention forInternational Sale of

Goods (CISG)


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Role of the Uniform

Commercial Code in US

Art. 2 of UCC applies to transactions

in goods

http://www.law.cornell.edu/ucc/ucc.table.html

Standardized sales law in 50 states

with some individual state variation5


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Need for International

Standardized Sales Law

Response- CISG (Convention for theInternational Sale of Goods)

negotiated in 1980--effective in 1988

Country differences in approach to contract

law

CISG a compromise6


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Applicability of CISG3 Conditions for Applicability

Commercial sale of goodsBetween parties whose places of business are in

different countries

The places of business are in countries that haveratified the CISG

http://www.cisg.law.pace.edu/cisg/text/treaty.html7


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Applicability of CISG

Sales Excluded from CISG

Consumer goods

Goods bought at Auction

Securities, stocks, negotiable instruments Vessels, aircraft, ships

Preponderant part for labor or services

Assembly contracts whereby substantial part ofmaterials provided by Buyer

Death or personal injury caused by the goods

Opt out Provision of Convention


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Applicability of CISG

As of February 2000, 57 States haveadopted the CISG.

No overarching decision-authority

CISG is the uniform international sales

law of countries that account for overtwo-thirds of all world trade. 9


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Writing

UCC: Contracts forthe sale of goods of

$500 or more must be

in writing to beenforceable

CISG: Need not be inwriting! Contract can

be proven in various

methods.


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Parol Evidence

UCC: If contract isfinal written

expression, then parol

evidence is notadmissible to contradict

(prior/contemporaneous

oral agreement).

CISG: Court mayconsider all relevant

circumstances

including negotiations,any practices which

the parties have

established betweenthemselves, usage, and

any subsequent

conduct of the parties.


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Custom Practice and Trade Usage

UCC: Allows pastdealings and trade

usages for guidance in

interpreting contractsand to fill in the gaps.

CISG: Those tradeusages which parties

agree to or derived

from past dealings Those usages that the

parties knew or ought

to have known areregularly observed in

trade or industry


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Entering into the Agreement

UCC: Offerreasonably definite.

Reasonable price

presumed--if notstated.

CISG: An offerwhen it is a proposal

and sufficiently

definite and indicatesthe intention of the

offeror to be bound.

Describes/identifies goods Expressly/implicitly fixes

or makes provision for

determining the quantity

and the price


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Entering into the Agreement

UCC: Offersrevocable but Firm

offers permitted for

up to 3 months

CISG: Offer may notbe revoked if offeree

reasonably relies on

the offer as beingirrevocable.

Also, offers may not be

revoked it it indicates itis irrevocable


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Battle of the Forms

UCC: (Between

Merchants) Written

confirmation is

acceptance even with

additional terms unless Offer expressly limits

acceptance to its terms

(Adds excluded)

If offer not so limited,

material Addsexcluded

If offer not so limited,

objection to non-materialAdds are excluded

CISG: Acceptancecontaining new terms

that do not materially

alter become part of thecontract unless there is a

prompt objection


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Battle of the Forms (cont.) CISG: If the

acceptance termsmaterially alter, then it

is deemed rejection

of the offer and acounteroffer (No UCC

2-207 counterpart and

no battle of theforms)

Mirror Image Rule

Silence is

acceptance?


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Disclaiming Implied Warranties

UCC: Seller may

disclaim only by using

conspicuous, or

specified, languagesuch as as is

CISG: No limitations--

Any form of

disclaimer permitted


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Remedies for Breach

UCC: Perfect tender

rule

CISG: Buyer can avoid

contract only if fundamentalbreach

Substantially deprive Buyer

of what he/she is entitled to

expect under the contract

If fundamental, Buyer need

not take delivery-may avoid

contract and not pay If not fundamental, non-

breaching party required to

continue contract and sue oflosses


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Specific Performance

UCC: Limited to

special circumstances

Unique goods

Inadequate remedy atlaw

CISG: Normal remedy

of civil law--Buyer

wants what was

ordered Specific performance

available

Exemption for

countries that do not

have such a provision

under their own law


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Excuses for Performance

UCC:

Impossibility

Frustration of purpose

Commercialimpracticability

Notice

CISG: Impediment--

Beyond control

Not reasonably

foreseeable Was unavoidable

Notice

IN i l CO i TERMS


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INternational COntracting TERMS

INCOTERMS 2000

Different than trade terms in UCC! Do not confuse them!

Used in International Trade--

Promulgated by Intl Chamber of Commerce

http://www.iccwbo.org/

First published in 1936

Do not modify!


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INCOTERMS 2000EXW EX WORKS (... named place)

FCA FREE CARRIER (... named place)FAS FREE ALONGSIDE SHIP (... named port of shipment)

FOB FREE ON BOARD (... named port of shipment)

CFR COST AND FREIGHT (... named port of destination)

CIF COST, INSURANCE AND FREIGHT (... named port of destination)

CPT CARRIAGE PAID TO (... named place of destination)

CIP CARRIAGE AND INSURANCE PAID TO (... named place of destination)

DAF DELIVERED AT FRONTIER (... named place)

DES DELIVERED EX SHIP (... named port of destination)

DEQ DELIVERED EX QUAY (... named port of destination)

DDU DELIVERED DUTY UNPAID (... named place of destination)

DDP DELIVERED DUTY PAID (... named place of destination)


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INCOTERMS 2000DDP DELIVERED DUTY PAID (... named place of destination)

At Sellers Expense:

Loading at Sellers premises, Local cartage, Contract of

carriage/dispatch, Trade Documentation and Customs clearancein country of export, Export charges, Transportation at terminal,

International main carriage, Trade documentation in country in

transit/importation, Customs clearance in country of importation,

Import charges, and Local cartage.

At Buyers Expense:

Unloading at Buyers premises.


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INTERNATIONAL ADR What is ADR--

Alternative Dispute Resolution Spectrum of ADR Methods

Reasons not to be forced to litigate in aforeign court

One form of ADR--Baseball Arbitration Putting the Deal together

Contract Performance

Claims Resolution


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Letters of Intent(Memorandum of Agreements)

Recommended from get-go due to CISG and impact of

internet in communications

Consider provisions for mutual benefit--

No contract/agreement until and unless (named) officers execute a

document in writing

Specify who are the authorized agents!

Compliance with US Anti-Bribery Laws

Foreign Corrupt Practices Act

Language ADR Provision

Liability limitations/indemnification

Other...


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Significant Provisions in

International Purchase Agreements

Parties, quantity of

identified goods, price,

payment, quality,

place/time of delivery,liability, ADR, &

indemnification

Independent Contractor

Language

Currency Issues

Offset Obligation(s) Compliance with US Anti-

Bribery Laws

Foreign CorruptPractices Act

Expanded remedies for

breach? Force Majeure


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International Purchase Agreements Export Administration

Regulation- Commerce Dept.

International Traffic in

Arms Regulations (ITAR)- State Department

Use of Carnet

Warranties

Trade Terms-INCOTERMS If NOT DDP (Buyers

Premises), then cover

risks/costs associated with terms! Letters of Credit/Stand-By

letters & Relationship to the

Underlying Contract Basis for drawdown

ADR


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International Purchase Agreements Role of prior dealing/trade

usage Final agreement of parties

Severability

Publicity

Points/Method of Contact

E-Commerce

Licenses/Inventions

Other duties of the parties...


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Summary

Use the CISG to streamline negotiations(and the time) in the international

marketplace--your suppliers expect it from

World Class Customers! Otherwise, negotiate laws that will apply!

Consider a Letter of Intent (Memorandumof Agreement) from the get-go to establish

the framework for the relationship.

Documents

Internationa Seen 19.11.10