Professional Documents
Culture Documents
Sách thầy Lân
Sách thầy Lân
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- String sales means shipments where ownership changes in transit.
- Carrier: is the party with whom carriage is contracted.
- Customs formalities: These are requirements to be met in order to comply with any applicable
customs regulations and may include documentary, security, information or physical inspection
obligations.
- Delivery: it is used to indicate where the risk of loss of or damage to the goods passes from the
seller to the buyer.
- Delivery document: A delivery document may also have other functions, for example as
part of the mechanism for payment.
- Electronic record or procedure: A set of information constituted of one or more electronic
messages and, where applicable, being functionally equivalent with the corresponding paper document.
- Packaging: This word is used for different purposes:
(1) The packaging of the goods to comply with any requirements under the contract of sale.
(2) The packaging of the goods so that they are fit for transportation.
4. Organization of Incoterms
4.1. Order within the Incoterms
A1/B1 General obligations
A2/B2 Delivery/Taking delivery
A3/B3 Transfer of risks
A4/B4 Carriage
A5/B5 Insurance
A6/B6 Delivery/transport document
A7/B7 Export/import clearance
A8/B8 Checking/packaging/marking
A9/B9 Allocation of costs
A10/B10 Notices
4.2. Classification of Incoterms
(i) In accordance with transportation methods: Two groups
Marine-restricted for sea & Multi-modal for use with all modes
inland waterway transport of transportation
only
-FAS: Free Alongside Ship - EXW: Ex Works
- FOB: Free On Board - FCA: Free Carrier
- CFR: Cost and Freight - CPT: Carriage Paid To
- CIF: Cost, Insurance & Freight - CIP: Carriage & insurance Paid to
- DAP: Delivered At Place
- DPU: Delivered At Place Unloaded
- DDP: Delivered Duty Paid
(ii) In accordance with parties’ responsibility: Four groups
Group Rule(s)
E EXW
F FAS; FOB; FCA
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C CFR; CIF; CPT; CIP
D DAP; DPU; DDP
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5. Delivery, risk and costs
- A named place or port attached to the three letters, e.g. CIP Las Vegas or CIF Los Angeles,
- Item A2 defines the place of delivery, where risks and costs are transferred from the seller to the buyer
- Item A9 allocates costs before the point of delivery to the seller and costs after that point to the buyer.
5.1 Delivery and risk
Group Rule(s) Point of delivery Seller’s responsibility Buyer’s responsibility
E EXW At seller’s - Places the goods at - All carriages and
premises seller’s premises. costs for bringing goods
. to his
warehouse.
F FAS; FOB; At a named place - Terminal handling - Contracting main
FCA in seller’s country charge at origin for carriage
- Export clearance - Import clearance
C CFR; At a named place - Contracting for carriage - Import clearance
in seller’s country - Main carriage - Unloading and
CIF; CPT; - Loading charge Terminal handling
CIP -Terminal handling charges at destination
charge at origin (If it is not included in
a carriage
contract.
D DAP; DPU; At a named place - Contracting for carriage - Unloading charge
DDP in buyer’s country - Main carriage (DAP, DDP) if it is not
- Loading charge included in a carriage
- Unloading charge (DAT) contract.
-Terminal handling - Import clearance
charge at origin - Terminal handling
- Export clearance charge at destination
- Terminal handling
charge at origin
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6. The application of Incoterms
6.1 How best to incorporate the Incoterms
- Format:
“[the chosen Incoterms® rule] [named port, place or point] Incoterms® 2020”.
- For example: CIF Shanghai Incoterms® 2020, or DAP No 123, ABC Street, Importland
Incoterms® 2020. Notes:
- The named place must be as specific as possible => to avoid
confusion. E.g.: FCA HCM city => conflicts may arise.
Correction: FCA, Tan Thuan export Processing Zone, HCM city.
GROUP Note Example
E, F + Named place named place is the - EXW, 141 Dien Bien Phu Street, Binh
place of delivery Thanh District, Hochiminh city, Vietnam
=> This is the place of delivery.
C+ Named place named place is the - CIP 141 Dien Bien Phu Street, Binh
place of destination Thanh District, Hochiminh city, Vietnam
=> This is the place of destination
D+ Named place Named place is both the DAP 141 Dien Bien Phu Street, Binh Thanh
place of delivery and District, HCM City, VN
destination => This is both the place of delivery
and
destination.
6.2 Caution with variants of
Incoterms Incorrect stipulations:
- Delivery shall be made FOB, under tackle, Saigon port
- The price shall be understood CIF landed, Incoterms 2020
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choices. However, when the goods are delivered on board of the ship at the shipment port, three
most common rules must be put into consideration FOB, CFR and CIF.
If the parties agree to deliver the goods in such a place as freight terminal, container yard,
buyer’s warehouse… within the buyer’s country, it is the case of arrival contracts, the rules under
Group D (DAP, DPU, DDP) must be taken into account.
3.5.3 Allocation of risks and costs
If the seller does not want to bear the risks and costs associated with the goods during
transportation, he should use Groups E and F. Conversely, if the buyer does not want to bear the
risks and costs associated with the goods during transportation, he should use Group D. In cases
where the seller is willing to bear the costs but not the risks associated with the goods during
transportation, Group C is appropriate.
In sea or inland waterway transportation, if the goods are shipped on the basis of liner terms,
where loading and unloading costs have been included in the freight charge, the use of FAS is more
suitable than FOB, and DAP is more appropriate than DPU. However, if the goods are transported
under charter party contracts, the choice between FAS or FOB (or DAT or DAP) for the delivery
terms depends on which party bears the loading (or unloading) costs.
3.5.4 Market conditions
When exporting to highly competitive markets, using Groups C or D for quotations will
create a higher level of competitiveness compared to Groups E or F because, the seller can find more
competitive services of logistics to make his sales terms more favourable to his buyers. On the
contrary, when importing goods from fiercely competitive markets, using Group E or Group F for
placing orders will result in greater competitiveness than Group C or D.
In other words, sales quotations that impose higher obligations on the seller, and purchase
orders that place higher obligations on the buyer, will generate a higher level of competitiveness
compared to his competing counterparts.
3.5.5 Fluctuation in freight charges and insurance premiums
When anticipating an upward trend in freight (or insurance) rates in the transportation (or
insurance) market, it is advisable to use terms that grant the right to contract for carriage or to
purchase insurance to the other party. This helps avoid losses due to fluctuations in
freight/insurance rates between the time of signing a sales contract and the time of contracting for
carriage and purchasing insurance. For example, if it is forecasted a rise in freight/insurance rates,
the seller should use CIF or CIP because the prices quoted will be more competitive than his
competitors.
3.5.6 Social and political uncertainty
In regions along the transportation route where goods are carried, there may be uncertain
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political and social situations such as piracy, violence, theft, civil unrest, etc. In such cases, it is
advisable to use terms where the other party assumes the risk during the journey, such as selling
under Groups E, F, C, or buying under Group D.
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3.5.7 Regulations on import-export customs clearance in local countries
If the buyer finds it impractical to directly or indirectly clear the goods for export in the
seller's country, he should not use the rule of EXW. Instead, the buyer should use FCA (Free
Carrier), specifying that delivery is made at the seller’s premises, where the loading costs onto the
transport vehicle are for the seller's account.
When the delivery is made at the destination, if the seller finds it impractical to directly or
indirectly clear the goods for import in the buyer's country, DDP should not be used. In this case,
DAP or DAT is more appropriate for the seller.
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Figure 3.2 Buyer’s point of view in choosing an Incoterms rule (ICC, 2022)
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3.6 SOME MISCONCEPTIONS OF THE USE OF INCOTERMS
Incoterms® are the common language of international trade. Despite their importance
and the potential consequences misuse may bring, many buyers and sellers remain unaware of how
critical they are. Entering the world of global trade and ocean shipping means understanding
your roles and responsibilities when it comes to importing or exporting goods. Here, the
Incoterms® are rules that define the terms of trade for the sale of goods all around the world,
especially when you’re planning to use ocean
freight. Following are some of the most common mistakes to stay clear of.
3.6.1. Using FOB or CIF for containerized cargo
A common mistake is to use a traditional “sea and inland waterway only” rule such as FOB
or CIF for containerized goods, instead of a rule for “all transport modes”. This exposes the
exporter to unnecessary risks. The main risk lies at the port of origin. Under FOB, the risk is
officially transferred when the cargo is loaded onboard the vessel. However, it’s common practice
for shippers to hand over the cargo to the carrier at the terminal where it awaits to be loaded onto the
vessel.
Instead, use FCA, CPT or CIP as these are the correct alternatives and for containerized
freight. For each of these, risk is transferred at the origin when the cargo is handed over to the
carrier at the agreed upon location at the origin.
3.6.2. Confusing ownership and risk
Incoterms® rules do not regulate the passing of title (ownership) from the seller to the buyer.
They only cover the risk during the period of delivery and divide the costs accordingly. It is
advisable for a parties to define when the ownership changes in a sales contract.
3.6.3. Using Delivered Duty Paid (DDP) without knowing import regulations
Another common mistake is to use DDP Incoterms® (Delivery Duty Paid) without thinking
through whether the seller can undertake all the necessary formalities in the buyer’s country, e.g.
paying GST or VAT.
DDP requires the seller to cover the import process costs and duties. This means they need to
have import knowledge of the destination – which is different for every country or even for
different states within a country. If the seller doesn’t know this, it could lead to added costs or
delays. Accordingly, the seller must know specific import regulations.
3.6.4. Misunderstandings with CIF and CIP Incoterms®
Under CIF and CIP, the seller must provide insurance coverage. When using CIF and CIP
Incoterms® rules, the seller arranges insurance in the buyer’s name – and unless otherwise agreed
by the parties, CIF requires the seller to obtain insurance under C cargo clause while CIP under
A. Confusion often happens with these Incoterms®, and the cargo may end up without insurance.
Further, it is recommended to check whether the insurance coverage is sufficient and matches the
requirements of the commercial contract.
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3.6.5. Not being specific when naming places or destinations
Many businesses are not aware that Incoterms® rules allow locations to be specified. Failure
to specify a full address may cause a dispute as it allows the seller to choose any delivery point
within the general location provided. This may not be convenient for the buyer, especially if they
must spend extra time and money transferring the cargo to the originally intended final location.
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Many Incoterms® rely on an exact place, terminal, port etc., and at these stages, the risk and
responsibility change hands. Therefore, it’s crucial to be specific when naming these places or
addresses so if something happens, both parties know exactly whose hands the cargo was in,
and where the responsibility lies.
3.6.6. Not determining who pays the terminal handling charges
Understanding who pays terminal handling charges is especially important for those
Incoterms® where the seller is responsible for the cargo beyond the port of shipment. Not
determining who is paying the terminal handling charges can be troublesome and cost you extra
time and money.
3.6.7. Matching the wrong Incoterms with bank security requirements
If an international payment method like a letter of credit is agreed upon between the
buyer and seller, the chosen Incoterms rule needs to match the requirements of the seller’s bank.
Some buyers and sellers do not realize this, unfortunately. If the Incoterms are not compatible,
documents must be submitted to the buyer’s bank to prove that both parties trust each other and the
conditions have been agreed to.
Rather than go through this hassle, buyers and sellers should agree to Incoterms in the C
Category like CIP or CIF. Incoterms within this category are better used for the letter of credit type
of payment.
3.6.8. Being unfamiliar with import regulations of certain countries
DDP Incoterms place just about all of the import responsibilities on the seller. Some of these
responsibilities include the local taxes of the buyer's country, duties and special documentation
for regulated goods.
First, since the seller is responsible for these tasks, the DDP, as well as the DAP Incoterms,
are very favorable for buyers. That said, these Incoterms can still cause problems for buyers if the
seller is not familiar with import regulations in the buyer’s country.
A seller who does not follow the customs regulations of the buyer's country will make the
shipping process a disaster for both parties. Before both the buyer and seller agree to Category D
Incoterms, the buyer should make sure that the seller is familiar with the customs responsibilities of
the buyer’s country.
Secondly, the buyer needs to verify that the seller is a registered overseas importer with their
country’s customs organization. This will be a requirement if DAP Incoterms ® are used.
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transportation with which, freight charges will be lower than any other modes of transportation.
Second is the Vietnamese exported goods, which are mainly raw materials or semi-finished
products, with low value and big quantity transacted, accordingly, sea transportation is most
suitable. However, the Vietnamese common practice of using FOB rule for exporting contracts, and
CIF rule for importing contract may create quite a few disadvantages at both macro and micro
levels.
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For the government, this choice results in a loss of foreign exchange due to low-priced exports
and high-priced imports, without creating conditions for increasing service volume for
Vietnamese shipping and insurance companies. For businesses, this choice reduces the ability to
balance foreign exchange independently, as imports incur higher costs and exports yield lower
prices. Vietnamese enterprises may become passive in dealing with transportation means and face
certain difficulties in filing compensation claims in case of disputes with foreign shipping and
insurance companies.
However, the change of this practice is not easy because of the following reasons.
(1) Lack of knowledge and experience in transport and insurance
A number of Vietnamese import-export businesses do not have a firm grasp of chartering and
insurance procedures, and they are short of relationships with all shipping companies and
insurance firms to make a good choice of a reputable carrier in the transportation market.
Particularly when dealing with large quantities of goods that require specialized chartering, the
chartering process is complicated while the expertise and experience of many businesses' staff may
not meet the necessary requirements.
(2) Misunderstanding of FOB and CIF conditions:
A common mistake in C group is that delivery is made to the buyer at the destination port.
Consequently, many businesses believe that "exporting FOB is safer and faster in payment than
CIF, and importing CIF is safer and faster than FOB." In fact, according to Incoterms 2020, under
both FOB and CIF (including CFR), the seller is only responsible for risks and associated costs
related to the goods until the goods are placed on board the ship at the port of loading. The speed or
delay in payment depends entirely on the provisions in the contract and not on whether the use of
FOB or CIF is.
(3) Vietnamese businesses in weaker position in sale negotiation.
Because exporting contract is executed under FOB and importing under CIF, Vietnamese
businesses fail to have the right to charter ships or purchase insurance for goods, which may help
their sale quotations more competitive if they find reasonable sources of transportation and
insurance. Another weakness is the psychology of risks taking such as increased transportation
and insurance costs, difficulty in chartering ships, or unsuitable vessels. As a result, they
delegate the responsibility of chartering ships and insurance to their foreign customers.
Further, a number of Vietnamese businesses are reliant on borrowed capital from banks
for importing and exporting, therefore, they are short of sufficient capital to pay for
transportation and insurance fees. Moreover, Vietnam's exported goods are primarily raw or
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semi-processed materials with low value, resulting in a significant proportion of freight costs
compared to the value of the goods. Commonly, freight charge may account for 7% to 10% of the
CIF value of the goods, but this rate may be higher for Vietnamese exports because the goods are
normally bulky and of low value.
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Vietnamese service providers in insurance and shipping industries have not fully utilized
their transportation capabilities. The scale of operations in foreign markets is limited, coupled with a
weak and sparse management system. Shipping costs are relatively high compared to the standard,
even though many ships have been in use for a long time and are outdated.
Practices
Practice 1: Read the text below and fill the gaps with the words given in the box.
Purpose and Scope of Incoterms
3avoid, 5destination, 4destruction, 8determination, 6determining, 9execution, 4fundamental, 1interpretation2
,
Incoterms (International Commercial Terms) are international rules for the (1) of the most
commonly used trade terms in foreign trade. International trade terms are the standard (2) of
contract of international sale.
The use of Incoterms helps to (3) or substantially reduce the uncertainties of different
interpretations of such terms in different countries. Incoterms deal with a number of the most
important, (4)
, underlying issues related to organization of delivery of goods to the destination, any
delivery basis regulates three key "transport" issue, without which delivery of the goods to
the place of (5)
cannot be carried out. This includes the followings:
- The distribution between the seller and the buyer of transportation costs for delivery of goods, i.e.
(6)
which costs and how long the seller has to bear and which, starting from a
moment - the buyer.
-The moment of transition from the seller to the buyer of risks of damage, loss or
accidental
(7) of the goods.
- The date of delivery of the goods, that is, the (8) of the time of the actual transfer by
the seller to the buyer or his representative - for example, the transport organization - and,
therefore,
(9) or fulfillment of the first of its obligations under the terms of delivery.
commodities, commonly, conflicts, confusions, documents, generally, interpret, limited, resolution, transfer,
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uncertainties
17, 10, 13, 14, 19, 12, 15, 16, 20, 18, 11
In general, the purpose of Incoterms is, as stated by ICC “to provide a set of international rules for the
interpretation of the most (10) used trade terms in foreign trade. Thus, the
(11)
of different interpretations of such terms in different countries can be avoided or at least
reduced to a considerable degree”. Since international sales contracts are (12) realized
between the non-present parties from different nationalities, it is very important how the
parties
(13) the terms and the abbreviations commonly used in foreign trade. By this regulation
of
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Incoterms, at least the (14) and the differences of interpretation will be overcome and the (15)
arising out of international trade will be reduced.
The scope of the Incoterms is (16) to the rights and obligations of the parties’ arising from
the delivery of the sale of goods. Incoterms do not define the goods, but the goods should be
understood as (17)
.
Incoterms do not regulate any contract other than sale contract. However, even in a sale contract,
Incoterms do not cover all the contractual aspects. The topics that Incoterms govern can be gathered
under four groups: (i) the delivery of goods, (ii) (18) of risks, (iii) division of costs, and (iv)
obligations concerning the
(19) . Incoterms do not provide rules for the (i) payment and payment methods, (ii)
transfer of ownership, (iii) variants, (iv) dispute (20) and (v) other issues relating to fulfillment of
the contract.
Practice 2 Complete the text below with the words given in the box.
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terms’). Under C terms, the seller is obliged not only to 5 the goods to the carrier and
obtain export licences, but has to obtain the contract of 6 (CFR and CPT) and insurance (CIF
and CIP). C-rules indicates a 7 contract, where delivery take place in the seller’s country.
(4) Group D
Practice 3. Read the followings and choose the best answer in accordance with Incoterms 2020
1. Incoterms 2020 is issued by ICC for interpretation of most commonly used trade
terms in foreign trade.
A. legal stipulations, which must be applied in a sale contract.
B. a set of rules, which is an optional use by parties to a sale contract.
C. a set of legal standard stipulations.
D. all are wrong
2. The purpose of Incoterms is
A. make clear about the responsibilities of sellers and buyers, transfer of risk and cost of the goods
from sellers to buyers.
B. help the parties to a sale contract to avoid unnecessary conflicts, disputes, litigations during their
contract performance.
C. A&B are wrong. D. A&B are correct.
3. Incoterms can be applied in
A. international contracts only B. domestic contracts only
C. both international and domestic contracts D. all are wrong
4. Incoterms does not cover the transaction of
A. invisible goods B. software C. technology transfer D. All of these
5. Incoterms does not refer to the obligations of the parties in
A. making delivery of the goods. B. packing and marking
C. transfer of ownership D. obtaining insurance
6. In terms of means of transportation, Incoterms is divided into
A. 5 groups B. 4 groups C. 3 groups D. 2 groups
7. In terms of liabilities for risks and costs, Incoterms 2020 is divided into
A. 5 groups B. 4 groups C. 3 groups D. 2 groups
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8. If the seller supplies the goods under D group, he should stipulate the clauses of Force Majeure or
total liabilities to exempt him from liabilities for damage, loss or compensation caused by the events
beyond his control.
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A. True B. False
9. If a buyer purchases the goods under EXW, he should incorporate the clause of termination of
contract in case he cannot clear the goods for export in the seller’s country.
A. True B. False
10. In the event of buying the goods under E, F groups, in order to make the goods safe in transit,
a buyer should add more obligations of the seller in packing and marking for the goods in conformity
with the types of the vehicles or vessels he arranges.
A. True B. False
11. If a contract is concluded under C rules, it is considered as
A. a shipment contract B. an arrival contract.
C. a destination contract. D. None of these
12. If a contract is concluded under D rules, it is considered as
A. a shipment contract B. an arrival contract.
C. a destination contract. D. None of these
13. If a contract is concluded under E rule, it is considered as
A. a shipment contract B. an arrival contract.
C. a destination contract. D. None of these
14. If a contract is concluded under F rules, it is considered as
A. a shipment contract B. an arrival contract.
C. a destination contract. D. None of these
15. The named place after C-rules, e.g. CPT Saigon port, therefore, Saigon port is the
A. place of delivery B. place of destination
C. port of shipment D. port of transit
Practice 4 Read the following issues, answer “Yes” if Incoterms cover, and “No”, if it does not cover.
Practice 5 Match the key concepts defined by Incoterms 2020 with their definitions
Arrival Contract, Main Carriage, Carrier, Customs formalities, Delivery, Delivery document, Multi-modal, On-
Carriage, Pre-Carriage, Shipment Contract, Terminal handling charges (THC)
6,2,11,9,7,10,8,3,1,5,4
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1. It is the movement that happens in the seller’s country before the container is loaded on the vessel.
2. It is the movement that happens while the container is on board the vessel
3. It is the movement that happens in the buyer’s country after the container is discharged from the vessel
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4. They are all fees, costs for making arrangements for the transportation of goods at a terminal.
5. This means sales/purchase contract where delivery takes place in the seller’s country.
6. It refers sales/purchase contract where delivery takes place in the buyer’s country.
7. It is used to indicate where the risk of loss of or damage to the goods passes from the seller to the buyer.
8. It is used when delivery is made by more than one mode of transportation
9. These are requirements to be met in order to comply with any applicable customs regulations
and may include documentary, security, information or physical inspection obligations.
10. A shipping document may also have other functions, for example as part of the mechanism for payment.
11. For the purposes of the Incoterms 2020 rules, it is the party with whom carriage is contracted.
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Unit 4 Explanatory notes for users of Incoterms 2020
transfer
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Incoterms 2020- Table of responsibilities
1. Group E
EXW- Ex-
Works
(1) Place of delivery and risk transfer
- At seller’s premises (like a factory or warehouse), or an other named place
(2) Mode of transport—This rule may be used irrespective of the mode or modes of transport, if any,
selected.
(3) Carriage: Buyer is be responsible for contracting for carriage and bear the freight charge.
(4) Loading and unloading: Buyer is be responsible for loading and unloading
(5) Terminal handling charge (THC): Buyer is be responsible for THC both at origin and at destination.
(6) Import and export clearance:
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- Buyer will be liable for both import and export clearance
(7) A note of caution
- EXW may be suitable for domestic trades.
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- EXW imposes the least set of obligations on the seller and the most set of obligations for the buyer
- This rule is often used when making an initial quotation for the sale of goods. It represents the
cost of the goods without any other costs included.
- Where the buyer finds it difficult in obtaining export clearance, he would be better advised to choose
the FCA rule.
Example: EXW, Binh Minh Plastic Co,240 Hau Giang, District 6, Hochiminh city, Vietnam.
2. Group F
2.1 FCA- Free on Carrier
(1) Place of delivery and risk transfer
- at seller’s premises
- or when they are loaded on the means of transport arranged by the buyer.
(2) Mode of transport: irrespective of the mode of transport or multi-modals.
(3) Carriage: Buyer is responsible for contracting for carriage and bear main carriage
(4) Loading and unloading
- If the place of delivery is at seller’s premises, seller will be responsible for loading. If not, loading
will be for buyer’s account.
- Unloading is for buyer responsibility
(5) Terminal handling charge (THC):
- Seller is responsible for THC at origin while buyer is responsible for THC at destination.
(6) Import and export clearance:
- Seller is responsible for export clearance while buyer is responsible for import clearance
(7) A note of caution
- ‘or procure goods so delivered’—The reference to “procure” here caters for multiple sales down
a chain (string sales), particularly, although not exclusively, common in the commodity trades.
- Bills of lading with an on-board notation in FCA sales: in case of payment by letter of credit,
seller should require buyer to sign a carriage contract with on-board bill of lading.
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2.3 FOB - Free On Board
(1) Place of delivery and risk transfer:
- When the goods are placed on board the vessel at the port of shipment.
(2) Mode of transport: This rule is to be used only for sea or inland waterway transport
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(3) Carriage: Buyer is responsible for contracting for carriage and bear main carriage
(4) Loading and unloading: Seller is responsible for loading at the port of shipment while buyer is
responsible for unloading at destination.
(5) Terminal handling charge (THC): Seller is responsible for THC at origin while buyer is
responsible for THC at destination.
(6) Import and export clearance: Seller is responsible for export clearance while buyer is
responsible for import clearance
(7) A note of caution
- In case of containerized cargoes, FCA should be used in stead of FOB.
- ‘or procuring the goods so delivered’— The seller is required either to deliver the goods alongside
the ship or to procure goods already so delivered for shipment, for multiple sales down a chain (string
sales), in the commodity trades.
3.Group C
3.1 CPT - Carriage Paid To
(1) Place of delivery and risk transfer:
- When the goods are handed over to the carrier at an agreed place in seller’s country.
(2) Mode of transport: This rule may be used irrespective of the mode of transport or multi-modals.
(3) Carriage: Seller is responsible for contracting for carriage and bear main carriage.
(4) Loading and unloading: Seller is responsible for loading, while unloading is for buyer’s account
(5) Terminal handling charge (THC): Seller is responsible for THC at origin, while buyer is
responsible for THC at destination.
(6) Import and export clearance: Seller is responsible for export clearance, while buyer is
responsible for import clearance
(7) A note of caution
- The named place after this rule is the destination, not the place of delivery. For example: CPT Linh
Trung processing zone, HCM, VN. Linh Trung is the place of destination not the place of delivery.
- The parties are also well advised to identify as precisely as possible in the contract of sale the point
within the agreed place of destination.
- Costs of unloading at destination—If the seller incurs costs under its contract of carriage related to
unloading at the named place of destination, the seller is not entitled to recover such costs separately
from the buyer unless otherwise agreed between the parties.
- ‘or procuring the goods so delivered’—The reference to “procure” here caters for multiple sales
down a chain (string sales), for commodity trades.
3.2 CIP - Carriage and Insurance Paid To
- The same as CPT but seller is responsible for obtaining insurance and unless otherwise agreed by the
parties, insurance is bought under “A clause” cargoes.
3.3 CFR - Cost and Freight
(1) Place of delivery and risk transfer: seller delivers the goods to the buyer on board the vessel or
procures the goods already so delivered.
(2) Mode of transport: This rule is to be used only for sea or inland waterway transport.
(3) Carriage: Seller is responsible for contracting for carriage and bear main carriage
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(4) Loading and unloading: Seller is responsible for loading while buyer is responsible for unloading.
(5) Terminal handling charge (THC): THC at origin is for seller’s account, while THC at
destination is for buyer’s account.
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(6) Import and export clearance: Seller is responsible for export clearance while, buyer is responsible
for import clearance
(7) A note of caution
- Ports of delivery and destination—In CFR, two ports are important: the port where the goods are
delivered on board the vessel and the port agreed as the destination of the goods.
- The parties are well advised to identify the port of shipment as precisely as possible in the contract.
- In case of multiple carriers used, delivery point is when the goods are delivered to the first carrier
unless otherwise agreed by the parties.
- Unloading costs—If the seller incurs costs under its contract of carriage related to unloading at the
specified point at the port of destination, the seller is not entitled to recover such costs separately from
the buyer unless otherwise agreed between the parties.
3.4 CIF- Cost Insurance and Freight
- The same as CFR but seller is responsible for obtaining insurance and unless otherwise agreed by the
parties, insurance is bought under “C clause” cargoes.
4. Group D
4.1 DAP- Delivered at Place
(1) Place of delivery and risk transfer:
- When the goods are placed at the disposal of the buyer on the arriving means of transport ready for
unloading at the named place of destination or at the agreed point within that place, if any such
point is agreed.
(2) Mode of transport: This rule may be used irrespective of the mode of transport or multi-modals
(3) Carriage: seller is responsible for contracting for carriage and bear main carriage.
(4) Loading and unloading: Loading is for seller’s account while unloading is for buyer’s account.
(5) Terminal handling charge (THC): Seller is responsible for THC at origin while buyer is
responsible for THC at destination.
(6) Import and export clearance: Seller is responsible for export clearance while buyer is
responsible for import clearance
(7) A note of caution
- ‘or procuring the goods so delivered’—The reference to “procure” here caters for multiple sales
down a chain (string sales), for commodity trades.
- To avoid risk in case buyer delays his obligation of import clearance, seller is advised to use
DDP, where seller is responsible for import clearance.
(1) Place of delivery and risk transfer: when the goods have been unloaded from the arriving
means of transport at a named place of destination.
(2) Mode of transport: This rule may be used irrespective of the mode of transport or multi-modals
(3) Carriage: Seller is responsible for contracting for carriage and bear main carriage
(4) Loading and unloading: Seller is responsible for both loading and unloading
(5) Terminal handling charge (THC):
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- Seller is responsible for both THC at origin and THC at destination.
(6) Import and export clearance: Seller is responsible for export clearance while buyer is
responsible for import clearance
(7) A note of caution
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- The point of delivery and destination is the same.
- To avoid risk in case buyer delays his obligation of import clearance, seller is advised to use
DDP, where seller is responsible for import clearance.
- ‘or procuring the goods so delivered’—The reference to “procure” here caters for multiple sales
down a chain (string sales), in commodity trades.
Practices
Practice 1 Use the information in the text, complete the following table of risk and cost transfer from
the seller to the buyer. (The rule of EXW has been done as an example)
Rule Point of Transfer Point of transfer Method of Note
of of transport
risk cost
EXW - At seller’s premises => THE ANY - Least obligation
or another named SAME for seller
place POINT - Import clearance
for
buyer’s account
FCA THE SAME POINT
CPT
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CFR
CIF
Practice 2 Use the information in the text, complete the table of allocation of costs under Incoterms
2020. (The rule of EXW has been done as an example)
FCA
FAS
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FOB
CPT
CIP
CFR
CIF
DAP
DPU
DDP
Practice 3 Point out the similarities and differences between FOB and FCA rules in Incoterms®
2020 Similarities:
- Seller is responsible for:
of
transportatio
n
2 Point of cost
transfer
3 Point of
risk transfer
4 Type of cargo
5 Loading
cost at origin
Practice 4 Point out the similarities and differences between CIP and CIF rules in Incoterms®
2020 Similarities:
- Seller is responsible for:
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Differences:
CIF CIP
1 Mean of
transportation
2 Point of cost
transfer
3 Point of risk
transfer
4 Type of cargo
Practice 5. Write down the correct rules for the definitions below, subject to Incoterms 2020
1. The seller is responsible for all costs associated with delivering the goods, excluding import duties, to
the named point or place of destination at the country of importation. Risks transfer from the seller
to the buyer when goods are placed on the arriving means of transport at the buyer’s country. DAP
2. The seller delivers the goods, export cleared, close to the side a vessel, and does not bear risk or
costs once the goods have been handed over. FAS
3. The seller is responsible for contracting and paying for main carriage, insurance excluded, and risk of
loss or damage to the goods once will pass to the buyer when the goods are shipped to
the first carrier. CPT
4. The seller is responsible for all costs and risks associated with delivering the goods to the wharf at the
named port of destination. DPU
5. The seller is responsible for main carriage by sea, insurance excluded, but not responsible for
additional costs or risk of loss or damage to the goods once they have been delivered on board the
vessel at the port of shipment. CFR
6. A seller is responsible for export clearance, obtaining insurance for his buyer, contracting for main
carriage and paying associated costs for bringing the goods to a named place at buyer’s country. Risk
transfers to the buyer when goods are delivered to the first carrier. CIP
7. A seller is responsible to make export and import clearance, contract for main carriage and pay all
associated costs for bringing the goods to a named placed at the buyer’s country. DDP
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8. A buyer is responsible contract for main carriage, make import and export clearance, bear all risks
once the goods are available for loading onto a vehicle at his seller’s premises. EXW
9. A seller is responsible to make delivery at a named container yard in his country. Risks and costs
transfer from the seller to his buyer when the goods are delivered to the first carrier nominated
by the buyer . FCA
10. A seller is responsible to deliver the bulk goods on board the vessel at the port of shipment, pay
insurance and main carriage for bringing the goods to the port of discharge. CIF
Practice 6. Specify the obligations of the party (Seller/Buyer or No party) under Incoterms
2020 to pay for the costs of the rules below: (The first row has been done as example)
Documentation Fees
Origin Terminal Handling Charges 2 7 12 17
Vessel Loading Charges 3 8 13 18
Destination Terminal Handling Charges if 4 9 14 19
contract of carriage excludes this charge
Insurance 5 10 15 20
Practice 7 Choose the appropriate rule under Incoterms 2020 used in the following transactions
- Exporter: in HCM City, Vietnam
- Importer: in Osaka, Japan
- Commodity: Rice
- Quantity: 10,000 MT
- Destination: Osaka, Japan.
Select the most suitable term under Incoterms 2020 in the following cases:
Case 1:
- Seller is responsible for export clearance, arranging transportation methods, payment for main
carriage, insurance.
- Point of delivery: when the goods are delivered to the first carrier in
Vietnam. Your answer: CIP OSaka
Case 2:
- Seller is responsible for export clearance, arranging transportation methods, payment for main
carriage, insurance.
- Point of delivery: when the goods are available on the arriving means of transport at
destination. Your answer: DAP Osaka
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Case 3:
- Seller is responsible for export clearance, arranging the vessel on behalf of the buyer.
- Buyer pays main carriage at destination, and insurance.
- Point of delivery: when the goods are placed on board the vessel at
Saigon port. Your answer: FOB
Practice 8 Choose the appropriate rule under Incoterms 2020 used in the following transactions
- Commodity: Fine-art ceramic and chinaware.
- Place of origin: Vietnam
- Place of destination: Sydney, Australia
- Quantity: 10 MT in
containers Case 1:
- Responsibility of the seller: Export clearance and making delivery to a carrier at Tan Thuan Freight
Terminal, Hochiminh City, Vietnam
- Responsibility of the buyer: All remaining duties and
costs. Your answer: FCA
Case 2:
- Responsibility of the seller: Export clearance, arranging for carriage, insurance and make delivery to
a carrier at Tan Thuan Freight Terminal, Hochiminh City, Vietnam
- Responsibility of the buyer: All remaining duties and risks when the goods are delivered to the
carrier. Your answer: CIP
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Practice 9 Choose the appropriate rule under Incoterms 2020 used in the following transactions
- Exporter: Bombay, India
- Importer: Saigon, Vietnam
- Commodity: Polyester materials, containerized.
- Quantity:
15MT Case 1:
- Seller’s responsibility: Deliver the goods to the first carrier named by the buyer in a container yard at
Mumbai, Bombay and make export clearance.
- Buyer’s responsibility: all remaining duties and
obligations. Your answer: FCA
Case 2:
- Seller’s responsibility: Deliver the goods to the first carrier arranged by the seller in a container yard
at Mumbai, Bombay, make export clearance, pay for main carriage including unloading cost at Catlai
Terminal, Hochiminh City, Vietnam.
- Buyer’s responsibility: all remaining duties and
obligations. Your answer: CPT
Case 3:
- Seller’s responsibility: Deliver the goods at the buyer’s premises at Linh Trung Industrial zone,
Thu Duc District, Hochiminh City, Vietnam, make export clearance, pay for main carriage.
- Buyer’s responsibility: unload the goods on the arriving vehicle, pay import duties and make import
clearance. Your answer: DAP
Practice 10 Choose the appropriate rule under Incoterms 2020 used in the following transactions
- Exporter: Manila, Philippine
- Importer: Saigon, Vietnam
- Commodity: UREA Fertilizer, bulk cargo
- Quantity:
200MT. Case 1
- Seller’s responsibility: Make export clearance, place the goods safely at a quay in the port of Manila.
- Buyer’s responsibility: arranging for carriage and pay all associated cost when the goods are placed at
the quay mentioned for transporting the goods to Tan Thuan export processing zone, Hochiminh City.
Your answer: FAS
Case 2:
- Seller’s responsibility: Deliver the goods on board the vessel arranged by himself at Manila port.
Pay for loading cost and main carriage for bringing the goods to Khanh Hoi Port, Hochiminh city,
Vietnam.
- Buyer’s responsibility: Make import clearance and pay unloading costs at Khanh
Hoi Port. Your answer: CSR
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3. When the goods are delivered to the carrier at the port of Saigon, is the title (ownership) to the
goods transferred from the seller to the buyer at this point? Why?
Your answer:
4. Who is insured?
Your answer:
5. Which party is responsible for claiming for insurance if loss or damage to the goods arises in
transit? Your answer:
6. Which party is responsible for export clearance?
Your answer:
7. Which party is responsible for import clearance?
Your answer:
8. Which party is responsible for carriage?
Your answer:
9. Who is responsible for obtaining Bill of Lading from a
carrier? Your answer:
10. Which party must pay for carriage?
Your answer:
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2. If contracts are concluded under CIP or CIF terms, unless otherwise stated by buyers, seller’s
obligation is to obtain insurance for the goods under
A. A clause B. B clause C. C clause D. D clause
3. If contracts are concluded under CIP or CIF terms, buyers should stipulate expressly the
insurance clause, such as name of insurer, types of cover… to protect his rights.
A. True B. False
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4. Which of the following stipulations is (are) incorrect?
A. Delivery shall be made C&F Incoterms 2020
B. Price is understood CIF landed, Incoterms 2020.
C. Delivery shall be made FOB under the tackle, Incoterms 2020.
D. All of these.
5. Which of the following stipulations is correct?
A. Delivery shall be made FOB stowed, Incoterms 2020.
B. Delivery shall be made DPU Hongkong port, subject to Incoterms 2020.
C. Delivery shall be made FOB, Khanh Hoi port, Hochiminh City, Vietnam, subject to Incoterms 2020.
D. Delivery shall be made CNF, Thu Duc Terminal, Hochiminh City, Incoterms 2020.
Practice 14 Decide if the following statements are True or False in accordance with
FCA
1) Loading cost at origin is for seller’s liability and account.T/F
2) Export clearance is for Buyer’s account F
3) Buyer is responsible for main carriage T
4) In any case, delivery is deemed to have been complete when goods are loaded onto the arriving vehicle. T
5. Seller is obliged to give notice to the buyer when delivery is completed. T
6) If the carrier does not take delivery, the Buyer bears all risks of loss of or damage to the goods. T
7) This rule can be used for all modes of
transport. T
FAS
1) FAS means that the seller delivers when the goods are placed alongside any mode of transportation.F
2) This rule should be used only for bulk commodity, not for containerized goods.T
3) Under this rule, the Buyer is obliged to contract for carriage of the goods T
4) The cost of loading at origin is for the Seller’s account.F
6. The buyer must give the seller sufficient notice of the particulars of the vessel within the agreed
time. T
FOB
1) Under this rule, delivery is complete when the seller has delivered the goods by placing them on
board the vessel nominated by the buyer at the loading point.T
2) FOB should be used only for containerized goods only.F
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3) The trimming and stowage costs on the vessel at the port of shipment are for the Seller’s account.F
4) If the vessel nominated by the buyer fails to arrive on time and is unable to take the goods, any
additional costs arising therefrom shall be for the Buyer’s account.T
5. The buyer must give the seller sufficient notice of the vessel name, loading point and, where necessary,
the selected delivery time within the agreed period.T
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CPT
1) Under this rule, the seller fulfils its obligation to deliver when the goods reach the place of destination.F
2) Under this rule, risk passes and costs are transferred at the same place.F
3) CPT requires the Seller to arrange transportation.T
4) This rule is used irrespective of modes of transport.T
5. The cost of loading at origin is for the Buyer’s account.F
6. The cost of unloading at destination is for the Seller’s account T/F
7. CPT is often used with Combined Bill of
Lading. T
CIP
1) CIP is the same as CPT in nature except under CIP, the Seller has an obligation to obtain
insurance for the Buyer.T
2) Under this rule, if the buyer does not wish to have more insurance protection, seller is required
to obtain insurance only on maximum cover, i.e. Clause A T
3) The insurance shall cover the price provided in the contract plus 10% (i.e., 110%) and shall be in the
currency of the contract.T
4. The Seller is advised to supply the goods under this rule because he will find no risk of the carrier’s
failure to take delivery of the goods.T
CFR
1) The point of delivery under CFR is the same as FOB.T
2) Under this rule, Risk and costs are transferred from the seller to the buyer at destination.F
3) If the goods are containerized, it is not advisable for the parties to use
this rule. T
CIF
1) CIF and CFR are of the same nature except that under CIF rule, the Seller is obliged to the buyer to
make an insurance contract.T
2) Under this rule, the Buyer should demand that insurance shall be contracted with
underwriters or an insurance company of good repute.T
DAP
1) Unloading cost at the named place of destination is for seller’s account.T
2) If a contract of carriage requires the seller to bear unloading cost at destination, the seller is not
entitled to recover such costs from the buyer unless otherwise agreed between the parties.T
3) DAP requires the Seller to pay import duties.F
4) Under this rule, the seller is responsible for contracting for the carriage of the goods to the named
place of destination.T
DPU
1) Unloading cost at terminal is for the Seller’s account.T
2) Delivery is completed only when the goods have been unloaded from the arriving means of
transport and have been placed the disposal of the buyer at the named terminal.T
3) This rule is used for transportation by sea
only. T
DDP
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1) DDP represents the maximum obligation for the seller.T
2) DDP is the only rule in Incoterms 2020 which requires the Seller to make import clearance for the goods.T
3) If the parties wish the buyer to bear all risks and costs of import clearance, the DAP rule should be used.T
4) The Seller is obliged to the Buyer to make an insurance contract.F
5. This rule is used only when the buyer is unfamiliar to import business.T
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Unit 5 Shipping documents
The importance of shipping documents:
- They are used for customs clearance
- They serve as the evidence of the quality, quantity of goods
- If they are incomplete, faulty or not given to the authorities on time may, it will give rise to some
risks in the products delivery or during collection of the product costs.
Documents can be divided into 03 groups, namely documents related to goods, documents related to
shipment, and documents related to loading and unloading.
1. Documents related to goods
1.1. Invoices
1.1.1 Proforma Invoice
Proforma invoice is the starting point of an export contract. As and when the exporter receives
the trade inquiry from the importer, exporter submits the Proforma invoice to the importer.
The significance of Proforma Invoice
- It forms basis of all trade transactions and further negotiation or contract is made on this basis.
- It helps the importer to obtain the import licence, where required, and obtain foreign exchange for
completion of the contract.
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- Invoice constitutes the main document for various export formalities such as pre-shipment inspection,
quality, excise and customs procedures.
- It is useful for accounting purposes, both by the exporter and importer.
- This document is required in collection/negotiation of documents through the bank.
- For claiming incentives, this document is essential.
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1.1.3 Consular Invoice
- A consular invoice is a document certifying a shipment of goods and shows information such as the
consignor, consignee, and value of the shipment.
- It is issued by a consular representative of the destination
country. Significance of Consular Invoice:
Importance to the Exporter
- Once the invoice is signed by the consulate of the importing country, the goods can easily imported.
- It enables prompt clearance from the customs of exporter’s country for shipping the goods.
- It helps the importer to get speedy delivery of goods.
- Lot of unnecessary hardship which importer faces once the packages are opened is avoided.
- The customs of the exporting country can easily clear the goods.
- The customs of the importing country need not open the packages for checking and can easily
calculate the import duties.
1.1.4. Customs Invoice
- It is issued by customs office of the importing country, which is often required by some countries like
USA, Canada and Australia.
1.2. Packing List
- It is a list of all the items in a package.
- It gives specific descriptions on the packing of the goods, including quantity of bags, packing
materials, weight, measurements and marks.
- It is for the buyer to check the
quantity. Features:
- A packing list is often required to be made in triplicate.
+ One copy makes it easier for the buyer to find out the number of goods received
+ One copy along with packing lists of other packages constitutes a full set of packing lists of a
consignment. It is put in the first package to make it easier for the consignee to check the packages or to
select some items out of the consignment.
+ One copy along with packing lists of other packages constitutes a full set of packing lists of a
consignment, which are enclosed with other documents and submitted to the bank for payment.
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Form S: used for the goods traded between Vietnam and
Laos. Form E: used for the goods traded between Vietnam
and China. Form EUR.1 (EVFTA): used for goods
exported to the EU
Form GSTP: goods exported to countries participating in the system of global trade preferences (GSTP)
for Vietnam to enjoy GSPT preferences.
Form AJ: goods exported to Japan or vice versa and ASEAN countries eligible for preferential tariffs
under the ASEAN-Japan Agreement (ASEAN + 3).
C/O can be issued by:
- Import-export management departments in Ha Noi, Hai Phong, Da Nang, Binh Duong, Ho Chi Minh
city, and Vung Tau.
- Branches of Vietnamese Chamber of Commerce and Industry (VCCI)
- Management departments of economic zones established under the Prime Minister’s Decision.
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(1) Particulars in a B/L
Information relating to the
goods:
- General nature, leading marks & numbers necessary for identification, number of packages or pieces,
weight, quantity, the apparent condition of the goods.
-Information relating to the parties:
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Carrier, shipper, consignee
Information relating to the
voyage:
Name of vessel, port of shipment/ trans-shipment/ destination, B/L number, terms of contract
(prepaid or collect), place of issuance of B/L.
Notes: In accordance with UCP600, the following clauses do not make the Bill of Lading unclean:
61
- Freight to Collect B/L: When the freight on the B/L is not paid and to be collected at the point of
destination, it is marked “Freight Collect” and this B/L is known as “Freight Collect B/L”.
According to the types of vessel
Charter Party B/L: for transportation by tramp, it covers shipment on a chartered
ship. Liner B/L: for transportation by liner.
According to the issuer
- Master B/L: issued by a carrier
- House B/L: issued by a freight
forwarder. Other Bill of Lading:
- Stale B/L
- Surrendered B/L
- Seaway Bill
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Practices
Practice 1 Choose the words in the box to complete the text
Importance of export documentation in international trade
booming , documentation, evolution, flourishing, rules, starting
2,6,1,3,4,5
With the 1 of the global economy, international trade is 2
between countries. There are many manufacturing companies who are
now exporting their goods to different parts of the world to expand their businesses; hence the export
industry is 3 . However, even though the global
economy has open up, there are many 4 and regulations governing the export
industry in each country as well as internationally are needed to keep in mind before 5
an export business. The greatest amount of paperwork is required in order
to export a shipment goods from one country to the other. Since, export happens between two countries,
the export 6 required is extensive, complex and
required at every phase of the export process.
aware , certificate, complete, convenient, handle, losses, missing
11,10,7,12,13,9,8
With export industry growing at a rapid rate, their 7 process has been streamlined in order to protect the
interest of the country. However, in the whole process if any document goes 8 , it can lead to
unnecessary delay in shipments thereby costing thousands of dollars’ worth of 9 . Whether it
is Customs approval or 10 of origin, every number or document is important and cannot be
missed. For this, to ensure that companies do not suffer any international trading issues, having someone
who is 11 of the entire process and can deal with massive paperwork on your behalf is a
blessing. It can make the complete procedure 12 and cost-effective for the exporters.
Hence, there are online export documentation services who can 13 your entire
paperwork requirement for international trading.
accurately, care, cycle, dealing, like, place, regardless
18,14,15,17,16,20,19
These services take 14 of all the documents that are important as per the export rules
and regulation authority of the country as well as help them manage their import export trade 15 .
These export documentation consultancies and agencies act 16 they are your own in-
house export department. Right from raising Request for Permit, 17 with the various parties
like banks, packers, dispatch, shipping companies, etc., they ensure everything is carried out 18
and timely so that your business does not suffer any losses. 19 of the size or nature of
your business, they will ensure all the documents are in 20 so that you are ready with them
whenever you need it.
Practice 2 Match the types of invoice and their definitions
Commercial invoice, Consular invoice, Customs invoice, Proforma Invoice
2,3,4,1It is used when sending goods of no commercial value (i.e. goods that are not for resale) or
personal shipments.
1. It is a basic export document. It contains all the information, which is required for preparation of
all other documents. It is the exporter's bill for goods which the importer has to pay.
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2. It is a document certifying a shipment of goods and shows information such as the consignor,
consignee and value of the shipment. It is certified by the consul of the
country of destination.
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Practice 3 Write down the form of the Certificate of Origin used in the following cases. The first
has been done for you
Claused or Dirty (Unclean) B/L, Clean B/L, Clean on board B/L, Direct B/L, House B/L,
On Board Shipped B/L, Received for Shipment B/L, Received for Shipment B/L, To order B/L, Through B/L
6,1,3,4,10,8,9,5,2,7
1. The carrier does not contradict any particulars or made any adverse comments on B/L regarding the
goods.
2. This is usually drawn to the order of the shipper, consignee or bank; It is negotiable as it can be
endorsed in favor of another person; It is commonly used in commercial deals.
3. This means that the cargo is on board the vessel. It confirms to the buyer that the goods have
actually been shipped.
4. It covers transportation on the same vessel from the port of loading to the port of destination.
5. A shipping company issues it when goods have been given to the custody of the shipping company,
but they have not been placed on board.
6. It shows that the B/L is claused by a carrier about the defective condition of the goods transported.
9. A shipping company issues it when goods have been given to the custody of the shipping company,
but they have not been placed on board.
10. It is issued by a freight forwarder.
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Practice 5 Read the Certificate of Origin below and answer the questions
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Unit 6 Negotiating delivery
Learning objectives:
By the end of this unit, you will be able to understand:
- the concept of date of coming into force and cut-off date in a contract
- the duties and obligations of the parties when force majeure occurs
- the differences between penalty and liquidated damages
- when risks and title to the goods are transferred from the seller to the buyer
1. Time of delivery
(ii) Date of coming into force: It is not usually a calendar date, but the date on which the last
precondition is met.
Common preconditions are:
- Receipt of import and/or export approval;
- Receipt of foreign exchange approval from a central bank;
- Issuance of a letter of credit or bank guarantee;
- Making of a down-payment by the buyer,
- Issuance of an insurance policy:
- Issuance of a certificate of origin;
- Delivery by the buyer of plans, drawings or other documentation.
(iii) cut-off date(ngày chấm dứt hợp đồng): if the contract has not come into force within a certain
time then it becomes (null and void: ngày mất hiệu lực). A typical wording:
Coming Into Force
This agreement shall come into force after execution by both parties on the date of the last necessary
approval by the competent authorities in the country of the Seller and the Buyer.
If the contract has not come into force within ninety days of execution, it shall become null and void.
(iv) Delivery date is normally fixed for a certain number of days after the contract has come
into force. E.g.:
The date of delivery shall be twenty-eight days, after the date of coming into force of the contract.
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If delivery is not effected within one month of the agreed delivery date, then the Seller shall pay the Buyer 0.1%
of the contract price.
=> Grace period: 01 month
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1.3 Excused Delay and Force Majeure
- Force Majeure is considered as an exemption clause to save harmless to the party concerned in case
of late or non-performance of his duties.
- Typical clause:
If either party is prevented from, or delayed in, performing any duty under this Contract by an
event beyond his reasonable control, then this event shall be deemed force majeure, and this party shall
not be considered in default and no remedy, be it under this Contract or otherwise, shall be available
to the other party. Force majeure events include, but are not limited to: war (whether war is
declared or not), riots, insurrections, acts of sabotage, or similar occurrences; strikes, or other labor
unrest; newly introduced laws or Government regulations; delay due to Government action or inaction;
fire, explosion, or other unavoidable accident; flood, storm, earthquake, or other abnormal natural,
event.
(2) Penalties
- A big amount is imposed on seller in his delivery obligation
- The motive is to terrorize the other party
- It is not allowed by common law.
- The maximum fine allowed by American law 5%; by Vietnamese law: 8%
(3) Quasi-indemnity:
- Only a small amount is imposed on the seller
- The purpose is to release the seller from his delay in delivery
Typical wording:
Liquidated Damages
If the Seller fails to supply any of the Goods within the time period specified in the Contract, the Buyer shall
notify the Seller that, a breach of contract has occurred and shall deduct from the Contract Price per week of
delay, as liquidated damages/ a sum equivalent to one half percent of the delivered price of the delayed Goods
until actual delivery up to a maximum deduction of 10%70of the delivered price of the delayed Goods.
2. Place of Delivery
- Place of delivery is closely related to the use of a rule under Incoterms
- For example, under FOB rule, the place of delivery is the port of shipment in seller’s country, risk to
the goods transferred to a buyer when the goods are placed on board the vessel.
Practices
Practice 1. Complete the text with the words given in the bow
approvals, compensation, considerations, delay, force majeure, issues, know-how, liquidated damages, losses,
non-excusable, payment, penalty, point, pre-shipment, unused
4,15,3,2,6,1,11,7,13,5,14,10,9,8,12
Naming a delivery dale is the first step in negotiating the timing of a deal in foreign trade.
Complex 1 concerning coming into force, delay and compensation for 2 must also be
negotiated. What are the main 3 in drafting provisions about timing and delay?
Because exports are often subject to official 4 , the delivery dale in many contracts,
depends on the receipt of the last approval. If delivery is late, the delay is classified into one of two
categories, excusable and 5 . Excusable delay often involves a
grace period and is nearly always subject to a 6 provision. Any losses to the buyer
caused by non-excusable delay must be compensated. The amount of compensation is usually set in
advance in a so-called "7 " provision.
Getting the delivery date right is a matter of managerial 8 : the exporter must know
how long it takes to obtain supplies, manufacture the goods, package them, arrange 9 inspection
and transport them to the agreed 10 of delivery. First-time exporters often set delivery dates that
are hopelessly optimistic—and pay a heavy 11 for their mistake. The
buyer, for his part, must know exactly when the goods are needed: too early a date ties up money in 12
goods, while delivery too late may mean big 13 , especially
if the goods are to be resold.
As far as the contract is concerned, the delivery date triggers many contract events: at this time,
the exporter fulfills his primary duties under the contract, 14 normally becomes due, risk, and
often title, pass to the buyer, delay—as well as any 15 to be paid by the exporter—is reckoned
from the planned date of delivery. What should the exporter know about this key date?
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ABC Co. makes disposable paper plates, cups and napkins for hot-dog and hamburger stands. The factory
manager of ABC Co. is negotiating for raw paper to be delivered to his factory for manufacture into paper
products. The supplier is XYZ Co. Then ABC and XYZ have agreed in principle a trial delivery of 40 tons of
questions Case 1; Study the scenario, and then answer
the questions.
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Which of the following decisions should the two parties make in negotiating the delivery clause? (YES/NO)
1. The quality of the paper NO
2. The place of delivery YES
3. The transfer of risk YES
4. What to do if the ship named by buyer does not arrive YES
5. Whether or not to ship goods in a container YES
6. What delays in delivery will be excusable YES
7. When payment is due NO
8. Who must insure the goods up to what point YES
9. Flow disputes will be settled NO
10. The choice of an Incoterms rule YES
11. What means of transport will be used YES
12. The transfer of title NO
Case 2 Read this “Coming Into Force” provision; then answer the question.
This Contract shall come into force after approval by the governments of the Seller and the Buyer, however at
the latest by 31st December 20--.
Case 3 Study the contract clause below, and then answer the questions.
Fine Payable
If the Seller fails to deliver the Goods at the fixed date, a fine shall be imposed upon him for the period of delay
, until delivery is completed. The fine shall be as follows:
2% for the first week, or any part of it.
4% for the second week, or any part of it.
6% for the third week, or any part of it.
8% per week for the fourth week, or part of it, and for all succeeding weeks..
The fine shall be calculated on the total contract value.
1. After how long a delay does the exporter lose 100% of the contract price?
3. If a Vietnamese judge applying Vietnamese law looks at this clause, will it be enforceable?
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Unit 7 Negotiating payment
Five steps in negotiating payment:
(1) Mode of payment: How will payment be paid?
(2) Timing: What is the date of payment?
(3) Place of payment: Where must the money be before payment is considered complete?
(4) Delay and result of delay: What delay is excusable and non-excusable?
(5) Export credit insurance
1. Modes of Payment
Four approaches to payment are common:
- Payment on open account with no security;
- Payment on open account secured by export credit insurance;
- Payment on open account secured by a payment guarantee; and
- Payment by letter of credit.
More details will be discussed in the next unit
2. Timing
- Time of payment will be subject to the agreement between the parties
- Time of payment is also subject to the choice of a mode of payment
3. Place of Payment
- To avoid the risk of non or late-payment by the buyer’s bank because of some restriction in foreign
transfer by the law of the buyer’s country, exporters should try to protect themselves with a clause like
this:
Payment shall be deemed to have been made only when the contract sum is paid into the Seller's bank account
and is at the Seller's full disposal.
- Under the Vienna Sales Convention, payment is normally deemed to be made only when the cash is
available at "the seller's place of business" (Article 57).
4. Delay in payment
- Delay in payment might be excused during a grace period, though this is unusual.
- Force majeure does not excuse for delay
5. Results of Delay
- Late payment will result in fine imposed on the
buyer Typical wording:
If payment of any sum payable is delayed, the Seller shall be entitled to receive interest on the amount unpaid
during the period of delay. The interest shall be at an annual rate three percentage points above the discount
rate of the central bank in the Seller's country.
6. Export Credit Insurance
Risks of non-payment to the seller
- The buyer may go bankrupt;
- He may sell the goods he receives and disappear.
- Political difficulties too can block payment: civil war, famine, lack of foreign
exchange. Solutions to the seller:
- Ask for payment guarantee: tender guarantee, performance guarantee
- Require advance payment, down payment or deposit
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- Ask for payment by letter of credit.
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Practices
Practice 1 Complete the text below with the words given in the box
bankrupt, covered, credit, edge, insurance, limitations, non-creditworthy, non-payment, premiums, profit
quotation, reluctant, transactions, typical, worth
2,12,1,15,3,10,8,4,9,6,7,14,13,11,5
Export Credit Insurance
International trade is fiercely competitive. Exporters compete not only on quality, price and
delivery terms; they also compete in the area of 1 : "If you buy from me. I will allow you 180 days
to pay." Such an offer can make or break a deal. However, extending credit in this way is risky.
The buyer may go 2 , or he may sell the goods he receives and disappear.
Political difficulties too can block payment: civil war, famine, lack of foreign exchange, and so on—the
list is a long one. To stimulate exports and protect the exporter against major risks, some countries set
up a special type of
3 : it does not insure goods, but it insures the exporter against the risk of 4 .
Most traditional exporting nations—the European countries, for example—offer such insurance.
Zimbabwe is an example of a developing country that helps its exporters in this way. (It is 5
stressing that export credit insurance is not a charity but a commercially viable proposition; export credit
insurance companies commonly report up to 15% 6 on their business.)
To buy such insurance, the exporter explains the details of the business to an insurance company
and receives a 7 . Sometimes the insurer refuses to quote. This may mean that the insurer has
used its network to run some checks on the buyer and found the buyer 8 . This is a sign to the
exporter that the business is risky, (It might also mean that the insurer has checked on the exporter and
found some problems: a criminal record, perhaps, or a history of unpaid insurance
premiums.) Export insurance 9 vary according to the type
of goods exported, the creditworthiness of the buyer, the political stability of the buyer's country, and so
on.
Attractive as it is, export credit insurance has certain clear 10 : there is always a
long wait between the time when the buyer fails to pay and the time when insurance company
compensates the exporter—six months is 11 . And when
compensation is paid, it is unlikely to cover 100% of the original invoice price. However, with export –
credit insurance, the exporter is 12 against the worst.
If your country offers export credit insurance, you should certainly consider using it for trade
with customers you know only slightly and for single 13 - that represent a high proportion
of your turnover. Further, many buyers are 14 to spend money on a payment guarantee or to tie up
money in a letter of credit—in a buyer's market, export credit insurance may give the exporter a
competitive 15 .
Below is the first part of a payment guarantee issued in standard bank form. Study it, and then answer
the questions.
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Payment Guarantee No. 76542/92
Reference is made to the order No. WEX 344 K placed with you as suppliers by Multi-Import for the supply of
integrated circuits.
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According to the conditions of this order, the Buyer has to furnish a payment guarantee in the amount of USD
600,000. By order of the Buyer, we, Big Bank of Euroland, hereby establish this guarantee and undertake
irrevocably to pay to you without demur or objection any outstanding amount not exceeding USD 600,000
say United States Dollar six hundred thousand only
upon your first written demand stating that the Buyer has failed to effect the outstanding payment at maturity.
Our liability under this guarantee will expire as soon as this document is returned to us, latest however, by 31st
December 20--.
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Unit 8 Modes of payment
1. Bill of exchange
- Definition: Bill of exchange is an unconditional order for payment drawn on a drawee by a drawer
requesting the drawee at sight of the bill of exchange or on a specific date or a determinable future time
to pay certain amount to a beneficiary or to order of this beneficiary to pay to another one or to the
bearer.
(1) Sample of Bill of Exchange used in payment by collection:
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Time Bill: (also called usance Bill) is payable at a future fixed (specific) date or determinable (e.g.,
30,60,90 days) date.
1.3 Features of Bill of Exchange
- It is important to have a bill of exchange in writing
- The order should not have any condition
- The bill of exchange amount should be definite
- Fixed date for the amount to be paid
- The bill must be signed by both the drawee and the drawer
- The amount stated on the bill should be paid on-demand or on the expiry of a fixed time
- The amount is paid to the beneficiary of the bill, specific person, or against a definite order
- One language is used.
- B/E is made out into two copies to avoid loss of B/E in sending. The early arrived one has been
paid and the later shall become null and void.
- Corrections are not accepted in B/E.
1.4 The contents of a Bill of Exchange
(1) B/E title: This is a compulsory item under ULB 1930 and Vietnam’s law but optional under Anglo-
American law.
(2) B/E number: This is an optional item in a B/E, fixed by the drawer for his reference of filing.
(3) B/E amount: In figures and/or in words.
(4) Place of drawing B/E: This is necessary item to identify the applicable law to the B/E. It may be
the place of drawing, the place of drawer’s headquarters.
(5) B/E date: This item is compulsory under all legal sources. A B/E without date shall become null and
void. It helps to identify the legality of parties and the time limit that B/E must be presented for asking
payment. Under ULB 1930, the B/E must be presented within 1 year, under Vietnam’s law, it’s 90 days.
(6) Time of payment
- Sight B/E: “at....sight” or “at...\...sight”
- Time B/E: “at xxx days after sight” with xxx: a number, for example: 30, 60, 90...
(7) Beneficiary
- Order B/E: “pay to the order of….’
- Nominated B/E: “pay to…”
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(8) B/E amount
- This item is presented by “ the sum of...”.
- Under ULB 1930, the B/E amount must be a specific number, written in figures and/or in words without
any
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relevant interest rates. Under Vietnam’s law, the amount must be in both figures and words.
- In case of difference between figure and word amounts, the solution depends on the applicable law:
+ Under Anglo - American laws: the typed information shall prevail the printed ones; the hand-
written ones shall prevail the typed and printed ones, the word amount shall prevail the figure ones.
+ Under ULB 1930: The amount in words shall be for payment but in case of difference, the
smaller amount shall be the amount for payment.
+ Under Vietnam’s law: in case of difference, the smaller amount shall be the amount for payment.
In case an L/C is relevant, B/E usually includes “all charges and amount shall be to the account of
..................................................................................................................................................................(the
importer)” with information about the L/C (date, number, issuing bank)
(9) Name, address of the drawee
(10) Name, address and signature of the drawer
1.5 Advantages of Bill of Exchange
- Legal Document- It is a legal document, and if the drawee fails to make the payment, it will be easier
for the drawer to recover the amount legally.
- Discounting Facility- In cases where the drawer is in immediate need of money, the bill can be
converted into cash by discounting it from a bank by paying some nominal charges.
- Endorsement Possible- This bill of exchange can be exchanged from one individual to another
for the adjustment of the debt.
2. Cash in Advance (CIA)
- Cash in Advance requires the buyer to pay cash in advance to the seller.
Procedures of payment by Cash in Advance
2.1 Application
This mode of payment is commonly used:
- when the goods are specialized or made under buyer’s special designs
- buyer's credit is doubtful.
- the political and commercial risks of buyer’s home country are very high.
- the exporter’s product is unique, not available elsewhere, or in heavy demand.
- the exporter operates an Internet-based business where the use of convenient payment methods is a
must to remain competitive.
2.2 Advantages and
disadvantages For seller:
Advantages:
- No risks, non-payment can be eliminated.
- Immediate use of
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fund Disadvantages:
- May lose customers to competitors over payment terms
- No additional earnings through financing
operations For Buyer:
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Advantages: None
Disadvantages:
- No control over the goods
- Use of the funds is lost
- Seller may refuse to ship
- Political risk in the seller country
3. Open Account
- Open account is an arrangement in which the seller shall ship the goods to the buyer and the payment
shall be made after certain periods of time or when a credit limit is reached.
- Open account is convenient to the buyer as the payment shall be made after the
delivery. Procedures of payment by open account
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4.2 Participating parties
- Remitter: party who requests the banks to transfer the money to another party in a foreign
country who is usually importers or payers.
- Beneficiary: party who shall get the payment transferred by the banks. It can be exporters or parties
named by exporters.
- Remitting Bank: a bank offers services to the remitter.
- Paying Bank: a bank pays money to the beneficiary. It can be a correspondence bank or a
branch of the remitting bank in the beneficiary’s country.
Time of remittance:
In view of the time to remit funds to a seller, buyer may conduct 03 payments at different time:
- Advanced remittance
- Immediate remittance
- Deferred remittance
4.3 Procedures of payment by deferred remittance
In business practice, deferred remittance is most commonly used. This process looks like this:
- Step 1: The beneficiary (usually the exporter) delivers the goods and sends the shipping
documents to the remitter (the importer).
- Step 2: After checking the goods and/or the set of shipping documents, if the importer finds
everything is as agreed, he shall prepare a remittance order to the remitting bank.
- Step 3: The remitting bank checks the remittance order and debits the remitter’s account and sends a
debit note to the remitter.
- Step 4: The remitting bank sends the instruction to the paying bank to effect the payment.
- Step 5: The paying bank pays to the beneficiary as instructed.
4.4 Application
- In reality, this mode is only used when there is high level of trusts between the parties.
- It is used to pay an amount is not so much (advanced payment, down- payment, deposit, payment
of fees or services, commission, payment of balanced amounts...).
4.5 Advantages and disadvantages:
Advantages: Quick and easy book-keeping; Low fee
Disadvantages: Risky to seller if remittance is made after shipment; Risky to buyer if remittance
is made before shipment.
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5. Collection
- Collection is a method of effecting payment, under which a seller or his/her bank, in pursuant of
the seller’s instruction, collects payment from the buyer by presenting drafts to the buyer with or
without accompanying
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commercial documents.
- Clean collection: it is a collection without documents
- Documentary collection: it is a collection with documents
- Step 1: The exporter sends the goods and the commercial documents to the importer.
- Step 2: The exporter draws a draft/ bill of exchange and a collection instruction to ask the remitting
bank to help collect the money.
- Step 3: The remitting bank sends the B/E, collection instruction to the presenting bank to ask to
collect the money from the importer.
- Step 4: The presenting bank presents the B/E and collection instruction to the importer to ask for payment.
- Step 5: The importer makes payment against the B/E or refuses to pay, which is subject very
much to the goodwill of the importer.
+ In case the importer agrees to pay, he shall sign the B/E (at sight or usance B/E).
+ In case the importer disagrees to pay, he shall reply by a refusal.
- Step 6: The presenting bank sends funds or refusal to the remitting bank.
- Step 7: The remitting bank sends funds or a refusal to the importer.
5.1.2 Application
- This method of payment is used only when the seller has a high degree of trust to his buyer or it is
used in in- house relationship (E.g.: between parent company and subsidiaries)
- When the amount is not so significant, for payment of services (freight charge, insurance fee,
commissions…)
5.1.3 Advantages and
disadvantages Advantages:
- Simple procedures, low
fees. Disadvantages:
- Banks act simply as an intermediary, no guarantee for payment to seller.
- Slow speed of payment process.
- Risky to seller as payment is subject to buyer’s willingness.
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5.2.1 Procedures of payment by documentary collection
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Practices
Practice 1. Read the text about international payment and use the words in the box to complete the
gaps. Methods of Payment in International Trade
Open Account
An open account transaction is a sale where the goods are shipped and delivered 3
payment is due, which in international sales is typically in 30, 60 or 90 days. Obviously, this is one of
the most 4 options to the importer in terms of cash flow and cost, but it is consequently one of
the highest 5 options for an exporter.
Consignment
Consignment in international trade is a 6 of open account in which payment is sent
to the exporter only after the goods have been sold by the foreign 7 to the end customer.
Clearly, exporting on consignment is very risky as the exporter is not guaranteed any payment and its
goods are in a foreign country in the hands of an 8 distributor or agent. Consignment helps
exporters become more 9 on the basis of better availability and faster delivery of goods.
Cash-in-Advance
acceptance, available , avoid, collecting, draft, entrusts, ownership ,payment,
Documentary Collections
A documentary collection (D/C) is a transaction whereby the exporter 13 the
collection of the payment for a sale to its bank (remitting bank), which sends the documents that its
buyer needs to the importer’s bank (14 bank), with instructions to release the documents to the buyer
for payment. Funds are received from the importer and remitted to the exporter through the banks
involved in the collection in exchange for those documents. D/Cs involve using a 15
that requires the importer to pay the face amount either at
sight (DP-document against 16 ) or on a specified date (DA-document against 17
).
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Practice 2. Read the Bill of exchange below and answer the questions.
Questions:
- The value of the draft is:
- The drawee of the draft is:
- The payee of the draft is:
- The drawer of the draft is:
- This draft was drawn under a letter of credit issued by:
- The beneficiary of this letter of credit is:
Practice 3 Read the Bill of exchange below and answer the questions:
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- Shipment date: 25/9/2018.
- Invoice No. MD123
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Practice 5 Complete the table below with the methods of payment discussed in practice 2
consignment, open account, documentary collection, letter of credit, cash in advance
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A. down-payment B. up-payment C. deferred payment D. usance payment
8. It should be noted that it may be risky to seller if remittance is made shipment; Risky
to buyer if remittance is made shipment.
A. before/after B. after/ before C. A&B are correct D. A&B are incorrect
9. Collection is a method of effecting payment, under which a seller or his/her bank, in pursuant of the
seller’s instruction, collects payment from the buyer by presenting to the buyer with or without
accompanying commercial documents.
A. drafts B. Bill of Exchange C. A&B are correct D. Bill of Lading
10. Documentary collection is a mode of payment in which exporters entrusts banks to collect money
basing on the B/E and the attached commercial documents, and the banks only release the
documents to the
if he/she has paid or accepted to pay for the goods.
A. importers B. buyer C. seller D. A&B
11. In a documentary collection, the banks
A. evaluate the quality of the goods before shipment
B. act as intermediaries in the collection process
D. Dictate the terms
E. Only check the drafts
12. An exporter receives a P/O (purchase order) and payment for 100 kg of knitting yarn. This is an
example of which type of payment option?
A. Cash in advance B. On consignment C. Open account D. Draft or documentary collection
13. If the bank holds shipping documents in custody and delivers them to the buyer upon receipt of
payment, what type of payment term is this?
A.Consignment B. Cash in advance C. Open account D. Documents against payment
14. An exporter receives a P/O (purchase order) for 1000 pullovers and ships the goods and the
documents directly to the buyer after receiving payment for the goods. Which payment option is this?
A. Open account B. On consignment C. Time draft D. Cash in advance
15. An “open account” transaction gives all of the advantages to the
A. Consignee B. Seller C. Bank D. Buyer
16. Identify the payment option(s) which place(s) the seller in the risky position of nonpayment by the buyer.
A. Cash in advance B. On consignmentC. Open account D. B&C
17. What kind of payment option(s) should the seller consider when his/her products are in low demand?
A. Cash in advance B. Open account C. Documentary collection D. Clean collection
18. What payment option(s) should the seller consider when he/she is willing to extend credit to the buyer?
A. Cash in advance B. Sight draft
C. Documents against acceptance (DA) D. Documents against payment (DP)
19. In clean collection, which document below must be presented to a collecting bank by an exporter?
A. Bill of Lading B. Bill of Exchange C. Invoice D. Certificate of Origin (CO)
20. In payment by DP (Documents against Payment), the responsibility of collecting bank is to
A. release shipping documents to an importer on request.
B. control shipping documents until payment is made by an importer.
C. control shipping documents until payment is accepted by an importer
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D. All are wrong.
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Unit 9 Payment by Documentary Credit
1. Introduction of Documentary Credit
Definition: Letter of credit is an arrangement whereby a bank acting at the request of another person or
on its behalf undertakes to pay, or authorizes another bank to pay or negotiate, the sum specified in the
credit to a beneficiary if the beneficiary perfectly fulfils all the terms of the credit.
2. Participating parties
- Applicant: a person/company who requests or instructs a bank to issue a letter of credit.
- Issuing bank or Opening bank: a bank which issues a letter of credit upon the request of the applicant.
- Beneficiary: a person/company in whose favor a letter of credit is issued. It may be the exporter, the
seller or the one nominated by the beneficiary.
- Advising bank: a bank which advises or is authorized to advise a beneficiary of the availability of a
credit and its terms.
- Confirming bank: a bank which guarantees/ confirms the payment of a credit issued by another bank.
In case of non-payment by the issuing bank, the confirming bank assumes the obligation of payment.
Confirming banks are usually banks of good international repute and financial capability.
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decision. If the set of documents are not perfect, the bank shall inform the relevant parties of its
payment refusal.
- Step 8: The issuing bank releases the documents to the applicant so that he can contact the carrier to
take delivery of the goods. The applicant only accepts the documents if they are in strict compliance
with the L/C requirements. Or else, he can refuse the documents.
- Step 9: The beneficiary completes all of the payment obligation with the bank, if any.
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and then opens another documentary credit in favor of the ultimate supplier. The first documentary
credit is used as collateral for the second credit. The second credit makes price adjustments from
which comes the trader's profit.
- Red clause LC: A red clause documentary credit is an obligation on the part of an issuing bank to
guarantee advance payments made by a confirming (or any other nominated bank) to the beneficiary
prior to presentation of documents.
5. Letter of Credit and its associated documentation
The ICC suggests that documents are listed in a certain order:
- Commercial invoice;
- Transport document;
- Insurance document;
- Other documents such as certificate of origin, certificate of analysis, packing list, weight list,
phyto-sanitary certificate, etc.
Practices
Practice 1 Read the text about the features of payment by L/C and complete the missing
information with words given in the box.
beneficiary, bound, claims, compliance, confirming, consistent, documents, honor, independent, obligation,
perfect, promises, request, requirements, separate
Practice 2. Read the text about the procedures of payment by letter of credit, use the words
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given in the box to fill the gaps.
Procedures of payment by letter of credit
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agreement, not, protects, applies, accordance, issuing, beneficiary
(i) The starting point of the letter of credit process is the 1 upon the sales terms between
the exporter and the importer. Then they sign a sales contract. It is important to stress here that letters
of credit are 2 a sales contract. Actually, letters of credit are independent structures from the sale or
other contract on which they may be based. Therefore, it should be kept in mind that a good
sales contract 3 the party, which behaves in goodwill against various kinds of risks.
(ii). After the sales contract has been signed, the importer (applicant) 4 for its bank to issue
a letter of credit. The letter of credit application must be in 5 with the terms of the sales
agreement.
(iii). If the importer and its bank reach an agreement together on the working conditions the
importer's bank (6 bank) issues its letter of credit. In case the issuing bank and
the exporter (7 ) are located at different countries, the issuing bank may use another bank's
services (advising bank) to advise the credit to the beneficiary.
(iv) The advising bank advises the letter of credit to the beneficiary without any 8 to
honor or negotiate. The advising bank has two responsibilities against to the beneficiary. Advising
bank's first responsibility is satisfy itself as to the 9 authenticity of the credit and its second
responsibility is to make sure that the advice accurately reflects the terms and conditions of the credit
received.
(vi) When the goods are loaded, the exporter 15 the documents, which are requested by
the credit and forwards them to the advising bank.
(vii) The advising bank posts the 16 to the issuing bank on behalf of the beneficiary.
(viii &ix). The issuing bank checks the documents 17 to the terms and
conditions of the credit. In addition, the governing 18 , which are mostly latest version
of the UCP are taken into account. If the documents are found complying after the 19 the issuing
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bank honors the payment claim.
(x) The documents transmit to the applicant. The applicant uses these documents to 20 the
goods from the customs.
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Practice 3 Read the following letter of credit and answer the questions
VIETCOMBANK-INTERNATIONAL OPERATIONS
5 Ham Nghi street, Hochiminh City, Vietnam
Dear Sirs:
Authorized Signature
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Unless otherwise expressly stated, this Credit is subject to the Uniform Customs and Practice for
Documentary Credits, 1993 Revision, International Chamber of Commerce Publication No. 600.
Questions:
1. Who is the seller?
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Letter of Credit Documentary Credit Number:
I AB1001
r Expiry Date and Place for Presentation of
r Documents
e Expiry Date: September 30, 2013
v Place for Presentation of Documents: Tokyo,
o Japan
c Beneficiary:
a Japan Trading
b Company 200 Palace
l Street Tokyo, Japan
e Amount:
US$
100,000
Partial Shipments allowed X not Credit available with Nominated
allowed Transshipment allowed X not Bank: Japan Bank Ltd., Tokyo,
allowed Japan
Insurance covered by buyers X by payment at sight
by deferred payment at:
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Shipment as defined in UCP 600 Article by acceptance of drafts at:
46 From: Tokyo, Japan by negotiation
For transportation to: New York, Against the documents detailed herein:
USA Not later than: September 15, - X and Beneficiary’s draft(s)) drawn
2014 on: Japan Bank Ltd., Tokyo, Japan
- X Commercial Invoice in triplicate
- X Bill of Lading in triplicate
- X : Certificate of Origin in triplicate
Documents to be presented within 10 days after date of shipment but within the
validity of the Credit.
We hereby issue the Irrevocable Documentary Credit in your favor. It is subject to the
Uniform Customs and Practice Documentary Credits
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C. an issuing bank confirms its payment to the exporter
D. all are correct
5. In an L/C, the commodity consists of 30 trucks and 15 tractors. This L/C allows partial shipments:
first shipment: 30 trucks; second shipment: 15 tractors. After the first shipment, the exporter presents
the documents for payment, the issuing bank refuses to make payment. In this case, the issuing bank is
.
A. right B. wrong
6. On 10 October, 20--, an Issuing Bank received a Bill of Exchange issued on 1 October, 20--. This Bill
of exchange stipulated: “30 days after sight”. This issuing bank must make payment
A. 30 days from 1 October, 20-- B. 30 days from 10 October, 20--
7. Which L/C below is considered as a sponsorship for an exporter?
A. Irrevocable credit B. Red clause credit
C. Revolving credit D. Irrevocable transferable credit
8. Under UCP 600, if a contract stipulates “Payment is made by an L/C”, which type of L/C
should be understood?
A. Irrevocable L/C B. Confirmed L/C C. revolving L/C D. revocable L/C
9. If in an L/C, there is no stipulations of the time for presenting shipping documents to the bank,
this time understood under UCP 600 is
A. 07 days of working days of the bank
B. 07 days after delivery date
C. 21 days after delivery date
D. 21 days after delivery date but must be within the validity of that L/C
10. The seller is best protected by which of the following payment terms:
A. Open account B. Transferable letter of credit
C. Confirmed, irrevocable letter of credit D. Documentary collection
11. In a letter of credit transaction, the bank deals...
A. Only with the goods, not with the documents B. Only with the documents, not with the goods
C. With the documents and the goods D. With quantity and quality of the goods
12. The exporter is about to close a deal with the importer but he/she does not know the issuing bank
well. So what kind of letter of credit should be opened to satisfy the exporter and minimize the risk?
A. Confirmed B. Revolving C. irrevocable D. Back - to – back
13. In some cases the seller may need some advance payment in order to make the deal possible. An L/C
may assure that certain sums be paid in advance of the presentation of documents and any advance paid
will be deducted from the total credit available when the credit is paid. What sort of L/C is this?
A. Back - to – back B. Confirmed
C. Red clause D. Transferable
14. If you are an intermediary purchasing materials under L/C for resale to a final purchaser, and you
do not want to disclose your source to the buyer, what kind of L/C should you use?
A. Back - to – back B. Red clause C. Revolving D. Confirmed
15. Subject to UCP 600, if in a contract, the parties agree payment by L/C, this L/C must be
understood as L/C
A. At sight B. Red clause C. Confirmed D. Irrevocable
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Unit 10 Negotiating the terms of a Letter of Credit
1. Negotiating the terms of a Letter of Credit
Step 1 Agreement
- Seller and Buyer discuss and list all required
documents. Step 2. Incorporation
- Seller and Buyer incorporate the list of documents into their
contract Step 3. Specification
- Buyer applies for the L/C, specifying all agreed documents
- The bank issues the L/C and send it to the
Seller Step 4. Verification
- Seller checks the L/C to see if the documents are as agreed.
- In case of any discrepancies in the documents, seller should negotiate with the Buyer and the Bank to
correct/ amend the documents.
Step 5. Compliance
- Seller rigorously checks the documents and submits them to the bank for payment
2. Segments in a Letter of
Credit Segment 1: Applicant
- The full name and address of the applicant (buyer), including normally the buyer's account number
with the issuing bank.
Segment 2: Issuing Bank
- The name of the issuing bank. This can be left blank in case of application form of an
issuing bank. Segment 3: Application Date
- The date on which the application form is submitted to the bank. (this should be left open to the
issuing bank) Segment 4: Date and Place of Expiry
- It is the last date for presentation of documents to the bank.
- This should be carefully negotiated. (The buyer shall want an early date to save bank charges; the
exporter shall want enough time after delivery to present the documents and to correct any discrepancies
that might be discovered by the bank.)
- A "stale" (expired) letter of credit shall not be paid without an amendment.
- The place of expiry is often "At the counters of the confirming
bank." Segment 5: Beneficiary
- The full name and address of the beneficiary (usually the exporter) in most cases
- In case of issuing by Teletranmission, the telephone, telex and fax numbers should be
included. Segment 6: Method of Issue
- This is the choice of the Seller: If he wants to get payment right after presenting documents, this will
be used. Segment 9: Amount
Amount
Shipment
- Difference between partial shipments and shipment installments.
+ Shipment in installments: an agreed schedule has been set up (e.g., three equal shipments in
March, August and October 20--.)
+ This schedule should be noted in "Additional Instructions" (Segment 19).
+ Partial shipment is an incomplete shipment with some part of the goods to follow later. - Unless the
buyer has some clear reason for wishing all the goods to arrive together, partial shipment should be
"allowed."
Segment 11: Transshipment
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Credit available with...
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- It is often lest open for the issuing bank to decide.
- If it is chosen by the seller, this is the name of the advising
bank. By sight payment: L/C at sight
By acceptance: L/C after sight
By deferred payment: L/C after
sight By negotiation: Transferable
L/C
Segment 13: Insurance Covered by the Buyer
- For information only, to indicate that the Seller is not required to present an insurance document.
- It is used only when Incoterm rules (other than CIP or CIP) are
used Segment 14: Transport Information
- It should be kept as brief as possible. The complicated the description may lead to a chance of a
discrepancy with some other documents
- Quantities:
+ If tolerance is used, it must be clearly stated. For example: “100MT, 10%more or less.
+ Avoid stipulations such as: “about/
approximately” Segment 16: Incoterms
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- Most buyers fix a maximum time between shipment and presentation.
- If this box is left empty, the UCP (Article 43) automatically allows 21
days. Segment 19: Additional Instructions
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Additional instructions
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3.5 Comparison of international methods of payment
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Practices
Practice 1 Use the words in the box to fill the gaps of the text about the checklist in payment by
Letter of credit below
Letter of Credit
points:
- Are L/C amount and currency (and if applicable the tolerance) in conformity with the 1 ?
- Are expiry place and payment regulations as per contract and if 2 , does the L/C contain
the order to add the confirmation (if required)?
- Are date of shipment, date of expiry and period for 3 of documents calculated sufficiently?
- Do goods description and terms of delivery 4 to the contract?
- Are you able to fulfill L/C conditions 5 transport route, partial shipments and transshipments?
- Are you able to present the required 6 with all clauses/confirmations/legalizations in time?
- In case of CIF or CIP delivery - are you able to get the necessary cover of 7 ?
- Are the conditions concerning who is going to pay the bank commissions and 8 as
per contract?
- In case the ship-owner allows transportation of certain goods only ‘on deck’ - do L/C conditions
permit shipment ‘on 9 '?
- Does the L/C 10 the remark “transferable” if required?
- Is the L/C operative or will the L/C be set 11 subject to fulfillment of a condition which
cannot be influenced by yourselves?
Practice 2 Read the extract of a contract below and complete the L/C application form.
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1.1 Commodity: UREA FERTILIZER
1.2 Origin: INDONESIA
1.3 Specification:
- Nitrogen: 46% min.
- Moisture: 0.5% max.
- Biuret: 1.0% max.
- Color: White
- Free flowing: treated with Anti- Caking.
1.4 Packing: - 50 kg net in Polypropylen Woven bag with polyethylene inner liner - 2% of total bags
as empty spare bags to be supplied free of charge.
ARTICLE 4: PAYMENT
4.1 By irrevocable Letter of Credit at 30 days from B/L date for the full amount of the contract value,
available for the Seller’s draft, drawn on the Issuing bank.
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4.2 L/C Beneficiary: KOLON INTERNATIONAL CORP. 45 Mugyo- Dong, Chung Gu, Seoul - Korea
4.3 L/C advising Bank: KOREA FIRST BANK, Seoul – Korea
4.4 Bank of Issuing L/C: AGRIBANK, Hochiminh City, Vietnam
4.5 Time of opening L/C: within Sep. 15, 20—valid for 30 days from the date of opening.
To: Agribank
With all our obligations we hereby request you to issue your irrevocable L/C for our account in
accordance with the instructions below (mark X where appropriate)
Form of credit
□ Irrevocable □ Transferable □ Confirmed □
Revolving Applicant (full name and address)
Available with :
□ Issuing Bank □ Any Bank □ Nominated Bank
By □ Sight payment □ Negotiation □ Acceptance □ Deferred
payment Percentage credit amount tolerance (If any) :
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Partial shipment: □ Allowed □ Not
allowed Transshipment : □
Allowed □ Not allowed Description of goods
and/or services :
Documents required :
Available by beneficiary’s draft(s) drawn on
at sight for 100 % invoice value.
□ Signed commercial invoice in original(s).
□ Detailed packing list in original(s).
□ Full (3 /3) set of clean ‘shipped on board’ ocean Bill of Lading made out to order of the
Seller, blank endorsed marked ‘ ’ and notify the applicant.
□ Certificate of origin issued by in original(s).
□ Certificate of weight issued by in original(s).
□ Certificate of quality issued by in
original(s). Special conditions :
Period for presentation: Documents to be presented within days after the date of issuance
the transport documents but within the validity of the credit. (21 days unless otherwise stated)
Case 2
- A bank receives documents from a beneficiary of a revocable letter of credit. While the bank is
examining the documents, a notice that the letter of credit has been canceled is received from the issuing
bank.
Question: Will the beneficiary be paid? Why or why not?
Case 3
A seller presents documents to a bank under a letter of credit. The documents comply with the terms of
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the letter of credit. However, the buyer has gone bankrupt and, therefore, will not be able to reimburse
the issuing bank.
Question: Does the issuing bank still have to make payment under the letter of credit? Why or why not?
Case 4
- A seller presents documents to a bank under a letter of credit. The documents comply with the terms
of the letter of credit. However, the buyer claims that the seller has violated the terms of the sales
contract and the buyer instructs the issuing bank not to make payment under the letter of credit.
Question: Will the beneficiary be paid? Why or why not?
Case 5
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A seller presents documents, which are in conformity with the terms of a confirmed irrevocable L/C to
the confirming bank for payment. While the confirming bank is checking the documents, the issuing
bank declares to be bankrupt, which means that it will not reimburse the confirming bank the payment.
Question: Will the beneficiary be paid? Why or why not?
Practice 6. Use the following date to complete the Bill of Exchange below
On 01/09/20--, NMD Co.Ltd (Add: 123 Nguyen Tat Thanh, Buon Ma Thuot City, Daclak Province)
completed their delivery of the shipment of coffee, to an Importer, Pacific Co. (Add: 26 Greenfield
Street, Bankstown, NSW 2200, Australia). Place of delivery is Saigon Port, Hochiminh City, Vietnam.
Payment is made by confirmed Irrevocable Letter of Credit No. 13482LQ, at 30 days sight from the
date of the Bill of Lading, valued at 78,000 USD through City Bank (confirming bank). Issuing bank
is Sydney Commercial bank. Beneficiary is PTH Co.Ltd.
One week after delivery date, ABC Co. issued a Bill of Exchange to ask the importer for payment.
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Unit 11 The formation and structure of an international sale contract
1. The contract formation
- A contract = express provisions (provisions stipulated in the contract) + implied provisions
(provisions by applicable law)
- A contract can be formulated in the following ways:
A contract = offer + acceptance of the offer
A contract = older + confirmation of the order
- Form of a contract: a contract may be in writing or verbal.
2. The legal framework
- On negotiating the legal framework, the parties should consider the three legal issues namely the
choice of (1) an applicable law, (2) the enforceability of their contract, and (3) the status of a contract
2.1 Choosing an Applicable
Law Systems of law:
- “Continental” law or Civil Law: codified Law
- “Anglo-American” Law or Common Law: Case
law The choice of law in a contract
A specimen clause:
This Contract, and all questions relating to its validity, interpretation or performance shall be governed by the
law of Vietnam.
The Vienna Sales Convention
- The United Nations Convention on Contracts for the International Sales of Goods (Vienna Sales
Convention) is formed to replace the application of the parties’ national law.
- In case, the parties do not want to apply the Vienna Convention, the following wording should be
incorporated into their contract.
This Contract, and all questions concerning its validity, interpretation and the performance shall be governed
by the law of Vietnam. This Contract shall not include, incorporate or be subject to the provisions of the
“United Nations Convention on Contracts for the International Sale of Goods.”
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- Rescission
- Impossibility and Frustration
Termination: termination for convenience and termination for default.
Termination for Convenience of the Buyer:
The delivery of Goods under this contract may be terminated by the Buyer in accordance with this clause in
whole, or in part, whenever the Buyer shall determine that such termination is in his best interest. Any such
termination shall be effected by delivery to the Seller of a Notice of Termination specifying the extent to which
supply of Goods under the contract is terminated, and the date upon which such termination becomes effective.
Termination for default:
Termination for Default
The Buyer may by written notice of default to the Seller, terminate the whole or any part of this contract
in any one of the following- circumstances:
(i) If the Seller fails to make delivery of the Goods within the time specified herein;
(ii) If the Seller fails to perform any of the other provisions of this contract, or so fails to make
progress as to endanger performance of this contract in accordance with its terms, and in
either of these two circumstances does not cure such failure within a period of 10 days.
- This wording means that the present Contract is made and entered into in Hochiminh City on this 15
May 20... by and between...
- The place of entry into a contract helps to identify an applicable law. If the applicable law is not
specified by the parties, it is the law of the country where the place of signature will be applied to the
contract.
- Unless otherwise agreed by the parties, the contract shall come into force at the time of signature.
3.1.2 Identity and addresses of the parties
- Names of the parties to the contract, including their full name and transaction name, address,
telephone and fax, email, and representatives who have the signatory power, account No. and banks
concerned in payment should be specified.
3.1.3 Background information
- This section indicates the reasons for which the parties wish to conclude their contract, which may
stipulate the interest of the parties, previous agreements, the expertise and the desire of the parties.
For example:
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Example:
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- “Contract” means this Contract, its preamble and appendices, as well as all documents expressly listed as
Contract documents or otherwise expressly mentioned in this Contract.
- “Goods” means the Goods specified in Clause 4 below.
- “Price” means the Price as specified in Clause 9 below payable to the Seller for the Goods.
Practices
Practice 1. Complete the following text about the legal framework of a contract by using the
words given in the box.
agreement, circumstances, dispute, enforceability, enforceable, entire, framework, goodwill, lifetime, nature
A contract is not merely a list of ideas agreed by the exporter and the buyer during
negotiation: it is an 1 , legal instrument. The two parties ignore the legal dimensions of the contract
at their peril.
On negotiating the legal 2 , the parties should consider the three legal issues namely
the choice of (i) an applicable law, (ii) the enforceability of their contract, and (iii) the status of a
contract
The first question about the legal framework of the contract is always: what law have the two
sides chosen to fill the gaps in their 3 (the choice of applicable law). Then the question arises: is
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the document the parties are signing really a contract, or is it just a piece of paper (the 4 of the
contract)? If it is a contract, is it the 5 agreement? And if it is the entire agreement, how do
the two sides ensure that it includes everything they want it to include (the entire agreement)? Once
the full legal 6 of the contract is established, it is time to turn to the parties signing it. Are the parties
all they
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seem to be? And will they remain the same during the 7 of the contract (the identity of the
legal parties)?
Good relations usually prevail during the negotiation of a contract. Later, however, things can go
wrong. A good contract allows for this by foreseeing 8 under which the parties might wish to end
their agreement (the legal status of the contract). If a 9 arises, some means, of settling things
should be agreed beforehand; that way at least some 10 might be preserved and the cost of the
dispute minimized (Settlement of disputes).
Practice 2 Read the text of “Contract formation” below and complete the missing information with the
words given in the box.
capacity, combination, dispute, enforceable, essential, exchange, express, illegality, rejection, subject, terms,
writing.
Under the common law, a promise becomes an 1 contract when there is an offer
by one party (offeror) that is accepted by the other party (offeree) with the 2 of legally
sufficient consideration (a gift or donation does not generally count as consideration); hence the equation
learned by law students: offer + acceptance + consideration = contract. The law regards a
counter offer as a 3 of the offer. Therefore, a
counter offer does not serve to form a contract unless, of course, the counter offer is accepted by the
original offeror.
For a promise to become an enforceable contract, the parties must also agree on the 4
terms of the contract, such as price and 5 matter. Nevertheless, courts will enforce a
vague or indefinite contract under certain circumstances, such as when the conduct of the parties, as
opposed to the written instrument, manifests sufficient certainty as to the 6
of the agreement.
An enforceable agreement may be manifested in either written or oral words (an 7
contract) or by conduct or some 8 of conduct and words (an implied contract). There
are exceptions to this general rule. For example, the Statute of Frauds requires that all contracts
involving the sale of real property be in 9 .
In a contractual 10 , certain defenses to the formation of a contract may permit a
party to escape his/her obligations under the contract. For example, 11 of the subject
matter, fraud in the inducement, duress and the lack of legal 12 to contract all enable a party to attack
the validity of a contract.
Practice 3 Read this status-of-the-contract provision and assume the contract says nothing else
about language.
Copies of the Contract
Two copies of this Contract, one in English and one in Vietnamese, have been, signed by both parties. Each
party retains one copy in each language.
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2. Why do you think the two sides accepted it?
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Practice 4. Study the case below and answer the questions
ABC Co. a Vietnamese company, makes leather carrying cases for cameras, lap-top
computers and other hi-tech personal equipment. It has successfully exported one consignment of its
products to Japan, but it has otherwise sold mostly in the local market. A. buyer in the United States is
interested in making a large purchase. During the negotiations, the American buyer mentions the
whereas-recital and offers the wording he wants to include in the contract. Read it and then answer the
questions.
Whereas ABC Co. has a highly trained workforce and the most modern leather-making machinery;
And whereas ABC Co. has wide experience is supplying products to all parts of the world;
And whereas ABC Co. is fully familiar with regulations regarding import of leather goods into the United
States;
The parties hereby agree...
1. Why does the American buyer want this wording in the recital?
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Unit 12 The Exchange of rights and duties
1. Scope of supply
- Scope of supply refers to the clauses of commodity, quality, quantity, packaging and marking.
1.1 Commodity
The principal format:
Trade name + scientific name/origin/name of manufacturer/brand name/major content/usage
Examples:
- Frozen black tiger shrimp - Pennnues Monodon
- Dalat wine, Bordeaux wine
- Honda motobike, Matshushita washing machine, Motobike Future brand
- Urea fertilizer, nitrogen 46%
- Cereals as food for human consumption
1.2 Quality and
Specifications Sale by
sample
“The specifications shall be about as per sample No. 12FTS approved by both sides on 01/04/20…, sealed and
signed by both parties; such sample forms an integral part of this contract. The samples are made into three (3)
versions, to be preserved by Seller, Buyer and The Vietnam Superintendence and Inspection Joint Stock
Company (VINACONTROL) as basis for dispute settlement. Parties shall preserve these samples until the
stipulated limitation of claim expires.”
Sale by national category or standard
- In accordance with TCVN 4193:2001 Vietnamese coffee
standard Sale by specifications
E.g. sale of furniture
Love set wooden furniture
01 table (1.150 x 610 x 840) mm
01 lounge armchair (1.040 x 600 x 450) mm
02 love armchairs (590 x 610 x 840) mm
Sale by commonly accepted trade
criteria
- FAQ (Fair Average Quality):
- GAQ (Good Average Quality): GAQ is a level of quality which is higher than FAQ.
- GMQ (Good Merchantable Quality): GMQ is the level of quality acceptable to common
customers in the market.
Sale by major contents of the product
E.g. Sale of rice
Broken: 10% Max
Moisture: 14% Max
Chalky grain: 7% Max
Damaged grain: 0.5% Max
Yellow grain: 01% Max
Foreign matter: 0.2 Max
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Sale by “As is/seen”
E.g.: The Goods shall be supplied on the basis of “As
is/seen” Sale by “Inspected and approved”
E.g.: The Goods shall be supplied on the basis of “inspected and approved” by the Buyer”
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Sale by technical
documents E.g.
“The Goods specifications shall be in conformity with Technical Document No…, signed by both parties
attached herein. This document shall serve as an integral part of the present contract.”
1.3 Quantity
Unit of measurement
Quantity: 500 sets of computers, each includes 1 CPU, 1 monitor, 1 keyboard, 1 mouse and 2 speakers.
Shipping Marks
E.g.:
On the surface of each package delivered under this Contract shall be marked: the package number,
the measurements of the package, gross weight, net weight, the lifting position, the letter of credit
number, the words RIGHT SIDE UP, HANDLE WITH CARE, KEEP DRY, and the mark: DNP/36/Q
(iii) Payment by DP
Payment shall be made by D/P, telegraphic transfer immediately on the receipt of the shipping documents from
Eximbank Vietnam, Hochiminh City branch. Total value of the contract is transferred to the account of the
seller, number …. at Eximbank.
The collecting bank: Rabobank Landgraaf, Bangkok, Thailand, address :….
Documents required shall include:
+ Clean Bill of lading, on board, mentioning freight prepaid.
+ 3 originals of Commercial Invoice.
+ 3 originals of Packing List.
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3.1 Date of delivery
3.1.1 Specific time
- Fixed date: Delivery shall be made on August, 20--
- A period of time: Delivery shall be made not later than May 10th, 20--/ in
September, 20— Notes:
- Under UCP 600 (ICC), unless required to be used in a document, words such as "prompt", "immediately"
or
"as soon as possible" will be disregarded.
- The expressions "on or about" or similar: 05 calendar days (both start and end dates included)
- The words "to", "until", "till", “from” and “between” include the date or dates mentioned
- The words “before” and "after" exclude the date mentioned.
- The words “from” and "after" exclude the date mentioned.
- The terms "first half" and "second half" of a month shall be construed respectively as the 1st to the
15th and the 16th to the last day of the month, all dates inclusive.
- The terms "beginning", "middle" and "end" of a month shall be construed respectively as the 1st to
the 10th, the 11th to the 20th and the 21st to the last day of the month, all dates inclusive.
3.1.2 Unspecific time
- “Delivery shall be subject the to availability of the vessel or vessel’s space”
- “Delivery shall be made 21 days after the date of the L/C”
- “Delivery shall be subject to the availability of import/export license”
3.2 Place of delivery:
Subject to the use of a rule under Incoterms:
- a fixed place: Saigon port, HCM City, Vietnam
- or an optional place: Main port of Japan
3.3 Advice of Delivery
Under F-Rules: Buyer must send an advice to seller about the particulars of the vessel/ vehicle: ETA,
ETD, vessel’s name/tonnage….
Under C or D rules: Seller must send 02 advices to buyer
- Pre-delivery advice: information about the readiness of goods, and shipment particulars and
delivery instructions.
- After delivery advice: Information about the result of delivery, actual quantity of goods shipped,
particulars of goods, bill of lading (B/L) No., the estimated date of departure and arrival of the
vessel/vehicle.
3.4 Other stipulations relating to delivery
- Partial shipment: allowed or not allowed.
- Transshipment: allowed or not allowed
- Stale bill of lading: acceptable (in case the arrival of documents is later than that of goods).
- Third party B/L: acceptable; it is used when the shipper is not the
seller. For example:
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Delivery
- Time of delivery: August 20th 20…
- Place of Delivery
+ Port of Shipment: Yokohama Port
+ Port of Destination: Saigon Port
- Delivery in one lot, transshipment not allowed
- Advice of Delivery
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+ First time: 10 days before the expected date of delivery, the seller shall notify by fax the availability of the
goods for delivery, including: Commodity, Quantity, Specification, Packing, Marking.
+ Second time: 7 days after receiving NOR, the buyer is to inform by fax the vessel sent, including: vessel’s
name, nationality, flag, carrying tonnage, ETA.
+ Third time: After delivery, the seller notify by fax the delivery, including: Commodity, quantity, specification,
packing, markings, vessel’s name, nationality, vessel’s flag, carrying tonnage, B/L No., ETD, ETA.
- Stale B/L acceptable.
Practices
Practice 1. Read the clause of “Delay in delivery” below and decide if the statements are True or False
Delay in delivery
(a) If the Seller fails to meet the ETD of any shipment as specified in the Schedule, the Seller must immediately
give the Buyer a written notice of such delay and shall use all reasonable endeavors to ensure that such
shipment will meet the relevant ETA.
(b) If any shipment is delayed beyond the relevant ETA as specified in the Schedule through the Seller’s sole
fault, the Seller shall at its own costs use all reasonable endeavors acceptable to the Buyer, including but not
limited to the use of another sources of supply and/or the use of alternative methods of transportation (such as
airplane), to ensure that the arrival of the delayed Commodity at the Port of Destination shall be no later than
ten (10) days as from the agreed ETA.
(c) In case the Seller has failed to cause the delayed Commodity to arrive at the Port of Destination within the
period of ten (10) days as mentioned in Article 1.3(b), the Buyer shall, at its own discretion, be entitled to:
(i) Request the Seller to indemnify and hold the Buyer harmless from and against all losses, damages, costs
and expenses suffered by the Buyer as a direct result of such delay of shipment, including but not limitation to
the transportation cost, price discrepancy in case the Buyer purchases the Commodity from other sources of
supply; and
(ii) Impose the Seller a penalty at the amount of eight percent (8%) the total value of the Contract; and
(iii) Unilaterally terminate the Contract or a part of the Contract by a written notice with immediate effect,
without being liable to the Seller for such termination.
Questions:
1. In case the seller does not make due delivery as specified in the Schedule, he must immediately
give the Buyer a written notice of such delay.
2. The Seller is liable for any delay in shipment for whatever reasons.
3. In case of delay in delivery by the seller due to his fault, the Seller shall replace the Goods
supplied and make sure that the replaced goods must reach the port of destination no later than 10
days from the agreed ETA.
4. In case of delay in delivery by the seller due to his fault, the Buyer is entitled to buy the
Commodity from another supplier, and all the differences in prices shall be for the Seller’s account.
5. All losses, damages, costs and expenses arising from delay, except freight charge shall be for the
Seller’s account.
6. If American law is applied to this contract, the fine for delay stipulated in this contract is allowed
7. The Buyer is entitled to discharge this contract without any prejudices to his rights and duties in
case the replaced goods fail to arrive at destination 10 days from the date stipulated in the Schedule.
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Practice 2 Read the clause of Payment and Documents of a sale contract below and decide if the
statements are True or False.
ARTICLE 5: DOCUMENTS
5.1 The Seller shall make available to the Buyer or shall present to the bank specified by the Buyer the
following shipping documents (the “Shipping Documents”):
Required
Name of shipping Date of number of
No. Mandatory content Issued by
document issuance originals/
copies
Signed Commercial As actual Three (03)
1 Invoice The Seller date originals
Marked "Freight
Prepaid", consignee
and notify party Three (03)
2 Bills of Lading The Carrier …
“ABC Co., address originals
No.XXXXX
, HCMC, VIETNAM”
Signed Detailed Three (03)
3 … The Seller …
Packing List originals
One (01)
The
4 Quality Certificate original +
Manufacturer One (01) copy
Quantity/ Weight One (01)
5 certificate at loading The Seller original +
port One (01) copy
the Chamber of
Commerce or One (01)
Certificate of
Competent original +
6 Origin (FORM D
Authority of Two (02)
for goods from
manufacturing copies
Thailand) country
One (01)
Certificate of The
7 … … original +
Analysis/ Manufacturer One (01) copy
Conformity
covering "All risks" One (01)
Valid Insurance for 110% of invoice Reputable
8 … original +
policy/certificate value claim payable in insurers One (01)
Vietnam copy
5.2 Within three (03) days as from the date of the bill of lading (B/L), the Seller shall be obliged to send
all documents mentioned in Article 5.1 in soft copies to the Buyer via the following email address
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(XXXXXX)
5.3 Within seven (07) working days as from the date of the bill of lading (B/L), the Seller shall be
obliged to send the originals of the Shipping Documents as mentioned in the Article 5.1 to the bank
designated by the Buyer.
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5.4. If the Seller fails to send the originals of the Shipping Documents within the period as set out in
Article 5.3, the Buyer shall have the right to delay the payment of any amount payable and due under
this Contract for a number of days in correspondence to the total days delayed by the Seller in sending
the required Shipping Documents. Additionally, the Sellers shall pay all fees and/or charges, including
but not limited to demurrage, detention and storage fees that the Buyer may suffer as a result of such
delay in accordance with Article 9.2.
9. Delay in sending the documents by the Seller will result in delay in making payment by the Buyer.
Questions:
1. Payment is made by T/T within 60 days from the shipment date for 100% value of each shipment.
2. The commercial invoice is required to be signed and made in triplicate by the manufacturer.
3. If the Seller presents the Bill of Lading “marked freight to collect”, the buyer is entitled to refuse
to make payment to him.
4. ABC Co. is the shipper of the goods.
5. The Certificate of Origin FORM D must be issued by the Chamber of Commerce only.
6. The insurance policy/certificate must indicate the goods are coved “all risks” for 100% invoice value.
7. The buyer wants the presented insurance policy/certificate to be issued by a reputable insurer
because it will be easier and less risky in making claim for compensation in case of damage or loss to
the goods in transit.
9. The time for sending the Shipping Documents by the Seller to the bank for payment is seven business
days.
8. The time for the Seller to send all the originals shipping documents to the Buyer is 03 days from
the date of the bill of lading.
10. In case of delay in sending original Shipping documents stipulated in Article 5.3, all costs,
demurrage, detention and storage fees shall be for the Seller’s account.
Practice 3
As a Vietnamese seller, read the clauses of a contract for the sale of rice below, and point out the
shortage and risk elements to the seller. Then, correct such clauses so that they are full and
complete and risk-free to the seller.
- Commodity: Rice
- Quantity: 10,000 Tons
- Unit price: 410 USD / Ton HCM city port
- Shipment: First shipment: End of Sep., 20--; second shipment: End of October., 20--
- Payment: D/A 180 days after shipment date.
Practice 5
As a Vietnamese buyer, read the clauses of a contract for sale of Hot rolled steel Plates and point
out the shortage, risks to the buyer. Then, correct such clauses so that they are full and complete and
risk-free to the buyer.
Commodity: Steel
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Quantity: 450MT
Unit price: USD 890/MT Saigon port
Delivery: 180 days after receiving L/C
Payment: By irrevocable confirmed L/C, at sight with TTR
Unit 13 The legal provisions in a contract
The legal provisions for execution include all clauses referring to the legal issues namely:
- Applicable law
- Breach of contract
- Settlement of disputes
- Defect liability: Guarantee/Warranty
- Partial validity
- Contract as an entire agreement
- Assignment of rights and duties
- Notices
1. The choice of an Applicable Law in a
contract The principle:
- Parties should agree an applicable law before drafting a contract. Without a defined applicable law, the
parties may write unenforceable provisions.
- Parties usually wish to apply their respective law into their contract because they will find it
easier to understand their rights and duties
- If parties leave the question of applicable law open, arbitrators/judges will decide which law to be applied.
Specimen clause:
This Contract and all questions relating to its formation, validity, interpretation, and application shall be
governed by Vietnamese Law
The Supplier warrants that each Item supplied under this contract (and each part thereof) shall at the date of its
acceptance:
(i) be free from defects in material
(ii) be free from defects in workmanship including but not limited to all manufacturing processes
(iii) be free from defects inherent in design including but not limited to selection of materials, and be fit for the
purpose for which the Item is normally used.
If any defect or deficiency is discovered in the Item or in any part thereof, then the Supplier shall either repair
or replace such item or rectify such deficiency.
The warranty above is subject to the Purchaser having adhered to the procedures or instructions applicable to
the use, storage, installation or operation of the Item and expressly excludes all damage arising from wear and
tear to the Item in normal use.
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2.1 Defect liability period
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price. A typical clause for corrective
action:
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In the event of a defect coming to light and being notified to the Seller, the Seller shall, without undue delay,
make good the defect at his own risk and cost and at his discretion in one of the following ways:
a. Repair the defective item;
b. Allow the Buyer, or a third party appointed by the Buyer to repair the defective item at the Seller's cost;
c. Replace the defective item;
d. Reduce the contract price;
e. Allow the Buyer to return the defective goods and refund all sums paid for the goods.
Specimen clause:
Liquidated damages
In the event of late Delivery for reasons other than force majeure as defined in Clause 17 below, the SELLER
shall pay as liquidated damages and not as a penalty 157
the sum of 0.5% of the value of the undelivered part per
Day of late Delivery up to a maximum of 8% of the Price payable under Clause 9 below. Payment of liquidated
damages shall be due without the Buyer having to furnish proof of any loss, damage or injury.
3.2 Limitation of liability
Four ways that can make a contract safe:
- The ceiling (are any liability unlimited?),
- Roadblock (What special risks should be limited)?
- Iron curtain (How can the exporter limit the effect of the applicable law?) and
- Signposts (How can the exporter limit the effect of third-party actions?
- Ceilings are often set for a particular time; in this case guillotine is perhaps a better word. The
"fiction" of delivery in accordance with the contract is a time-ceiling favored by many exporters:
Notification of Defects
If within twenty-one days of receipt of any consignment from the Seller, the Buyer does not notify the Seller that
the consignment is defective and submit samples as evidence of defect, then the consignment shall be deemed to
comply in all respects with the specifications and the Buyer shall forego all right to reject the consignment.
- Sometimes the defects liability provision also contains a guillotine—after the end of the defects
liability period, the buyer can raise no claims of any kind against the exporter.
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The duty to repair and replace or otherwise to make good defects is the only duty of the Seller in the event of the
delivery of defective goods. In particular the Buyer shall not be entitled to compensation from the Seller for any
indirect loss or damage arising from or in connection with delivery of defective goods.
Notes: Each individual contract encounters different risks arising perhaps from:
- The nature of the product;
- The means of transport;
- The market situation;
- The economic or political situation in the exporter's or the buyer's country.
3.2.3 The Iron Curtain
- Setting the total liability.
Comprehensiveness
The rights and duties provided for in this Contract are the only rights and duties existing between the parties,
and all further rights and duties, be they under this contract or otherwise, are hereby
expressly excluded.
3.2.4 Changing the Road signs
- Sellers or buyers may put their duties into a third party.
Taxation
All income taxes, value added. .taxes, customs duties, excise charges, stamp duties or other fees levied by any
government, governmental agency or similar authority shall be borne exclusively by the party against whom
they are levied.
- To this, the seller tries to add a so-called indemnification:
However, in the event that the government of the Buyer's country levies income taxes or value added taxes
against the Seller, then the Buyer shall compensate and hold harmless the Seller against such levies.
Again the buyer is unlikely to accept such a clause readily. However, if the buyer has product
liability insurance—as is the case with many importers in developed countries—negotiating an
indemnity clause is always possible, though the exporter must be ready to adjust his price.
In conclusion
The exporter tries to limit (or exclude) liability wherever possible. The table below shows the
areas where the exporter is most at risk and actions he will try to take to reduce his liability to a
foreseeable figure.
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DELIVERY DEFECTS TOTAL OTHER TERMINATION
LIABILITY LIABILITY
Define what Define what If possible, Search for other Limit termination
counts as delay counts as a pass the buck danger areas for default to
with an
and what does defect and indemnification closely defined
not what does clause situations
not
Define excusable Limit duties to Try to limit your Define the Ensure that
delay, especially repairing or total liability to danger and you will be
force majeure replacing . your insurance write a clause paid for work
goods with coverage that limits or performed up
latent defects excludes liability to the date of
termination
Try to get a grace Exclude liability Try to
period for exclude
consequential payment of
loss or damages if
damage termination
Try to exclude other remedies is allowed
if
damages are paid
SET A CEILING
ADD AN IRON CURTAIN
“All rights and duties not expressly included are excluded”
4. Settlement of disputes
4.1. Approaches to settlement of
disputes The principle
- If parties do not specify a clear and detailed procedure for settling their disputes, this will make such
disputes unnecessarily bitter.
- If a contract says nothing about the settlement of disputes then the courts will decide how such
disputes will be settled.
Common approaches:
- Amicable settlement
- Conciliation
- Arbitration
- Litigation
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Decision is
enforceable
Time-saving
Cost-effectiveness
Confidentiality
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The Purchaser and the Supplier shall make every endeavour to resolve amicably by direct, informal negotiation
any disagreement or dispute arising between them under, or in connection with the Contract.
(2) Conciliation
Procedures of
conciliation:
- Conciliation (or mediation) require a third party, a conciliator (or a mediator), trusted by both
parties to sit down with them and try to reach an agreement.
- The mediator has no authority to impose a settlement or to make a judgment
- Proceedings of conciliation are short and informal; if there is goodwill on both sides, the chance
of a fair solution is high.
Specimen clause
Procedure for amicable settlement shall be as follows:
a. The parties shall agree a date and place for an amicable settlement meeting;
b. Attending the meeting shall be one executive representing each party and one lawyer representing
each party;
c. The lawyers shall not be allowed to speak at the meeting;
d. The meeting shall take place in three sessions. In the first session, each party shall state its position on the
subject of the disagreement. In the second session the parties shall suggest ways of resolving the disagreement.
In the third session the parties shall attempt finally to resolve the disagreement.
In the event that the parties fail to resolve their disagreement amicably, they shall proceed to arbitration on the
terms specified hereinafter.
(3) Arbitration
- When negotiating the arbitration clause of a contract, four practical questions should be settled by the
parties: Number of arbitrators, place of arbitration, the language of the court, allocation of arbitration
fees.
- To avoid the confusion of different legal provisions, the parties should agree that the arbitral award is
binding and rule out further appeal.
Specimen clauses
"All disputes arising out of or in connection with the present Contract shall be finally settled by VIAC
(Vietnamese International Arbitration Centre) in Hochiminh city, Vietnam. The Rules of VIAC shall apply, the
number of arbitrators shall be appointed in accordance with the said Rules."
Or
Any dispute, controversy or claim arising out of or relating to this Contract, or the breach, termination or
invalidity thereof, shall be settled by arbitration in accordance with the UNCITRAL (United Nations
Commission on International Trade Law) Arbitration Rules at present in force.
The number of arbitrators shall be three. The place of settlement of disputes shall be The language used by
the court in the settlement of disputes shall be English. In the event of arbitration, each party shall bear its own
costs. Both parties agree to accept the award of the court of arbitration as final and binding on them both, to
the exclusion of all other remedies.
(4) Litigation
- Litigation is the most complicated, time-consuming, costly and public disclosed.
- Its decision is legally binding, it is, therefore, required to be put into a contract as the final
settlement of disputes in case other ways prove impossible.
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Specimen clause:
All disputes, conflicts or discrepancies arising out of this Contract, which cannot be settled by amicable
negotiation, shall be referred to the Economic Court of Hochiminh City, Vietnam for final settlement.
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5. Contract as an entire
agreement Aims of the entire
agreement clause:
- To avoid confusion of different legal system
- To the effect that all documents that predate the contract become invalid when the contract is signed, or
- To indicate the entire agreement replacing all earlier agreements.
Entire agreement
“This Contract constitutes the entire agreement and understanding between the parties. There are no
understandings, agreements, conditions, reservations, or representations, oral or written, that are not embodied
in this Contract or that have not been superseded by this Contract.”
6. Partial invalidity
The aims of the “Partial invalidity” clause are:
- To keep as much of the contract intact as possible
- To ensure that most of the contract remains secure even if one part is found to be invalid.
- The invalidity of one part of the contract does not invalidate the
rest. Specimen clause
“If any provision or provisions of this Contract are invalid or become invalid, then this shall have no effect on
the remaining provisions. Further, the parties agree to replace any invalid provision with a new, valid provision
having, as far as possible, the same intent as the provision replaced."
Practices
Practice 1 Complete the text by using the words given in the box below
accusation, amount, contract, covers, defective, defects, inferior, latent, materials, missing, obvious, patent
rejected, serious, warranty
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Inspection and defect liability
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The purpose of this inspection is clear, if goods are 1 , the buyer has the right to
reject them and to cancel the 2 Inspection discovers any apparent (or "patent") defects, for
example: wrong items, broken or 3 parts, scratches, and so on. The defects liability period allows a
defined 4 of time for hidden (or "5 ") defects to come to light, for example: structural
weaknesses, failure to operate at high or low temperatures, high fuel consumption, and so on.
The exporter is liable for 6 in his products—but the word defects needs analysis.
What is a defect? And what ability for defects must the exporter accept?
A 7 protects both the exporter and the buyer. The exporter is protected
against an 8 of breach of contract if goods are provably 9 on the date of delivery. Defects
are of three kinds: workmanship, 10 , and design. Failure to meet specifications is a design
defect. Problems caused by misuse or wear and tear are not defects.
A defects liability provision (or warranty) puts into words what everyone knows: not all products
are perfect on delivery. Accordingly, the warranty 11 defects that are present at the moment of
delivery. Normally quality control prevents products with 12 defects from
leaving the factory: in the next step, products with obvious or “13 ” defects are identified during
open package inspection and 14 . The defects that give rise to the most 15
problems between exporter and buyer are hidden or latent defects.
1. What arguments are the two sides likely to put forward in negotiating the warranty (defects liability)?
2. Which side do you think is "in the right"?
Practice 3. Study this clause from a consultancy contract and answer the questions
Penalty
166or in part, he shall pay a penalty to the Ministry. For
(1) If the Consultant fails to fulfill the contract, in whole
each full week of delay, the penalty shall be 0.5% of the value of the outstanding portion of the performance; the
total, however, shall not exceed 8%.
(2) If the Ministry is entitled to claim damages due to the delay, any penalties paid under this clause shall be
taken into account.
Questions:
1. Is there a ceiling on the penalty to be paid by the Consultant if he is in delay?
2. If the consultant pays the penalty, can the Ministry also sue him for compensatory damages?
3. If the answer to (b) is “Yes,” can the Ministry claim payment in full both of the penalty and
of the compensatory damages.
4. Is this clause dictated by a strong Consultant (Seller) or by a strong Ministry (Buyer)?
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Unit 14 Making arrangement for performing an international sale contract
The following table shall illustrate the steps which an exporter and importer shall perform when
dealing with an International sale contract:
1 Ask for export license (if required) Ask for import license (if required)
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3. Examining the quantity and quality of goods
- Sanitary inspection
- Government inspection of imported and exported goods
The examination is conducted to guarantee that the goods are of quality in conformity with the contract
and are packed in the manner required by the contract. If the goods ate plants and animals, it is advisable
to invite a competent agency to conduct phyto-sanitary and veterinary inspection.
Examine the quality of the exported goods
The examination of product quality is conducted in two levels as follows:
+ In the company, quality control department or quality assurance department conducts the processes of
quality control in compliance with international standards like ISO, HACCP etc.
+ In the independent inspection agency, the process of sampling, inspection and issuing inspection
certificate is applied.
- On receipt of the goods, if any apparent loss or damage comes to light, businesses must prepare the
following documents:
Survey Report
Report on Receipt of cargo -
ROROC Cargo outturn Report-
COR Certificate of short-landed
cargo-CSC
- For non-apparent loss or damage, a letter of reservation (LOR) must be prepared.
- If the goods insured prove to be damaged, it is advisable to invite a representative from an insurance
agency to make out a Survey Report.
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- Export license (for the goods banned from export or exported under conditions) 1 original
- Entrusted export contract (for entrusted export): 1 copy
- A list of consumption of raw materials (for processed goods and the goods produced for export) 1
original Customs formalities for imported goods
The following documents are required:
- Customs declaration form: 2 originals
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- Sale contract: 1 copy. (It is unnecessary in case of export of the goods through borders)
- Commercial invoice: 1 original and 1 copy
- Bill of lading: 1 copy
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Unit 15 Making and taking delivery of imports and exports
1. Making delivery of exported goods
- Prepare documents and the goods for delivery
- Transport the goods to port of shipment
- Obtain Bill of Lading
- Make out necessary documents and
reports For bulk goods
- The shipper makes out a cargo list and sends it to the carrier
- The carrier gives a stowage plan to the shipper and Port Coordination Center
- The shipper contacts the Port Coordinator Center to know when the goods are to be shipped on
board the vessel.
- The shipper gets Mate’s Receipt
- The shipper approaches the carrier to exchange the Mate’s Receipt
for B/L For containerized goods
(1) Full container load (FCL)
- The shipper on acting on his behalf fills in a booking note and sends it along with a cargo list to the
carrier for signature.
- The shipper receives an empty box delivery order from the carrier.
- The shipper takes an empty container to his own place for packing and invite customs officers or
inspectors (if any) to supervise the packing process. Afterwards, the container shall be sealed by the
customs officer.
- The shipper hands over the container to the carrier at Container Yard (CY) before closing time
of each shipment (usually 8 hours prior to stowage) and gets Mate’s receipt.
- After the container is shipped on board, the shipper shall exchange the Mate’s receipt for B/L
(2) Less container load (LCL)
- The shipper sends a booking note to the carrier or its agent, giving them necessary information on the
exported goods. After the booking note is accepted, an agreement on the time and place of
delivery shall be made between the shipper and the carrier.
- The shipper or person acting on his behalf hands over the goods to the carrier or its agent at Container
Freight Station (CFS) or Inland Container Depot (ICD)
- The shippers ask customs officers to inspect and supervise the packing made by the carrier or the
consolidator and have the container sealed by the customs officers. The shippers fulfill the procedures
for loading the goods on board and ask for B/L
- The carrier provides a Master B/L
2. Taking delivery of imported goods
For containerized goods
(1) Full container load (FCL)
- On receipt of Notice of Arrival (NOA), the consignee brings with himself the original B/L and a
referral from the company to get Delivery Order (D/O) from the carrier.
- The consignee takes D/O to the customs office to carry out customs formalities for the import of the
goods and register inspection.
- After fulfillment of customs procedures, the consignee brings with himself shipping documents
and D/O to Ship Management Office at the port to have D/O confirmed.
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- The consignee gets Delivery Note and take delivery of the goods.
(2) Less container load (FCL)
- The consignee brings the original B/L or House B/L to the carrier or the consolidator’s agent to get
D/O, then take delivery of the goods at CFR and also follow the above procedures.
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3. Dealing with payment for imports and exports
3.1 Requesting payment for exported goods
- Subject to the method of payment agreed in a contract, parties must follow the procedures to
fulfill their obligations.
3.2 Making payment for imported goods
- Subject to the method of payment agreed in a contract, parties must follow the procedures to
fulfill their obligations.
4. Making and settling claims
Make claims against the seller:
- The seller is complained in case of non-delivery, short delivery, inferior quality and delay in delivery etc.
- Complaints may take the form of letter, lax, email (otherwise, a guarantee letter is required to be
sent to the seller’s address)
- The content of a complaint includes:
+ Name and address of the complainant and respondent + Background of the complaint (contract
and state of the goods) + Reasons for complaint + Buyer’s specific suggestions
- The following documents are enclosed:
+ Sale contract
+ Bill of Lading
+ Survey Report and other reports
+ Pictures of the state of the goods
Making claims against the carrier
- The carrier is complained in case of loss of or damage to the goods due to his faults.
- Documents for complaint include a letter of complaint and such enclosed documents as contract, B/L,
Tally sheet, Report on Receipt of cargo (ROROC), Certificate Of short-landed cargo (CSC), Cargo
outturn Report (COR), Survey Record, Customs Inspection Report.
Making claim against the insurer
- The insurer is claimed in case the loss of or damage to the goods is due to the risks within the scope of
the insurance clause under which the goods are covered.
- Documents for claims include a letter of claim and such enclosed documents as contract, insurance
certificate, B/L, copy of invoices, certificate of quantity and quality, Survey Report issued by the
insurance agency, Report on Receipt of cargo (ROROC), Certificate of short-landed cargo (CSC), Cargo
Outturn Report (COR), General Average Declaration letter, General Average Adjustment.
Review questions
1. Specify the steps for making performance of an export contract.
2. Specify the steps for making performance of an import contract.
3. Name the common documents required for conducting export customs formalities.
4. Name the common documents required for conducting import customs formalities.
5. In case of exporting the goods in full container load (FCL), what must a shipper do to clear the
goods at customs?
6. In case of exporting the goods in Less container load (LCL), what must a shipper do to clear the
goods at customs?
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7. In case of importing the goods in full container load (FCL), what must a consignee do to clear the
goods at customs?
8. In case of importing the goods in Less container load (LCL), what must a consignee do to clear the
goods at customs?
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