Fundamental requirement in any kind of
communication is that speaker and audience must understand
each other clearly and unambiguously. This is vital
in trade and commerce where any vague and unclear
understanding may lead to financial loss and/or costly
legal battle. Given the nature of International trade
where buyer and seller come from different country,
culture and language - it is imperative that buyer
and seller understand precisely the nature of transaction
- most important who is responsible for what.
Using standard vocabulary or glossary
for export, import, logistics, finance etc. make sure
that there is less scope for ambiguity. There are
quite a few glossaries for exim terms but the most
important and widely accepted one is the INCOTERM
published by International Chamber of Commerce (ICC).
WHY INCOTERM
?
In any international transaction, Incoterm
can answer questions like:
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Who pays port charge ?
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Who is responsible for export clearance
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Who arranges transportation?
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Who has a right to shipping documents?
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Who insures, for how much, at what
level of coverage? etc. etc.
So, if your foreign trading partner is
using these sales terms in their purchase orders,
quotations and invoices, you better know what they
mean. Remember, courts and international organizations
like United Nations Commission on International Trade
Law (UNCITRAL) have endorsed Incoterm.
WHAT
IS INCOTERM ?
INCOTERM provides a set of international
rules for the interpretation of the most commonly
used trade terms. It clearly defines the role and
responsibility of seller and buyer in the trade term
so that there is no scope for ambiguity or misinterpretation.
Among the best known INCOTERMS are EXW
(Ex works), FOB (Free on Board), CIF (Cost, Insurance
and Freight), DDU (Delivered Duty Unpaid), and CPT
(Carriage Paid To).
ICC introduced the first version of Incoterms
- short for "International Commercial Terms" - in
1936. Since then, ICC expert lawyers and trade practitioners
have updated them six times to keep pace with the
development of international trade. The latest version
is INCOTERM 2000, so all sales contracts made after
January 1' 2000 will refer to INCOTERM 2000 unless
there is any special agreement between seller and
buyer.
Correct use of Incoterms goes a long
way to providing the legal certainty upon which mutual
confidence between business partners must be based.
To be sure of using them correctly, trade practitioners
need to consult the full ICC texts, and to beware
of the many unauthorized summaries and approximate
versions that abound on the web.
IMPORTANT POINTS
TO REMEMBER ABOUT INCOTERM
-
revised in 2000 (sixth time). Use
the latest version only from ICC Website (please
see ref. below).
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is widely used throughout the world
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divides transaction costs and responsibilities
between buyer and seller
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reflects state of the art transportation
practices
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is available in most major trading
languages
-
closely corresponds to the U.N.
Convention on Contracts for the International
Sale of Goods
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runs like a thread through all
foreign trade disciplines.
MORE INFORMATION
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