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Presenters Sunny Chawla Varun Chawla

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Presentation on theme: "Presenters Sunny Chawla Varun Chawla"— Presentation transcript:

1 The Risks and Terms of Trade involved with International Sale of Goods 

2 Presenters Sunny Chawla Varun Chawla

3 The Importance of Sale & Trade term
Introduction The Importance of Sale & Trade term Terms of Sale and Trade define the obligations, risks, and costs of the seller and buyer for the delivery of goods. Understanding the risks in International Trade and how to apply the most critical elements in negotiating an International Sales Contract is very important. When ever there is any transaction or deals between a buyer and seller. It is always best to have a clear understanding of their dealing written in a document. The dealing might include a negotiation of delivering goods at specific time, transferring money, fix price and quality, warranty, and the term of good performance as well as the responsibilities for any adverse consequences.

4 The Risks and Terms of Trade involved with International Sale of Goods
Contents What is Risks? International Trade Risks in International Trade. Preventing risk in International Trade. Destination Contract & Trade term Risk A Role play for CISG case study



7 IMAGINE If your company import shoes and then you already make contract

8 Contract Must Includes:
What is the payment term? Transportation responsibility. Clear contract such as ( The product kind, color, size,…… etc.) Fix price and quality including warranty. Date (dd/mm/yy) of delivery the product or service (if have) * All party should be clear about the contract.


10 International Trade International trade: It is define  as the exchange of capital, goods, and services across international borders or territories. it represents a significant share of gross domestic product (GDP)

11 Risks In International Trade

12 Payment & Risks 1:Exporter- Concern on how to get the money
Payment term is one of the most important trade term. Since 1:Exporter- Concern on how to get the money 2:Importer- Concern on how to get the goods. Risk in Payment such as : Cash in Advance: The most favorable term to the exporter because all the exporters would be happy if importer pay cash in advance. The reason of happy is that it’s remove all risk and allow the exporter to use money immediately. However, it could turn a risk for the importer. 1- invoice Exporter Importer 2- money

13 Quality The qualities of the product must be written in the contract . The another best way to prevent the quality risk is that the importer send their own people to QC the product before being ship. Note: Weather is also one the important causes that has a great affect in international transportation. Ex. If you import grape from Europe to Thailand the season in both country is different.

14 Currency rate Currency rate change can be benefit for one of the importer or exporter. Example: Thailand import Ferrari from USA at the original cost at 1,000,000 $ * 35 = 35,000,000 but now the exchange rate is at 30 so now the price will be 1,000,000 $ * 30= 30,000,000 Thailand got 5,000,000 profit.

15 Delivery It is not only what type or cost of delivery should be use in the transportation, but the importer and exporter should know what type of delivery should be use of the product of selling. Example. If you are importing pure vitamin which can’t stay longer then 90 days. So the importer party should use the fastest type of transportation.

16 Customs One of the problem is the tariff or tax for importing and exporting so all the party should have a clear detail on who is going to pay for the custom. The importer and exporter should know the rules and regulation properly before importing or exporting Note; One of the problem is Under value invoice. Source:: My own experience.

17 Preventing Risks in International Trading

18 Case study: ( Assume) Mr. V is a Thai business men and want to import cosmetic products from Japan owned by Mr. Sunny. The importer gives company a purchase order number by telephone. The importer request the deliveries of 10,000 units with 30 $ per unit before 31st December 2010. The importer agree to pay cash in advance and appreciate for 2% discount. The exporter send a acknowledgment mail to importer containing a limitation on any consequential damages and a 90-day warranty period for defective workmanship only before deliveries. Mr. Sunny is so happy to do dealing with Mr. V. Therefore, Mr. V now can open L/C to do trading or apply CISG in a case if both or either one party is under the contracting state.

19 What Makes Our dealing The Contract:
Offer and acceptance Intention to create a legal relationship Capacity of the party Lawful consideration Free consent & Social agreement

20 Letter of Credit  It is the instrument issued by a bank at the request of a buyer. In L/C the bank promises to pay a specific amount of money based upon bill of lading and a description of goods. The Letters of Credit give importers the most extensively used and conventional international trade payment means and finance instrument. By making Letter of Credit terms to permit Deferred Payment or Trade Acceptance . Letter of Credit facilitates financing to the importer.

21 1 Mr. V ( importer) ask Thai bank to open L/C 2 The importer bank send a L/C to Mr. Sunny ( exporter) Japan bank 3 The Japan bank send L/C to Mr. Sunny 4 Mr. Sunny ship the products to Mr. V and get a bill of lading from shipping company. 5 Mr. Sunny send shipping document including B/L and a draft of payment to JPN bank 6 JPN bank pay to Mr. Sunny 7 JPN send shipping document and a draft to Thai Bank. 8 Thai bank send the shipping document and a draft to Mr. V. 9 Mr. V pays to the Thai bank to get the shipping document and drafts.

22 Kinds of L/C 1: Irrevocable L/C: No cancellation or any modification without the consent of the beneficiary of exporter. 2: Confirmed L/C: Judging the credibility of the bank. 3: Revolving L/C: Validity for the one transaction only

23 Appling of CISG Assume to the Case study:
If Both Japan and Thailand are the contracting states. Therefore the CISG can be easily apply when there is any contract. Even if one or both parties do not have their place of business in a contracting state the CISG might still apply However, if Thailand is only a contracting and Japan parties choose Thai law as the law of the contract. Therefore, the CISG would normally apply. According to article 1. when the rules of private international law lead to the application of the law of a Contracting State.

24 Bill of Lading It is the most important document to the exporter, importer and shipping company. It acknowledges receipt of the goods and represent the basic contract between the exporter and shipping company that show as evidence of title to the goods for collection by the importer.

25 Draft L/C is a promise to pay but it’s not a payment. The actual payment is accomplished by DRAFT ( Documentary draft). Clean draft: No shipping document Time draft: The time given like 30/60/90/180 day. Pay after these days. Sight draft: Pay immediately

26 Forward Rate Agreement
We will guarantee u 

27 Destination Contract & Trade term Risk
1: Group E – Departure 2: Group F – Main carriage unpaid 3:Group C – Main carriage paid 4: Group D – Arrival The most common trade terms for international trade 1 Ex. Works 2 F.O.B 3 C.I.F

28 E-TERM EXW – Ex Works (named place)
The seller makes the goods available at his premises. The buyer is responsible for all charges. The seller is not responsible for loading the good In the vehicle for the exporter.


30 F-Term 1: FOB – Free on board
The seller must load the goods on board the ship nominated by the buyer, cost and risk being divided at ship's rail. The seller must clear the goods for export.

31 C-Term CIF – Cost, Insurance and Freight :
The seller must bear cost, insurance and freight to a named overseas port. The seller pay for insurance for the insurance for buyer

32 For a given term, "Yes" indicates that the seller has the responsibility to provide the service included in the price. "No" indicates it is the buyer's responsibility.


34 CISG case study

35 Two friends doing business

36 From : Denmark From : Finland B A

37 They agree to do Business

38 A want to export medicine to B

39 A ring up to B office

40 It is ok we are friend Let us make a contact !!!

41 They agree on the contract by telephone

42 I will sent it to u after 30 days when I receive the goods
What about the payment ?

43 A sent goods to B

44 A got betray by B

45 You don’t have contract paper hahah  I will go to Arbitration !!!

46 Arbitrator

47 We don’t have contract paper. haha
Arbitrator I have phone conversation tape To: A, do you have any other evidence ?

48 Arbitrator Since both of your country is under the CISG contract then I will use CISG

49 B you are wrong you will be punish.
Arbitrator B you are wrong you will be punish.

50 Never do business with friend with out any contract :: BECAREFUL

51 The reason that CISG can help is ::
Article 11 say :: A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses.

52 Thank you

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