IBT - Sales of Goods Victor H. Bouganim WCL, American University

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 2 The Basic Transaction Toys to Greece - P. 4.0 F Alpha, a Greek company, is buying toys from Santa Claus, a toys manufacturing company based in the US. F How is an international commercial transaction different from a domestic transaction? F What are the special risks of an international transaction?

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 3 IBT Risks F Distance between parties and need for long- distance transportation. F Involves more than one legal system. F Involves different currencies. F Trust F Trust : Parties typically don’t know each other, and cannot rely upon litigation. F Seller seeks assurance for payment before shipping the goods. Buyers will prefer to pay after accepting the goods and inspecting them.

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 4 Bill of Lading F A contract between the seller, buyer and the carrier of goods. F Carrier obligation: Carrying the goods to their destination and delivering them to the lawful possessor of the bill. F The bill represents the goods: Control of the bill is the equivalent of control of the goods.

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 5 IBT Basic Model Seller Buyer Bill $$ Bill $$ Cargo Financial Institute Institute Seller’s Branch Buyer’s Branch

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 6 Letter of Credit (LOC) F Payment through LOC device assures seller of payment F LOC is a contract  Promise by buyer’s bank that it will pay the sales contract amount to seller  Seller produces documents required by the sales contract

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 7 IBT Basic Model - LOC Seller Buyer Bill $$ Bill $$ Cargo Financial Institute Institute Seller’s Branch Buyer’s Branch LOC

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 8 The Sales Contract Buyer F Letter requesting Proforma Invoice F Purchase Order Seller F Proforma Invoice

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 9 Applicable Contact Law F CISG - UN Convention on C ontracts for the I nternational S ales of G oods, F Entered into force on 1 January F USA ratified CISG as well as about 50 countries. F CISG governs contracts done by parties from different CISG countries, unless the parties ‘opt out’.

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 10 ICC - INCOTERMS F The International Chamber of Commerce (ICC) is a non-governmental organization (NGO), with headquarters in Paris active in the promotion and facilitation of IBT. F ICC is an authority in making rules that govern the conduct of business across borders and also serves as arbitration center for IBT disputes through its ICC International Court of Arbitration. F INCOTERMS is a document, which includes definitions of common IBT terms and clarifies the obligations of the parties involved in IBT. Last revision has been published in 2000.

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 11 Managing Risk F Division of costs –Cost of goods –Transport to port of shipment – Marine transportation: Cost and Freight –Carriage - air and land transportation –Insurance –Duties F Division of Risks –At which point the risks are transferred from sellers to buyers? Large and uncertain costs and risks are broken down into many measurable units by using well- defined forms of contracts.

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 12 Forms - Carriage by Sea F FOB - Free On Board F CFR - Cost and Freight F CIF - Cost, Insurance and Freight F FAS - Free Alongside Ship F DES - Delivered Ex Ship F DEQ - Delivered Ex Quay

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 13 Main Sales Forms FOB - Free on Board Sellers deliver goods to the ship’s board at the named port of shipment. Sellers arrange transport to port and pay for it. Sellers clear the goods for export. Buyers bear the costs and risks from that point of delivery. CIF - Cost, Insurance & Freight As in FOB, in addition Sellers cover the cost of insurance and carrier to the port of destination. Note: Buyers bear the risks from the point of delivery to the ship’s board.

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 14 General Forms Carriage by Air / Land / Sea F EXW - Ex Works F FCA - Free Carrier F CPT - Carriage Paid To F CIP - Carriage and Insurance Paid To F DAF - Delivered At Frontier F DDU - Delivered Duty Unpaid F DDP - Delivered Duty Paid

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 15 More INCOTERMS Forms F EXW - EX Works –Departure –Seller minimizes his risk by only making goods available at his premises –Carriage to be arranged by the buyer –Risk transfer from the buyer to seller when the goods are at the buyer’s disposal –Cost transfer form the buyer to seller when the goods are at the buyer’s disposal F CIP - Carriage and Insurance Paid –Main carriage paid by seller –Carriage and insurance to be arranged by seller –Risk transfer when the goods have been delivered to the carrier –Cost transfer at place of destination