Distinguish between Domestic Sales Contract and Export Sales Contract. Explain various international contract terms.

 A major point of distinction between a domestic and export contract lies in identifying the proper law governing the export contract. This is not a problem for domestic sales contract because the proper law will always be the Indian law in India. It will be the respective national laws in each country so far as their domestic transactions are concerned, But in export transactions, there are two nations, that of the exporter and importer. Therefore, the question arises, which country’s law will apply to an export contract. This is a very complex problem but the principle generally followed is that the parties to the contract may agree mutually about the applicability of particular country’s law. The country chosen must be either that of the exporter or the importer. In special circumstances, a third country’s law may be chosen, provided that the country has something to do with the contract. For example, that may be the country where the goods will be re-exported by the importer subsequently. Only when the parties fail to mention the applicable law and a dispute arises later on, the court will decide which law should apply.

Each country's law has developed a set of rules which the courts consider while deciding on this issue. This is commonly known as 'conflict of laws' situation. Some of the factors considered by the courts are: the place where the contract is signed, the language in which the contract is written, the place of business of the parties, etc. However, these days, the courts normally identify as ‘proper law’, i.e., the law applicable to the contract (as the one where the contract is to be carried out, i.e. the place where the

delivery is to take place). Since in most export transactions, delivery is made in the exporter's country (normally when the goods are placed on the carrier in. the exporter's country), the applicable law becomes the exporting countries law. Read GPH books and score-excellent marks.

Various international contract terms

These terms are as follows:

(1) Ex-W (Ex-Works): ‘Ex’ means ‘from’ and ‘Works’ means ‘factory, mill or warehouse which is the seller’s premises’. Ex-W applies to goods available only at the seller’s premises. Buyer is responsible for loading the. goods on truck or container at the seller's premises, and for the subsequent costs and risks. In practice, it is common that the seller loads the goods on truck or container at the seller’s premises without charging loading fee.

The term Ex-W is commonly used between the manufacturer (seller) and export-trader (buyer), and the export trader resells on other trade terms to the foreign buyers. Some manufacturers may use the term Ex Factory, which means the same as Ex-Works.

(2) FCA (Free Carrier): The delivery of goods on truck, rail, car or container at the specified point (depot) of departure, which is usually the seller’s premises, or a named railroad station or a named cargo terminal or into the custody of the carrier, at seller’s expense: The point (depot) at origin may or may not be a customs clearance center. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks. In the air shipment, technically speaking, goods placed in the custody of an air carrier is considered as delivery on board the plane. In practice, many importers and exporters still use the term FOB in the air shipment.

(3) FAS (Free Alongside Ship): This term means that goods are placed in the dock shed or at the side of the ship, on the dock or lighter, within reach of its loading equipment so that they can be loaded aboard the ship, at seller’s expense. Buyer is responsible for the loading fee, main carriage/freight, cargo insurance, and other costs and risks. The FAS term is popular in the break-bulk shipments and with the importing countries using their own vessels.

(4) FOB (Free On Board): In Free On Board, the. seller/ exporter/ manufacturer clears the goods for export and is responsible for the costs and risks of delivering the goods past the ship‘s rail at the named port of shipment. The Free On Board term is used only for ocean or inland waterway transport. The “named place” in Free On Board and all “F” terms is domestic to the seller. Normal payment terms for Free On Board transactions include cash in advance, open account, and letters of credit.

The Free On Board term is commonly used in the sale of bulk commodity cargo such as oil, grains, and ore where passing the ship's rail is important. However, it is also commonly used in shipping container loads of other goods, The key document in FOB transactions is the 'On Board Bill of Lading’.

(5) CFR (Cost and Freight): In cost and freight, the seller/ exporter/ manufacturer clears the goods for export and is responsible for delivering the goods past the ship's rail at the port of shipment (not destination).

The seller is also responsible for paying for the costs associated with transport of the goods to the named port of destination. However, once the goods pass the, ship's rail at the port of shipment, the buyer assumes responsibility for risk of loss or damage as well as any additional transport costs.

(6) CIF (Cost, Insurance and Freight): The cargo insurance and delivery of goods to the named port of destination (discharge) at the seller’s expense. Buyer is responsible for the import customs clearance and other costs and risks. In the export quotation, indicate the port of destination (discharge) after the acronym CIF, for example CIF Pusan and CIF Singapore. Under the rules of the INCOTERMS 1990, the term CIF is used for ocean freight only. However, in practice, many importers and exporters still use the term CIF in the air freight.

(7) CPT (Carriage Paid To): 'Carriage Paid To' means that the seller pays the freight for the carriage of the goods to the named destination. The risk of loss of or damage to the goods as well as any additional costs due to events occurring after the time the goods have been delivered to the carrier, is transferred from the seller to the buyer when the goods have been delivered into the custody of the carrier.

(8) CIP (Carriage and Insurance Paid To): 'Carriage and Insurance Paid To! means that the seller has the same obligations as under CPT but with the addition that the seller has to procure insurance against the buyer's risk of loss of or damage to the goods during the carriage. The seller contracts for insurance and pays the insurance premium. When only land transportation is involved, CIP should replace the incorrect use of CIF.

(9) DAF (Delivered At Frontier): 'Delivered At Frontier’) (DAF) means that the, seller fulfils his obligation to deliver when the goods have been made available, cleared for export at the named point and placed at the frontier, but before the customs border of the adjoining country.

(10) DES (Delivered Ex Ship): Under this type of contract, the seller fulfils his obligation to deliver when the goods have been made available to the buyer on board the ship uncleared for import at the named port of destination. The seller also pays the costs of customs formalities necessary for exportation as well as all duties, taxes or other official charges payable upon exportation and where necessary, for their transit through another country prior to delivery at the named port of destination.

(11) DEQ (Delivered Ex Quay): In 'Delivered Ex Quay’, the seller/exporter/manufacturer clears the goods for export and is responsible for making them available to the buyer on the quay (wharf) at the named port of destination, not cleared for import.

The buyer, therefore, assumes all responsibilities for import clearance, duties, and other costs upon import as well as transport to the final destination. This term can be used in for sea or inland waterway transport

(12) DDU (Delivered Duty Unpaid): ‘Delivered Duty Unpaid’ means. that the seller's obligation to deliver is fulfilled when the goods have been made available at the named place in the country of import. The seller has to bear the costs and risks involved in bringing the goods there (excluding duties, taxes and other office charges payable upon import) as. well as the costs and risks of carrying out customs formalities. The buyer has to pay any additional costs and to bear any risks caused by his failure to clear the goods for import in time. 

(13) DDP (Delivered Duty Paid): The seller is responsible for most of the expenses, which include the cargo insurance, import customs clearance, and payment of customs’ duties and taxes at the buyer’s end, and the delivery of goods to the final point at destination, which is often the project site or buyer’s premises. The seller may opt not to insure the goods at his/her own risks.

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