Assignment:
I. Documents, procedures, international organizations
1. What's a pro forma invoice? How are these used in international trade? What does one look like? Is there a standard form? What about Purchase Orders? What are they, what is their importance, and how to they work?
A pro forma invoice looks just like an invoice (the bill or amount owed) but it is exchanged at an earlier point between seller and buyer. The seller, for example, can use a pro forma to make a very clear offer to the buyer. Most companies use their own standard pro forma, but there is no internationally standard form. Depending on the sequence of events, the pro forma can also serve as the acceptance, or even as the post-acceptance confirmation. The purchase order form is a definite commitment by the buyer to buy certain goods on certain terms. So the important thing to understand is that sellers and buyers use purchase orders and pro formas to show that they are very serious and committed to the deal as represented in the document, and depending on who moves first, a mirror-image reply will constitute a legal acceptance of the previous document.
2. The Certificates: What's the purpose of a certificate of origin? Who issues them? Answer the same questions for - Certificate of Inspection and Consular Certificate.
Certificates of origin allow customs to verify that goods indeed come from a particular country. They are issued by a governmental entity or chamber of commerce of the exporting country.
In international trade, certificates of inspection verify the quality and/or quantity of the goods and are issued by independent and neutral inspection companies. Don't confuse these with domestic inspection certificates issued by government agencies or customs authorities.
The consular invoice includes a detailed description of the goods shipped as certified by a Consulate of the receiving country.
3. What's the International Chamber of Commerce? How does it work and what are its most famous/successful products? Same questions for Uncitral?
The International Chamber of Commerce is a non-governmental organization, meaning it is a private, non-profit association which has the goal of promoting international trade. It is known above all for developing Incoterms, the UCP 600 rules for letter of credit practice, and the International Court of Arbitration of the ICC, but it has developed dozens and dozens of other books, rules and products - including the textbook for this class, written by a brilliant man whose name escapes me right now.
Uncitral is the branch of the United Nations that works on treaties and rules for international trade law. Its most notable product is
CISG.
II. International Law and Dispute Resolution
4. How you know where to resolve international commercial disputes with respect to a given international transaction? What is the easiest way of deciding which country's law will apply to a given business transaction?
Ideally, a contract will contain a "choice of law clause" and/or a "choice of forum clause" (or sometimes these are both included in a "dispute resolution clause"), which will state the agreement of the parties as to where to sue in the event of a dispute, and which law to apply. In the absence of an agreement, the courts will apply a body of law known as "conflicts of law", which usually tries to determine which country has a "center of gravity" over the case.
5. What's ICC arbitration? How much does it cost? Who else (other important organizations) does international commercial arbitration?
International commercial disputes can be resolved in the courts (litigation) but many parties prefer the more neutral forum of "arbitration". ICC is the world's leading international commercial arbitration center (International Chamber of Commerce), but there are many others, including AAA (American Arbitration Association), LCIA (London Court of International Arbitration), etc. ICC's costs depend on the amount in dispute in a particular case. Arbitration can be quite expensive, because you have to pay for the arbitrator's fees, but you often save money because the arbitration is over faster. Just to file a case with ICC requires a $2,000 deposit.
Note that Uncitral is the author of some popular sets of rules for international commercial arbitration, but it does not operate an arbitral tribunal such as ICC or AAA.
Note also that the ICC, International Chamber of Commerce, is not to be confused with the ICC, International Criminal Court (nor with the ICC, Interstate Commerce Commission, or ICC, International Cricket Commission).
6. What is CISG (Vienna Convention)? How many countries have signed CISG? What happens if you sign a contract with a partner from
a country that hasn't signed CISG?
This is the international sales law which governs international transactions in tangible goods and was developed by the U.N.; it has been signed so far by approximately 80 countries. It applies to contracts between parties in signatory countries unless they choose to exclude it; if one member is in the signatory country and the other isn't, then CISG applies if the contract applies the law of the party from the signatory country or if international legal principles dictate that that countries law should apply; it is safer to explicitly refer to CISG is you want CISG to apply in such cases.
III. Incoterms and Export Sale Contracts
7. What's an Incoterm - what do they do/what's their purpose? Are Incoterms legally required? What's the latest version of Incoterms? Did anything change?
Incoterms are international standard definitions, developed by the ICC, for shipping or delivery terms, sometimes called trade terms or price terms. Incoterms allocate between buyer and seller:
a)their respective duty to pay for transport
b) their respective risk of loss in case the goods are damaged
c) their duty to clear goods for export or import
d) the seller's duty to provide insurance (only in CIF and CIP)
NOTE: Incoterms are not the law -- they are merely contract tools that are made available the market by a trusted international organization -- the International Chamber of Commerce. Incoterms are made use of by "reference" -- the contract will stipulate that the FOB term, for example, is as per the Incoterms definition. If this is NOT done, then the FOB term may be interpreted according to local law, which may differ from Incoterms interpretation. However, if traders forget to define which terms apply, increasingly courts will assume they have applied Incoterms.
In the US trade terms were traditionally defined by the Uniform Commercial Code and the US Foreign Revised Trade Terms, both of which allow for great flexibility in the FOB term. Essentially, in the US many traders just use FOB as a universal term for all transactions -- if they want delivery as seller's factory they call for "FOB Factory"; if they want delivery at Buyer's premises they call for "FOB Destination" or "FOB Delivered" and if they want a traditional Incoterm, they call it "FOB Vessel". This causes misunderstanding between US-educated traders and traders in other countries who only use FOB for maritime shipments.
A new version of Incoterms was released for 2010.
8. What's the difference between the Ex Works Incoterms and the DDP Incoterm? What's the difference between FCA and FOB? What would the real-world impact of these differences - how would exporters and importers take these differences into account?
With EXW the goods are delivered at the seller's factory or warehouse and no transport prices or customs services are included in the price, everything after the factory is for buyer's risk and expense. DDP is the opposite, the goods are delivered at buyer's premises and seller is responsible for all costs, risks and customs clearances up to that point. Inexperienced exporters often prefer EXW because all international logistics are for buyer; also used by parties shipping perishable or expensive goods that don't want to be responsible for loss or damage in transit. Demanding buyers like US department stores often insist on DDP because they don't want to be involved with any of the cost or risk of international logistics.
FCA is like FOB but is for use in containerized, road and air shipment, while FOB is meant for maritime shipments exclusively.
9. If an importer sends in a purchase order in response to an exporter's pro forma, do we have a contract? What if the importer's purchase order differs from the pro forma, which one prevails?
Yes, we have a contract, unless - the purchase order differs materially from the pro forma, in which case the purchase order can be considered a counter-offer. The last offer which is accepted is the one which determines the contract.
10. What's the purpose of a "retention of title" clause in a commercial sale contract? Are they applied the same way in all countries?
A "retention of title" clause provides that in the event the buyer does not pay (as, for example, if the buyer goes bankrupt), the seller retains title and ownership to the goods, and therefore may come in and re-claim the goods (or, in some cases - so-called "extended retention of title clauses" -- the money earned from resale of the goods). Not all countries respect retention of title clauses, so local counsel must always be consulted.
11. What's a "force majeure" provision in an international contract? Are there any other terms that have similar usages?
"Force majeure" means that both parties are excused from performance under a contract because of an unexpected event or "act of God" which makes it impossible for one party to perform. Under US law, a similar concept is known as "commercial impracticability."
IV. International Payment and Finance
12. What's a letter of credit? How much does it cost to open one? What are the different kinds of letter of credit?
L/Cs are payment mechanisms whereby an exporter can receive an advance guarantee of payment provided that he can comply with the documentary conditions of the L/C. Exporters insist on L/Cs because they don't trust (especially first-time) importers, and importers put up with this because they at least get some protection -- the exporter can't get paid until he can prove he has shipped the right stuff.
L/C's are issued by the IMPORTER'S bank -- therefore the L/C is initially the responsibility of the importer and under the importer's control (but savvy exporters can require L/C's to be exactly the way they want them).
L/C's are found in trade where there is a lack of knowledge or trust between the parties. They are also used when the exporters are actually middlemen and need to use the L/C as a way to raise finance for assembling the shipment.
Different kinds of credit include: transferable, back-to-back and standby.
13. What's the difference between a confirmed letter of credit and one that isn't? What does it mean to say that a letter of credit is "advised" or "negotiated" through a particular bank?
With a confirmed letter of credit, the exporter's own bank ADDS its promise to pay on top of the importer's bank's promise to pay (very secure and convenient for exporter). If the exporter trusts the importer's bank, there may be no need for confirmation.
14. What is export credit insurance? Who offers it? How much does it cost?
Export credit insurance is insurance against an importer not paying for the goods. It is offered in the US by a government agency, EXIMBANK, as well as by private insurers. If you can get export credit insurance, you're less concerned about L/C's and the like, and you may be willing to accept open account payments from the beginning.
15. What is open account payment? Is it used internationally?
Open account means the exporter delivers the goods to the importer and at an agreed future date ("net 90") sends an invoice to the importer for payment -- in other words -- it is, "buy now, pay later". It has become the most common method of payment in trade between industrialized nations.
16. What is a SWIFT payment? Is it swift?
This is an electronic interbank wire transfer that is managed by the global banking network known as SWIFT - Society for World Interbank Funds Transfers. Although the electronic transmission is instantaneous, it may take a few days for the banks' procedures to credit your account.
17. How do you deal with currency risk in international transactions? How does a forward exchange contract work?
The easiest way is always to specify that transactions are in your domestic currency. If you can't obtain that, then you should use a "currency hedge" which is done by going to a bank or specialized provider and obtaining a "forward exchange contract," which essentially locks in the exchange rate prevailing at the time the contract was signed.
18. What's the difference between a "standby credit" and a "commercial credit"? What's the difference between a performance bond and a bank guarantee?
A standby credit is only meant to be used in the event of a contingency - it is a backup plan, a guarantee. A commercial credit, on the other hand, is meant to be used as the normal source of payment for a sale transaction.
V. International Transport / Customs
19. What's a bill of lading? What's it used for? What does one look like? Who issues them? What's the difference between a "waybill" and a "negotiable bill of lading"? What other kinds of bill of lading are there?
It is a key document in international trade, which serves simultaneously as a) the carrier's receipt for the goods, b) the contract terms for the shipment contract, and c) a negotiable document that can be endorsed and traded as with other commercial paper (e.g., checks and bills of exchange). It's used by the exporter to symbolize possession of the goods -- and is therefore handed over when the exporter is satisfied that the risk of nonpayment is acceptable.
What does one look like?
They have different looks because each shipping company prints their own, but the basic data fields are the same.
Who issues them? Carriers (in international lingo, NOTE -- the "shipper" is the person who hands the goods over to the carrier, therefore in most cases the shipper is the exporter, and the shipping company is called the "carrier). In practice, the exporter/shipper often fills out a B/L form made available by the carrier, and then it is signed or stamped by the carrier, making it an official contract and receipt.
There are many different kinds of bills of lading. One basic distinction is between the traditional B/L, known as the ocean B/L or marine B/L, which is a "negotiable" document -- or document of title -- and which can therefore be used as the basis of a letter of credit transaction, and the "waybill", a form of B/L which is NOT negotiable. Basically, a "waybill" is just a receipt, but it does not stand as a document of title. In air shipments we find use of a specific document, the air waybill.
If you don't use L/C's the traditional bill of lading isn't so necessary. Especially with air shipment, there's no time to wait for documents, so a simplified document is used, called the "waybill" -- it's exactly like a bill of lading except that it has no "negotiability" -- you can't buy it or sell it by endorsing it, it's just another piece of paper (as opposed to the traditional B/L, which is worth the value of the goods).
In LC practice, the bank likes to have some security for the credit which it is extending, so it is usual practice to insist upon a negotiable clean on board bill of lading, because these B/Ls come close to representing ownership of the goods, while waybills are mere receipts and holding the waybill gives no legal control over the goods.
20. Who offers marine insurance? What does it usually cover? How much does it cost? Does the premium vary according to where you're shipping or what kind of transport you are using?
Private insurance providers. The typical cost is typically a fraction of one percent of the value of the goods. Premiums tend to be lower for air shipment than sea shipment and they are highest when inland transit through a developing country is involved.
21. How do you clear goods through customs into the United States? What is "entry"? What is "liquidation"? If you disagree with a customs ruling, to whom can you appeal?
Entry is the formal process of entering goods through Customs into the U.S. and requires the importer to make a declaration to Customs and pay estimated duties based on the classification of the goods under a category of the Harmonized Tariff system (because different goods pay different duties); liquidation is the final assessment of Customs of duties on a particular importation and may or may not agree with the importer's classification and in some case the importer is required to pay additional duties. If you disagree with a Customs ruling you may submit an administrative review request through Customs and if you lose that you can still appeal to the Court of International Trade.
22. What's an ATA Carnet? Who issues them? What benefits do they provide? How much do they cost?
An ATA Carnet is a "passport for merchandise," meaning that it is a document that allows merchandise samples to be entered duty free into a country; the Carnet includes a bond to make sure that the goods are eventually taken out of the country. The ATA Carnet is issued by ICC and its affiliates, in the USA through the US Council on International Business, where FIT Professor and former ITM student Amanda Barlow is now in charge of ATA operations.
23. What's a bonded warehouse? Why would anyone use one? How can you open one in the U.S.?
A bonded warehouse is authorized by the customs authorities to receive goods without paying any customs duties until the goods leave the warehouse -- this allows importers of high-duty items like cigarettes and alcohol to defer payment of duties until goods are shipped from the bonded warehouse to distributors. When goods enter a bonded warehouse, they technically are still in transit and have not yet officially entered the country -- so they don't pay duties yet.
Attachment:- Case study.rar