Project Ⅱ Task 3 Trade Term(1) Incoterms 2010

The creation of trade terms is to facilitate the negotiation of international trade. But different countries might have different ways of interpreting the same contract wording, which will lead to a lost sale or a loss on a sale. Frequently, parties to a contract are unaware of the different trading practices in their respective countries. This can give rise to misunderstandings, disputes and, with all the waste of time and money that this entails. In order to remedy these problems, the International Chamber of Commerce first published in 1936 a set of international rules for the interpretation of trade terms. These rules were known as “Incoterms 1936”. and additions were later made in 1953, 1967, 1976, 1980, 1990,1999 and presently in 2010 in order to bring the rules in line with current international trade practices. Section 2 I. Why Incoterms? litigation litigation n. 诉讼, 起诉 amendment n. 改善, 改正 Amendments

Incoterms are a set of international rules for the interpretation of the most commonly used trade terms in foreign trade. Thus, the uncertainties of different interpretations of such terms in different countries can be avoided or at least reduced to a considerable degree. Reference to Incoterms 2010 in a sales contract defines clearly the parties’ respective obligations and reduces the risk of legal complications. Section 2 I. Why Incoterms?

It should be stressed that the scope of Incoterms is limited to matters relating to the rights and obligations of the parties to the contract of sale with respect to the delivery of goods sold (in the sense of “tangibles”, not including “intangibles” such as computer software). It appears that two particular misconceptions about Incoterms are very common. They are: 1. Incoterms are frequently misunderstood as applying to the contract of carriage rather than to the contract of sale. There are various contracts needed to perform an international sales transaction - where not only the contract of sale is required, but also contracts of carriage, insurance and financing - Incoterms relate to only one of these contracts, namely the contract of sale. Section 2 II. What do Incoterms cover?

2. Incoterms are sometimes wrongly assumed to provide for all the duties which parties may wish to include in a contract of sale. Although Incoterms are extremely important for the implementation of the contract of sale, a great number of problems which may occur in such a contract are not dealt with at all, like transfer of ownership and other property rights, breaches of contract and the consequences following from such breaches as well as exemptions from liability in certain situations. As always underlined by ICC, Incoterms only deal with the relation between sellers and buyers under the contract of sale, and, moreover, only do so in some very distinct respects. Section 2 II. What do Incoterms cover?

The main reason for successive revisions of Incoterms has been the need to adapt them to commercial practice. Revision in 1980 was to keep pace with the development of transport practices - combined or multimodal transport. Thus a new term “Free Carrier” (now FCA) was first introduced in 1980 revision in order to deal with the frequent case where the reception point in maritime trade was no longer the traditional FOB - point (passing of the ship’s rail) but a point on land, prior to loading on board a vessel, where the goods were stowed into a container for subsequent transport by sea or by different means of transport in combination. Section 2 III. Why revision of Incoterms? contemporary a. 当代的, 同时代的 contemporary

Further, revision in 1990 was to adapt itself to the increased use of Electronic Data Interchange ( EDI ) in business transactions. In the 1990 revision of Incoterms, the clauses dealing with the seller’s obligation to provide proof of delivery permitted a replacement of paper documentation by EDI - messages provided the parties had agreed to communicate electronically. Revision in 2000 took account of the spread of customs-free zones in the 1990s. Needless to say, every revision of Incoterms is to improve all the trade terms to facilitate their practical implementation. Section 2 III. Why revision of Incoterms? Brainstorm: Why do Incoterms need revising periodically?

In order to keep pace with the development in international trade practice, ICC published its seventh revision of Incoterms in September 2010, i.e. Incoterms 2010, which came into force in January 1st Incoterms 2010, compared with Incoterms 2000, may appear to have effected few changes. It is clear, that Incoterms now enjoy world wide recognition and ICC has therefore decided to upon that recognition and avoid change for its own sake. On the other hand, serious efforts have been made to ensure that the wording used in Incoterms 2010 clearly and accurately reflects trade practice. Revisions in 2010 involve changes and formal changes. Section 2 IV. Innovations of Incoterms 2010 consolidate consolidate v. 巩固 substantive a. 真实的, 有实质的 substantive

Layout of obligations of the seller and the buyer for each terms in Incoterms 1990 Section 2 IV. Innovations of Incoterms 2010 A THE SELLER MUST B THE BUYER MUST A1 Provision of goods in conformity with B1 Payment of the price the contract Provide the goods... Pay the price... A2 Licenses, authorizations and formalities and formalities B2 Licenses, authorizations Obtain at his own... Obtain at his own A10 Other obligations B10 Other obligations Render the buyer... Pay all costs... While equivalent obligations of the Seller’s and the Buyer’s for each terms in Incoterms 2000 is listed up and down, and short notes “A the Seller’s obligations” and “B the Buyer’s Obligations” appeared ahead of all the 10 obligations, each obligation begins with “the Seller Must” or “the Buyer Must”.

Layout of obligations of the seller and the buyer for each terms in Incoterms 2000 Section 2 IV. Innovations of Incoterms 2010 A THE SLLER’S OBLIGATIONS B THE BUYER’S OBLIGATIONS... A1 Provision of goods in conformity with the contract... The seller must provide the goods B1 Payment of the price... The Buyer must pay the price... A10 Other obligations A2 Licences, authorizations and formalities The seller must render the buyer... The seller must obtain at his... B10 Other obligations The Buyer must pay all costs...

Section 2 V. What are the 11 Incoterms? In 1990, for the purpose of easier reading and understanding, 13 trade terms in Incoterms have been grouped into four basically different categories denoted by the first letter in the three-letter abbreviation. So does Incoterms Please refer to the following chart as to the classifications. INCOTERMS 2010 Group E: the seller only makes the goods available to the buyer at the seller’s own premises DepartureEXWEx Works (... named place) Group F: the seller is called upon to deliver the goods to a carrier appointed by the buyer Main Carriage Unpaid FCA Free Carrier (... named place) FAS Free Alongside Ship (... named port of shipment) FOB Free On Board (... named port of shipment)

Section 2 V. What are the 11 Incoterms? Group C: the seller has to contract for carriage, but without assuming the risk of loss of or damage to the goods or additional costs due to events occurring after shipment and dispatch. Main Carriage Paid CFRCost and Freight (... named port of destination) CIFCost, Insurance and Freight (... named port of destination) CPTCarriage Paid To (... named place of destination) CIPCarriage and Insurance Paid To (... named place of destination) Group D: the seller has to bear all costs and risks needed to bring the goods to the place of destination Arrival DATDelivered At Terminal (... named place or port of destination) DAPDelivered At Place (... named place of destination) DDPDelivered Duty Paid (... named place of destination)

Section 2 V. What are the 11 Incoterms? The term “Ex Works” represents the seller’s minimum obligation, his only responsibility being to make the goods available at his premises. The term “Delivered Duty Paid” represents the other extreme, denoting the seller’s maximum obligation, as he has to meet all the expenses to the delivery of the goods at the named place of destination. The remaining terms fall between these two extremes. With increasing responsibilities, costs and risks for the buyer With increasing responsibilities, costs and risks for the seller Group E Group F Group C Group D incidental a. 附带的, 伴随的, 非主要的 incidental

Section 2 V. What are the 11 Incoterms? As the above chart shows that from Group E terms to Group F terms, Group C terms, till Group D terms, responsibilities, costs and risks for the seller are increasing and therefore responsibilities, costs and risks for the buyer are decreasing. There are 11 Incoterms which cover all possible trading situations, but there are limitations of the usage of each term, primarily depending on the mode of transport being used. The following chart sets out terms appropriate for each mode of transport.

Section 2 V. What are the 11 Incoterms? I. Maritime and inland waterway transport only Ⅱ. Any mode of transport Including multi modal transport MODE OF TRANSPORT AND THE APPROPRIATE INCOTERMS 2010

Section 2 Ⅵ. Other International Practice Concerning Trade Terms Besides Incoterms, there are also “Warsaw-Oxford Rules 1932” and “Revised American Foreign Trade Definitions 1990” as international practice concerning trade terms: 1. Warsaw- Oxford Rules, made by International Law Association in 1928, and revised in 1932, which only defines CIF contracts. 2. Revised American Foreign Trade Definition, 9 American business groups made it in It’s the revised form for six price terms. These price terms are EX (Ex Point of Origin), FOB (Free On Board), FAS (Free Alongside), CNF (Cost And Freight), CIF (Cost, Insurance and Freight), and EX Dock (named port of importation).

Section 2 Ⅵ. Other International Practice Concerning Trade Terms By far the most widely used set of terms are the Incoterms. The American Foreign Trade Definitions (1990), although still in use, primarily in the USA and the North America, are slowly being phased out in favor of Incoterms. Consequently, this unit will limit itself to comments on Incoterms. Although popularly and generally accepted, Incoterms are not laws or international conventions as “United Nations Convention on Contracts for International Sale of Goods” is. Incoterms are merely international trade practice. That means they can be binding on Buyers or Sellers provided the sales contract specifies that a particular Incoterms will apply, for example “FOB Guangzhou Incoterms 2010”.

Incoterms not only specify where the exporter’s responsibility and liability end, and where the buyer’s responsibility and liability begin, but also determine the costs the exporter will bear. Among the 11 terms, FOB, CFR, CIF and FCA, CPT, CIP are the most frequently used ones in international trade, thus we will introduce these six trade terms respectively in details, then remain seven terms in the sequence of EXW, FAS, DAT, DAP and DDP. Such a series of trade terms enable exporters and importers to decide which is most suitable for their needs. Section 3