Key Points Concerning A Sales Contract？？A sales co...

Key Points Concerning A Sales Contract  A sales contract embodies a set of different terms such as quality, quantity, payments, delivery, and insurance, etc. When the exporter and customer are negotiating, they should consider and agree upon these terms. Apparently, each party hopes to stipulate terms favorable for himself. But arrangements which are advantageous to one party are often disadvantageous to the other party. Therefore, some practical suggestions and tactics should be given adequate importance in negotiation of a contract. In this sector, you will have a look on the problems international trade negotiators may face and suggestions in solving them.

Name of goods

It is recommended that the names of goods to be exported correspond to the names used in the customs lists of the importing country, in order to minimize problems at customs, and to facilitate calculation of import duties.

The exporter should be consistent in the names he uses for his products, referring to them precisely as he does in the catalogs he gives to the importers, for the purpose of avoiding any trouble of breach of an agreement for nonconforming goods.

Quantity

In indicating length, weight, volume and so on, the metric system should be used unless the sale is between countries which use another system.

For goods whose quantity could easily decrease during transportation, the biggest issue will be where and when to establish the quantity as a basis of payment and so on. The buyer wants the quantity to be determined upon receipt of the goods at his warehouse, while the seller wants to establish the quantity at the time of shipment at his plant. This issue can be solved only in connection with the closely related issues of risk of loss and insurance.

Quality

An order specifying goods "as per sample" is apt to lead to trouble, because often it is not made clear that a sample is first requested as a basis for future orders, and because it is not always clear just how much deviation from the sample will be tolerated. It is therefore recommended that the quality of goods be specified by specifications or detailed description of samples and that these specifications or descriptions be made a part of the agreement.

Price

The contract price will be closely related to the conditions of delivery, such as FOB, CFR, or CIF. One of these delivery terms will be chosen after consideration of the economic and political factors involved. The problem here is that these terms are not always understood to mean the same thing. For example, in common practice, delivery is deemed completed, and title to the product and the risk of loss pass to the importer, upon shipment. This definition of delivery is called FOB. However, the definition of FOB under Incoterms differs from the definition used in the USA. Therefore, to avoid the problems arising from the different possible meanings of these terms, it is highly recommended that each of these terms, whenever used in an agreement, be defined in it.

A drastic change in the foreign exchange rate could absorb all the profit expected from a transaction or could even cause a deficit. Both parties, therefore, may wish to establish their right to request a price change or to cancel the agreement in such a case. An importer can avoid this risk of foreign exchange rate by insisting on a price in his own country.

Destination

In the event that the destination port is too crowded , and the exporter's ship must wait for many days to enter the port, transportation expense will necessarily be increased. These will be borne by either the exporter or the importer depending upon the agreements made between the two. Even in CIF or CFR contracts, it is possible to provide that the importer will bear any additional port charge. If a port cannot be safely used because of war, the doctrine of force majeure usually excuses a ship from delivering products at the port. In such a case, the exporter should be allowed to deliver the goods at the nearest port possible, especially when the disabling disturbances continue for some time. In general, it is wise for the exporter to set forth in his contract a list of several ports at which the goods may be delivered.

Insurance

The exporter will want insurance to be taken out to cover war risks, strikes, riots, civil commotion, spontaneous combustion, and other risks of this type which are usually exempted from insurance. The exporter will want this coverage to be at the importer's expense, by means of including the insurance premiums in CIF or CFR prices. Both parties should keep in mind that taking out of insurance will be closely related to the contract clause that allocates the risk of loss. A conlract should make clear when and where the risk of loss or damage passes from the exporter to the importer. The exporter then need not worry about loss or damage after the risk has passed to the importer; and the importer need not worry about insurance covering damages that occur before the risk passes to him.

Customs duty

There will be no dispute over the common practice that customs duties are to be paid by the importer. However, the importer will argue that the exporter must pay any additional duties imposed as a result of the exporter's errors as to quantity or price indication, and that the exporter should pay any additional expense due to the exporter's mistake or mishandling.

The exporter will have to accept such an argument by the importer if the importer has provided clear instructions with regard to labeling, documentation, or other specifications affecting customs procedures with which the exporter has not complied.

Questions for reading :