INternational COmmercial TERMS (INCOTERMS)INternational COmmercial TERMS (INCOTERMS)Presented by:John Taylor INCOTERMSTopics to be discussedWhat are INCOTERMS?How do companies use INCOTERMS? How are they referenced in contract negotiation or formation?What if INCOTERMS conflict with statutes or regulations?Key changes in 2000 revisionElements of the various terms, such as Ex Works and CIF Topics outside the scope of this seminarExplanation of responsibilities under the United States Principal Party in Interest rules (USPPI Rules)Potential tax implications of INCOTERMS selectionsExport and import declaration responsibilitiesRelated party transactions regarding tax and reporting obligationsTransfer pricing issues related to income tax issuesCarrier selection issues Key PointsINCOTERMS are not statutory or regulatoryRegulatory reporting requirements, such as the American SED, may require a different “price” calculation than called for in the contract or INCOTERMINCOTERMS provide for some, but not all, elements of a well negotiated agreementUnderstand the elements of each term, and do not select an INCOTERM that is inconsistent with your commercial intent What are INCOTERMS?Published by International Chamber of Commerce since 1936 Abbreviation of International Commercial Terms (INCOTERMS)Define key elements of international contracts of sale (not the contract of carriage)Reflect the parties agreement to divide costs and risks between partiesProvide the Buyer and Seller instructions regarding:Carriage of goods, andExport and import clearance except regulatory obligations under the United States Principal Party in Interest rules of Census and the Bureau of Export Administration (BIS)How do you reference INCOTERMS in a contract of sale?Parties are strongly advised to indicate “INCOTERMS 2000” on their documentationCheck form contracts for references to earlier version of INCOTERMS and supercede those references with the phrase “INCOTERMS 2000”1980 U.N. Convention on Contracts for the International Sale of Goods (CISG) does not deal with interpretation of trade terms under the belief this is best left to the ICC and its INCOTERMSWhat changes to the 1990 INCOTERMS were made by the 2000 revisions?Under the FAS term, the export clearance obligation is placed on the Seller (previously on the Buyer)Under the FCA term, the Seller is obligated to load the goods on a carrier nominated by the Buyer, or if no carrier is nominated by the Buyer, the Seller may nominate a carrier. The Seller is not responsible for unloading if delivery occurs at a place other than the Sellers premises. Under the DEQ term, the import clearance obligation is placed on the Buyer (previously on the Seller) INCOTERMS do not:Interpret documentary creditsInterpret contracts of carriage or storageOvercome explicit force majeure provisions of a contractRelieve parties of statutory or regulatory obligationsWhat if INCOTERMS are contrary to other provisions of a contract or contrary to applicable law?Other terms of the contract prevailat least other more explicit terms (the best practice is to avoid conflicting provisions)Provisions of law prevailExample, the export invoice indicates an FOB value U.S. port, and the importing countrys valuation regulations are based upon a CIF valueExample, USPPI rules regarding export clearance prevail over INCOTERMSRegulations may require adjustments to stated value Standardized Trade TermsUniform Commercial CodeINCOTERMS Ordering the INCOTERMS bookICC Publishing, Inc ., 156 Fifth Ave., NY, NY 10010 ($31.95 not including taxes).iccwbo.org Why Do Companies Use Trade Terms?Provide quotations & prepare Pro Forma invoicesIdentify price at a specific geographic locationIdentify basic responsibilities & liabilities of all parties to the transactionImprove the common understanding by the parties to international Distribution and Sales ContractsUnderstanding the Convention for the International Sale of Goods (CISG)The United Nations created legal standards for international trade The United States became a signatory to the CISG in 1988The CISG supercedes U.S. lawParties can “opt-out” of the CISGLading*Loaded (laden or laded) on board: Placed on carrierNot Unloaded: Still on carrierUnloaded: Taken off carrierAvailable: Placed at the disposal of the Buyer * INCOTERMS define lading and unlading responsibilitiesWhen Does Transfer of Risks Pass Under INCOTERMS 2000?ContractAt the moment of delivery stipulated in the contract (CISG)No ContractWhen the Buyer takes delivery of the goods (Property Laws) INCOTERMSGroup E Term: (Departure) Delivery at the Sellers premises or another named place (international carriage and delivery are the Buyers cost and responsibility)EXWGroup F Terms: (Main Carriage Un