Transportation and Trade 3.1

1. International
Transportation
and Trade
Terms of Trade Export

2. Important Dates
▶ Assignment 4/11/2024
▶ Midterm 4/19/2024
▶ Final 4/26/2024
This Photo by Unknown Author is licensed under CC BY-SA-NC

3. Enabling Learning
Objectives
Organizing for Export and Import Operations:
▶ Identify key principles and strategies for
organizing efficient export and import operations.
▶ Develop a comprehensive understanding of the
roles and responsibilities within an export department.
▶ Develop a comprehensive understanding of the
roles and responsibilities within an import department.
▶ Analyze the benefits and challenges of
organizing combined export and import departments.
▶ Create an organizational structure that optimizes
export and import operations within a company.
Export Department:
▶ Describe the functions and responsibilities of an
export department.
▶ Explain the steps involved in preparing and
processing export documentation.
▶ Demonstrate proficiency in compliance with
export regulations and licensing requirements.
▶ Analyze market research data to identify export
opportunities and target markets.
▶ Develop effective communication and negotiation
skills for international trade.

4. Enabling Learning
Objectives
Import Department:
▶ Describe the functions and responsibilities of an
import department.
▶ Explain the steps involved in importing goods,
including customs clearance procedures.
▶ Demonstrate proficiency in compliance with
import regulations and customs requirements.
▶ Evaluate supply chain and logistics strategies to
optimize imports.
▶ Develop effective negotiation skills for sourcing
and procurement in international trade.
Combined Export and Import Departments:
▶ Compare and contrast the advantages and
disadvantages of combining export and import
departments.
▶ Create an integrated organizational structure that
efficiently manages both export and import
operations.
▶ Demonstrate the ability to balance the unique
requirements of export and import activities within a
combined department.
▶ Analyze case studies of companies with
successful combined export and import departments.

5. Enabling Learning
Objectives
Manuals of Procedures and Documentation:
▶ Develop comprehensive manuals for
export and import procedures and
documentation.
▶ Ensure that manuals align with relevant
regulations and industry best practices.
▶ Train staff on the use and maintenance of
procedure manuals.
▶ Continuously update manuals to reflect
changes in regulations or company processes.
Record-Keeping Compliance:
▶ Identify the importance of record-keeping
in export and import operations.
▶ Create and maintain accurate records of all
export and import transactions.
▶ Ensure compliance with record-keeping
requirements set by regulatory authorities.
▶ Develop a system for auditing and
verifying record-keeping compliance.

6. Enabling Learning
Objectives
Software:
▶ Utilize relevant software tools for managing
export and import operations.
▶ Customize software applications to meet the
specific needs of the organization.
▶ Troubleshoot and resolve software-related
issues.
▶ Stay updated on emerging software solutions
in the field of international trade.
Federal, State, International, and Foreign Law:
▶ Understand the legal framework governing
international trade at the federal level.
▶ Familiarize oneself with state-level regulations
and their impact on import and export activities.
▶ Analyze international trade agreements and
treaties relevant to the organization's operations.
▶ Interpret foreign laws and regulations when
conducting business in other countries.
▶ Ensure compliance with all applicable laws to
avoid legal risks and penalties.

7. Organizing for Export and
Import Operations
▶ Efficient exporting and importing require specialized knowledge and personnel.
▶ The organization and personnel involved can vary from company to company.
▶ In small companies, one person may handle all relevant functions, while larger
companies may have multiple personnel for exports and imports.
▶ Companies may bring previously outsourced work in-house, leading to the
growth of the export/import department.
▶ As business grows, specialized roles may develop within the department, and
individual responsibilities may become more focused.

8. Export Department
▶ Export departments often originate within the sales or marketing department,
identifying potential international customers.
▶ Export orders may require special procedures in manufacturing, credit checks,
insuring, packing, shipping, and collection.
▶ Initially, multiple people within the company may contribute to fulfilling an export
order, but as exports increase, handling becomes more routine.
▶ Handling export orders involves interactions with various entities such as freight
forwarders, banks, packing companies, government agencies, and
transportation firms.
▶ The number of personnel and their responsibilities in the export department
depend on the company's size and export volume. Smaller companies may
combine some functions into tasks for one or more individuals.

9. Import Department
▶ The import department of a manufacturer often emerges from the purchasing
department, which is responsible for acquiring raw materials or components.
▶ Import departments for trading or importing companies may originate from becoming
the U.S. distributor for foreign manufacturers or purchasing foreign-made products
for potential U.S. sales.
▶ Companies importing products from foreign manufacturers must become familiar
with aspects like ocean shipping, insurance, U.S. Customs clearance, and
procedural matters.
▶ Some U.S. manufacturers are relocating their production overseas for cost savings,
leading to increased interactions with foreign freight forwarders, U.S. customs
brokers, banks, and other service providers.
▶ These developments necessitate collaboration with various entities involved in
international trade, including U.S. Customs and Border Protection and marine
insurance companies.

10. Combined Export and Import
Departments
▶ In many companies, the export and import functions can be combined in some
capacity.
▶ Smaller companies with limited export/import volume might have one or two
individuals handling both export and import procedures.
▶ As companies grow or their international trade volume increases, these
functions tend to separate into distinct export and import departments.
▶ Despite separation, some shared interactions with external entities like banks,
freight forwarders, and domestic transportation companies may exist.
▶ This results in certain activities being consolidated among individuals handling
both export and import, while others specialize exclusively in one area.

11. Figure 1–1. Export organization chart.

12. Figure 1–2. Export
order processing—
quotation.

13. Figure 1–3. Export
order processing—
order entry.

14. Figure 1–4. Export
order processing—
shipment.

15. Manuals of
Procedures and
Documentation

16. Manuals of Procedures and
Documentation
▶ Companies benefit from having export and import manuals as they serve as
reference and training tools.
▶ These manuals are now required to demonstrate "reasonable care" in importing
operations and are crucial for penalty mitigation in case of law violations.
▶ Manuals should be customized for each company, detailing its specific export
and import processes.
▶ They should include contact information for service providers like freight
forwarders and customs brokers, government agency details, and internal
documentation routing.
▶ The manuals should be kept electronically and regularly updated to reflect
changes in policies, procedures, and regulations. Sample tables of contents are
provided for both export and import manuals.

17. Record-Keeping Compliance
▶ Exporters and importers are legally obligated to maintain records of their international trade
transactions, and this obligation has become mandatory due to legal changes.
▶ The increasing volume of trade has led to the automation of transactions, with electronic
purchase orders, acceptances, and invoices becoming common.
▶ Initiatives like the Customs Modernization Act and the Automated Export System have
facilitated electronic filing of customs entries and export documentation.
▶ However, the potential for fraud or evasion has increased, leading to the imposition of penalties
on importers who fail to keep proper documentation or provide requested documents.
▶ Various laws, such as the Export Administration Act and free trade agreements, impose record-
keeping requirements on exporters and importers, necessitating a compliance program to
maintain the necessary documents. U.S. Customs and Border Protection provides guidelines
for record-keeping compliance, including the designation of a manager responsible for
document requests and employee training on customs laws and documentation requirements.

18. Software
▶ Many companies offer software programs for managing the export process,
including order taking, generation of export documentation, compliance with
export control regulations, calculation of transportation charges and duties, and
identification of trade leads. On the import side, a substantial number of
companies offer “supply chain management” (SCM) software. A search on any
Internet search engine will link the user to a number of these companies. The
use of software enables companies to process import and export
documentation more efficiently, but the legal burden of accuracy always
remains with the importer or exporter.

19. Federal, State, International, and Foreign
Law
▶ The U.S. Constitution grants Congress the power to regulate exports and
imports, making federal law the primary authority in this regard.
▶ Contract law, which governs international sales agreements and related
contracts, is mostly governed by state law, leading to variations between states.
▶ International treaties, such as the one governing the sale of goods, may
supersede state contract law in specific situations.
▶ The laws of foreign countries may apply to transactions occurring within their
borders and may also govern international sales and purchase agreements in
certain cases.
▶ Procedures and forms used in exporting and importing are typically developed
to meet legal requirements, so it's important for exporters and importers to
adhere to them to avoid legal risks or penalties.

20. Part II:
Exporting:
Procedures and
Documentation

21. Exporting: Preliminary
Considerations
▶ This lecture will discuss the
preliminary considerations that
anyone intending to export
should consider. Before
beginning to export and on each
export sale there after, several
considerations should be
addressed to avoid costly
mistakes and difficulties. Those
companies that begin exporting
or continue to export without
having addressed the following
issues will run into problems
sooner or later.

22. Products
▶ Exporters should consider various factors related to
the product they intend to export, including its
purpose (component, spare part, raw material,
finished product), packaging (single or part of a
set/system), need for modification, and condition
(new or used).
▶ Different product characteristics can impact
manufacturing, marketing, documentation, export
procedures, and compliance with foreign laws and
customs regulations.
▶ Certain products are subject to specific export
limitations and procedures. These include munitions,
narcotics, nuclear equipment, watercraft, hazardous
substances, consumer products not meeting safety
standards, and various other categories.
▶ Exporters of such products may need to provide
notices or obtain special licenses, permits, or
approvals from relevant U.S. government agencies
before exporting them.
▶ Compliance with export regulations and
understanding product-specific requirements are
essential for successful international trade.

23. Volume
What is the expected volume of export of the product? Will
this be an isolated sale of a small quantity or an ongoing
series of transactions amounting to substantial quantities?
Small quantities may be exported under purchase orders and
purchase order acceptances. Large quantities may require
more formal international sales agreements; more secure
methods of payment; special shipping, packing, and handling
procedures; the appointment of sales agents and/or
distributors in the foreign country; or after-sales service (see
the discussion in Chapter 3).

24. Country Market and
Product Competitiveness
Research
▶ Successful exporting involves evaluating potential
world markets for a company's products.
▶ This evaluation should consider macroeconomic
factors like population size, economic development,
and buying power, as well as specific factors such
as competition in the target country.
▶ Various organizations, including the United Nations,
IMF, and U.S. Department of Commerce, provide
valuable data and statistics for evaluating country
markets and international trade.
▶ The U.S. Department of Commerce offers resources
like the International Data Base, Export and Import
Trade Data Base, and assessments of international
competitiveness for U.S. products.
▶ Private companies, such as Dun & Bradstreet and
BNA, also publish data and resources for exporters
to aid in market evaluation and strategic decision-
making.

25. Identification of Customers:
End Users, Distributors, and
Sales Agents
▶ Selecting the right customers, sales agents, and
distributors is crucial for successful exporting.
▶ Thorough evaluation of potential customers and
partners is essential to avoid issues like non-
payment, inability to perform, or difficult working
relationships.
▶ The U.S. Department of Commerce International
Trade Administration offers various services and
publications to help U.S. companies identify potential
customers and partners.
▶ Personal visits to evaluate potential customers are
often necessary for building ongoing relationships.
▶ Obtaining credit reports is an important step in
evaluating potential customers, sales agents, and
distributors, and credit reports are available from
various sources, including Dun & Bradstreet and the
U.S. Department of Commerce.

26. Compliance With
Foreign Law
Some specific examples are as
follows:
1. Industry Standards
2. Foreign Customs Laws
3. Government Contracting
4. Buy American Equivalent Laws
5. Exchange Controls and Import
Licenses
6. Value-Added Taxes
7. Specialized Laws

27. Industry
Standards
▶ Compliance with foreign industry standards
is often necessary for successful export
sales and may require product modifications.
▶ Some standards are identified through marks
on products, such as 'JIS,' 'CSA,' and 'UL.'
▶ The 'CE' mark is important for products
imported into the European Community, and
non-compliance can result in seizure and
fines.
▶ ISO 9000 quality standards are increasingly
significant for European sales.
▶ Various sources, including government
agencies and organizations like the National
Center for Standards and Certification
Information and the American National
Standards Institute, provide information on
foreign standards by product.

28. Foreign Customs
Laws
▶ Exporters should be aware of absolute quotas imposed
by destination countries on imported products.
▶ Determining customs duties is essential, including
identifying the correct tariff classification under foreign
law and evaluating the impact on product sales and
distributor profits.
▶ Antidumping, countervailing, or special customs duties
should be confirmed, as they can significantly impact
product costs.
▶ Some countries may not adhere to the GATT Valuation
Code and assess duties on fair market value rather than
invoice price.
▶ Penalties for import violations vary by country, and
exporters should seek administrative rulings from foreign
customs agencies when in doubt about classification,
valuation, duty rates, or assists.

29. Government
Contracting
Sales to foreign governments, government
agencies, or partially government owned
private businesses often involve
specialized procedures and
documentation. Public competitive bidding
and compliance with invitations to bid and
acquisition regulations, and providing bid
bonds, performance bonds, guarantees,
standby letters of credit, and numerous
certifications may be required.
Commissions may be prohibited, or the
disclosure of commissions paid may be
required. Government purchases may
qualify for customs duty, quota, or import
license exemptions. Barter or countertrade
may be necessary.

30. Buy American
Equivalent Laws
Foreign government agencies often
promulgate regulations that are
designed to give preferential
treatment to products supplied by
manufacturers in their own country.
This may consist of an absolute
preference, or it may be a certain
price differential preference.
Determining whether such laws or
agency regulations exist for your
company’s products is mandatory if
government sales are expected to be
important.

31. Exchange Controls
and Import Licenses
Unlike the United States, many nations of
the world have exchange control systems
designed to limit the amount of their
currency that can be used to buy foreign
products. These nations require that an
import license from a central bank or the
government be obtained for customers in
that country to pay for imported products.
For a U.S. exporter who wishes to get paid,
it is extremely important to determine (1)
whether an exchange control system
exists, and an import license is necessary
in the foreign country, (2) what time periods
are necessary to obtain such licenses, and
(3) the conditions that must be fulfilled and
documentation that must be provided for
the importer to obtain such licenses.

32. Value-Added Taxes
Many countries impose a value-added tax
on the stages of production and
distribution. Such taxes usually apply to
imported goods, so that the importer, in
addition to paying customs duties, must
pay a value-added tax based, usually, on
the customs value plus duties. When the
importer marks up and resells the goods, it
will collect the tax from the purchaser,
which it must remit to the tax authorities
after taking a credit for the taxes due on
importation. (Exporters are often exempt
from the value-added tax.) The amount of
value-added tax can be significant, as it is
usually higher than traditional sales taxes,
and, therefore, whether the product can be
priced competitively in the foreign market
is a matter of analysis.

33. Specialized Laws
Foreign countries often enact specialized
laws prohibiting the importation of certain
products except in compliance with such
laws. In the United States, there are many
special laws regulating the domestic sale and
importation of a wide variety of products (see
Chapter 6, Section A). Some U.S. laws
regulate all products manufactured in the
United States; others do not apply to products
being manufactured for export. In any case,
like the United States, foreign countries often
have special laws affecting certain products
or classes of products, and the existence of
such regulation should be ascertained prior to
manufacture, prior to entering into an
agreement to sell, and even prior to quoting
prices or delivery dates to a customer.

34. Export Controls
and Licenses
This subject is treated in detail in Chapter 5.
However, it is a very important preliminary
consideration because if an export license
from the U.S. Department of Commerce,
Bureau of Industry and Security is required,
and such license is not obtained by the
exporter, U.S. Customs and Border Protection
will detain the shipment, and the sale cannot
be completed. Even if the exporter sells ex-
factory and the buyer is technically responsible
for U.S. inland transportation, export, and
ocean shipment, the buyer may file a lawsuit if
the exporter does not inform the customer that
an export license is necessary, and the
shipment is detained. The method for
determining whether an export license is
required for a particular product is discussed in
Chapter 5.

35. Patent, Trademark, and
Copyright Registrations
and Infringements
▶ Intellectual property rights, including patents,
trademarks, and copyrights, are crucial in
international trade.
▶ Failure to register these rights in foreign
countries within specified timeframes can
lead to their loss and the marketing of
imitation products.
▶ Not conducting a patent, trademark, or
copyright search can result in unknowingly
infringing foreign intellectual property rights.
▶ In some countries, the first person to file
such rights becomes the legal owner, even if
the product was previously used elsewhere.
▶ U.S. exporters should be cautious, conduct
thorough searches, and address potential
infringements in their sales agreements to
avoid breaches of warranty

36. Confidentiality and
Non-Disclosure
Agreements
As a preliminary consideration, before
exporting products to foreign countries or
providing samples to potential customers, it is
important to ask the foreign company to sign a
confidentiality and non-disclosure agreement.
In many countries, especially if the U.S.
company has no patent registration there, the
ability of the U.S. company to prohibit copying
and piracy by reverse engineering is virtually
nil. Some measure of protection can be
obtained by requiring the foreign company to
sign a confidentiality and non-disclosure
agreement that commits it to not reverse
engineer the product or engage in its
manufacture itself or through third parties.
Such agreements are not unusual, and any
potential customer who refuses to sign one
should be suspect.

37. Antiboycott
Compliance
▶ U.S. companies need to be aware of U.S.
antiboycott regulations when conducting
business in or with the Middle East.
▶ Certain countries in the Middle East maintain
international boycotts, typically involving Israel.
▶ U.S. law prohibits companies from refusing to
do business based on agreements or requests
from boycotting countries or discrimination
based on race, religion, sex, or national origin.
▶ U.S. companies must report any requests for
information about their business relationships
with blacklisted companies or boycotted
countries to the Bureau of Industry and Security.
▶ Failure to comply with these regulations can
result in significant penalties, including civil and
criminal penalties, as well as denial of export
privileges.

38. Employee Sales Visits to
Foreign Countries—Immigration
and Customs Compliance and
Carnets
▶ Sales employees of U.S. companies may
visit foreign countries to identify customers
and evaluate markets as part of developing
export sales.
▶ Compliance with immigration and customs
laws of foreign countries is essential for
employees traveling abroad for business
activities.
▶ Many countries require business travelers
to obtain specific visas for entry; failure to
do so can result in penalties and delays.
▶ Bringing product samples into a foreign
country for display or sale requires payment
of regular customs duties or compliance
with local temporary importation
procedures.
▶ The ATA Carnet, administered by the
International Chamber of Commerce,
provides a solution for temporary entry of
samples in over ninety countries, with a
bond or cash deposit required for obtaining
the carnet.

39. Employee Sales Visits to
Foreign Countries—
Immigration and Customs
Compliance and Carnets
▶ Small U.S. companies may need to work with
freight forwarders for export-related services.
▶ Freight forwarders receive compensation from
transportation carriers for booking shipments
and also charge fees to shippers.
▶ Selection of a freight forwarder involves
considering factors like reputation, size,
financial strength, insurance coverage, fees,
and automation.
▶ The U.S. exporter should have an attorney
review the agreement with the freight forwarder
and may sign a power of attorney.
▶ Freight forwarders and foreign customs brokers,
if selected by the exporter, act as the exporter's
agents, and any mistakes they make can be the
exporter's responsibility with third parties and
government agencies.

40. Export Packing and
Labeling (Hazardous
Materials)
▶ Special packing may be necessary for
products shipped long-distance by ocean.
▶ Identification marks should be included in
the packing list.
▶ Different types of containers (e.g.,
insulated, ventilated, open top,
refrigerated) may be needed for shipping.
▶ Containerized shipments may be eligible
for lower insurance rates.
▶ Proper packing is important to avoid
disputes and claims for breach of
warranty, especially for hazardous
materials, and labeling requirements may
vary by country.

41. Terms of Sale
▶ Export sales agreements require agreement on terms related to title passage,
risk of loss, price, and payment.
▶ Sellers should formulate policies regarding terms of sale in advance to avoid
confusion.
▶ Various abbreviations exist to specify terms, such as Incoterms, Revised
American Foreign Trade Definitions, and Warsaw Terms.
▶ Parties may not always understand their rights and responsibilities the same
way, leading to potential disputes.
▶ Clarity and specification in sales agreements regarding the chosen
nomenclature and obligations are crucial to prevent misunderstandings and
costly duplication.

42. Terms of Sale

43. Terms of Sale
▶ Under the Convention on the International Sale of Goods, if
title and delivery are not specified in the sales agreement,
title transfers when merchandise is delivered to the first
transportation carrier.
Tax planning considerations include the creation of foreign
source income when title passes outside the United States,
potentially reducing U.S. income taxes.
▶
▶ Ensuring that title passes before customs clearance in the
foreign country is advisable to avoid responsibility for
customs duties, including antidumping duties.
▶ Typically, the buyer is responsible for importing products,
clearing customs, and paying customs duties, but in some
cases, the seller may sell "landed, duty paid" and take on
these responsibilities.
Various factors influence the choice of sales terms, such as
buyer experience, competition, affiliation with the buyer,
export controls, letter of credit requirements, and insurance
considerations, warranting a thorough discussion between
the seller and buyer to determine the most suitable terms.
▶

44. Consignments
Procedural Considerations
▶ Transport: The exporter is responsible for arranging transportation of
the goods to the consignee. The exporter may use a freight forwarder
to help with this process.
▶ Customs Clearance: The consignee may be able to effect customs
clearance on behalf of the exporter, but the exporter remains legally
liable for any customs duties and taxes.
▶ Insurance: The exporter is responsible for obtaining insurance for the
goods while they are in transit and while they are in the possession of
the consignee.
▶ Taxes: The exporter may be liable for taxes in the foreign country,
such as personal property taxes and income taxes.
▶ Security Interests: The exporter may need to take steps to protect its
security interest in the goods, such as filing a chattel mortgage or
conditional sale agreement.

45. Documentary
Considerations
▶ Bill of Lading: The exporter will need to obtain a bill of
lading for the goods. The bill of lading should be made
out to the exporter and should be marked "consigned
to order." This will allow the consignee to take
possession of the goods without transferring title to the
goods.
▶ Commercial Invoice: The exporter will need to provide
the consignee with a commercial invoice. The
commercial invoice should include the following
information:
▶ A description of the goods
▶ The quantity of goods
▶ The value of the goods
▶ The terms of sale
▶ Packing List: The exporter should provide the
consignee with a packing list. The packing list should
list the contents of each package and the weight of
each package.
▶ Certificate of Origin: The exporter may need to provide
the consignee with a certificate of origin. The certificate
of origin is a document that certifies the country of
origin of the goods.

46. Alternative Valuation
Methods for Customs
Duties
The deductive method is based on the
following formula:
▶ Sale price of comparable goods in
the foreign country + Cost of
freight and insurance + Import
duties and taxes + Profit margin
▶ The customs authorities will use
the deductive method to estimate
the sale price of the goods in the
foreign country. The customs
authorities will then use this
estimated sale price to assess
customs duties.

47. Tips for Exporters and
Consignees
▶ Exporters:
▶ Carefully select a consignee. The
consignee should be reputable and have
experience in handling consignment
transactions.
▶ Provide the consignee with clear
instructions on how to sell the goods.
▶ Monitor the consignee's sales activities.
▶ Review the consignee's financial
statements regularly.
▶ Consignees:
▶ Act in good faith on behalf of the exporter.
▶ Keep accurate records of all sales
activities.
▶ Remit all sales proceeds to the exporter
promptly.
▶ Cooperate with the exporter in managing
the security interest in the goods.

48. Leases in Freight
Forwarding: A
Comprehensive Overview
Leases can be used for a variety of
purposes, such as:
▶ To finance the sale of goods to
foreign buyers.
▶ To extend payment terms to
foreign buyers.
▶ To protect the exporter from
currency fluctuations.
▶ To comply with foreign government
regulations.

49. Leases in Freight Forwarding:
A Comprehensive Overview
Leases can be structured in a variety of ways, but there are
some key features that are common to all lease transactions:
▶ Title to the goods remains with the lessor throughout the
lease term.
▶ The lessee has the right to use the goods during the lease
term.
▶ The lessee has the option to purchase the goods at the
end of the lease term.
▶ The lease agreement sets out the terms and conditions of
the lease, including the lease term, the lease payments,
and the option purchase price.

50. Leases in Freight
Forwarding: A
Comprehensive Overview
▶ Exporters/lessors are legally responsible for all
exporting and importing obligations related to
lease transactions, including export declarations,
licenses, and taxes.
▶ Exporters/lessors may delegate these obligations
to the importer/lessee through the lease
agreement, specifying responsibilities such as
filing import declarations and paying import
duties.
▶ For customs valuation, leases are not considered
sales, so transaction value cannot be used;
instead, an alternative method like the fair market
value method is applied.
▶ The fair market value method assesses customs
duties based on the estimated value of the goods
at the time of import.
▶ Whether a lease transaction is subject to value-
added taxes (VAT) or other exactions depends
on the destination country's laws, with some
countries exempting leases from VAT and others
applying reduced rates. Exporters/lessors should
review destination country VAT laws before
entering into lease transactions.

51. Benefits of Using
Leases
There are a number of benefits to using leases for exporting goods to
foreign buyers. These benefits include:
▶ Deferred payment: Leases allow exporters to defer payment for
goods until the end of the lease term. This can be helpful for
exporters who are financing the production of goods or who are
experiencing cash flow problems.
▶
▶
▶
Extended payment terms: Leases can provide exporters with
extended payment terms to foreign buyers. This can be
helpful for exporters who are trying to penetrate new markets
or who are selling to buyers with limited credit history.
Currency protection: Leases can help exporters to protect
themselves from currency fluctuations. For example, if an
exporter leases goods to a foreign buyer in a foreign currency,
the exporter will be able to lock in the price of the goods in that
currency.
Compliance with foreign government regulations: In some
countries, leases are required for certain types of goods or for
certain types of transactions. For example, some countries
require leases for the importation of certain types of machinery
or equipment.

52. Marine and Air
Casualty
Insurance
▶ Marine and air insurance is crucial for export shipments to cover
potential risks and losses.
▶ Ocean carriers have specific responsibilities under the Carriage
of Goods by Sea Act, but there are limitations to their liability for
certain events beyond their control.
▶ Without insurance, liability for loss or damage during shipment is
limited, making insurance essential for full coverage.
▶ Determining who is responsible for arranging and paying for
insurance is critical and should be clearly defined in the sales
agreement.
▶ Companies can choose between open cargo policies, special
one-time policies, or utilizing their freight forwarder's policy. The
choice depends on the quantity and value of exports.
▶ Familiarity with insurance policies and coverage options is
important, especially for filing claims in the event of a casualty.
▶ Insurance should cover "all risks," and additional coverage for
specific risks like war or customs duty changes may be
necessary.
▶ Under the Incoterms, insurance should be at 110 percent of the
invoice value for some letter of credit sales.
▶ For payment through letters of credit or documentary collections,
the seller may need to provide a certificate confirming insurance
coverage.
▶ Premiums for insurance depend on various factors, including the
type of merchandise, its value, packaging, transportation method,
and destination country. Consulting with marine insurance
companies or brokers is advisable to make informed choices.

53. Methods of
Transportation;
Booking Transportation
▶ Consideration of transportation methods, such as marine
and air, is essential in export logistics, with air being faster
but costlier.
▶ Chartering vessels may be an option for large shipments or
bulk commodities to secure lower rates.
▶ Inland transportation options, including truck, rail, or air,
should be selected based on specific needs.
▶ Freight forwarders or non-vessel-operating common
carriers (NVOCCs) can help arrange and book shipments,
especially for smaller quantities or inexperienced exporters.
▶ Tariffs, which list service charges and exceptions, are
maintained by NVOCCs and VOCCs, both of which must
be licensed by the Federal Maritime Commission and carry
insurance.
▶ Airfreight rates are based on actual or dimensional weight,
while ocean freight rates consider weight or volume.
▶ Misclassifying merchandise or providing false information
about weight and measurements is a violation.
▶ Couriers offer inclusive transportation services and
customs clearance, but importers may still be held
responsible for declarations made by couriers.
▶ Smaller shippers can benefit from joining shippers'
associations, which arrange transportation cooperatively.

54. Country of Origin
Marking
▶ Many foreign countries require products and
packaging to be marked with the country of
manufacture or production.
▶ Regulations can be specific, dictating marking
methods, size, location, and potential
exemptions.
▶ Compliance with foreign marking requirements
is crucial, as products may not be allowed into
the country without proper marking.
▶ Specific product categories like
pharmaceuticals, food products, and textiles
may have additional marking requirements,
often enforced by local consumer products
agencies.
▶ It's essential for exporters to research and
adhere to foreign regulations regarding product
marking before production and shipment.

55. Foreign Warehousing and Free Trade
Zones
▶ Many companies utilize regional distribution centers in locations like Rotterdam
or Hong Kong to re-export products to various countries in the region.
▶ Shipments to these distribution centers can enter the country temporarily for
activities such as repackaging, relabeling, and modification without paying
customs duties.
▶ Foreign countries often have bonded warehousing and free trade zone systems
that allow for these activities, but U.S. exporters must adhere to specific
procedures to benefit from duty-free treatment.

56. Export Financing and Payment Insurance
▶ Several government agencies, both in the U.S. and foreign countries, offer financing
options for U.S. exporters.
▶ The U.S. Export-Import (EXIM) Bank provides financing for large and small
exporters, and various other agencies like the Department of Agriculture,
International Development Cooperation Agency, and more also have export
financing programs.
▶ Some foreign countries offer financing for imports of products they seek to acquire.
▶ Many U.S. states have developed their own export financing programs, which
exporters should explore through their state agencies or the National Association of
State Development Agencies.
▶ Foreign Credit Insurance, offered by the Foreign Credit Insurance Association and
marketed by the U.S. Export-Import Bank, can protect exporters against defaults
due to factors like expropriation, political risks, and customer nonpayment, which
may be required for certain export financing.

57. Tax Incentives
Up until September 2000, the United States had in place tax reduction programs
for export profits called the Foreign Sales Corporation and Domestic International
Sales Corporation programs. Then, based on findings by the World Trade
Organization that these programs violated the world trading rules, the United
States developed a replacement program. However, the WTO also found that the
replacement program violated the same rules. Benefits under the old Foreign Sales
Corporation program ended on December 31, 2001.

58. Export Trading Companies, Export Trade
Certificates of Review, and Export
Management Companies
▶ The Export Trading Company Act (ETC) enacted in 1982 provides benefits for
exporting companies, including exemptions from U.S. antitrust laws on export
activities.
▶ Exporters can obtain certificates under the ETC, allowing them to engage in
activities that might otherwise violate antitrust laws, such as appointing exclusive
distributors, imposing restrictions on distributors, or cooperating with competitors in
exporting.
▶ These certificates are issued by the U.S. Department of Commerce, with the
concurrence of the Department of Justice, and are relatively easy to apply for.
▶ Export management companies (EMCs) are U.S.-based intermediaries that act as
sales agents or representatives for manufacturers in certain foreign markets.
▶ While EMCs typically work on a commission basis, ETCs are expected to have
sufficient capital to purchase products from manufacturers, pay in advance, and
earn compensation through resale markups, although some companies may
perform both roles.

59. Translation
An exporter should give sufficient forethought to the necessity of translating its
advertising materials, instructions, warranties, and labeling into the language of the
destination country. Not only will this be necessary in order to achieve sales, but
failure to do so can lead to legal liabilities. For example, if a patent application is
not properly translated, the rights may be lost. Some countries require that certain
labeling be in their language. The location of a competent translator and
completion of the translation may require significant lead time and, depending on
the quantity of material, involve a significant expense.

60. Foreign Branch Operations, Subsidiaries,
Joint Ventures, and Licensing
▶ Exporters may choose to export to their own branch or subsidiary companies in foreign
countries, which can enhance market penetration and streamline export and import operations.
▶ Establishing branch operations or subsidiary companies abroad requires proper staffing and
may lead to modifications in export and import documentation and procedures.
▶ Joint ventures with foreign companies may be formed to manufacture or market the exporter's
products in foreign markets, necessitating adjustments in business operations and
documentation.
▶ When laws or logistics make importing products challenging, the exporter may license a foreign
company to manufacture and sell the product in exchange for royalties.
▶ These various methods of doing business internationally can give rise to complex issues
related to income tax, customs valuation, dutiable royalties, export controls, and export audit
documentation, particularly with the increasing use of electronic ordering procedures between
affiliated companies.

61. Electronic Commerce: Validity and
enforceability of electronic sales contracts.
▶ Ensuring the validity and enforceability of electronic sales contracts is a
significant concern for international transactions.
▶ To address this concern, sellers modify and tailor legal terms of sale on their
websites to accommodate both foreign and domestic customers.
▶ Authentication procedures and "click-wrap" agreements are employed to
confirm the purchaser's agreement to sales terms, particularly for high-value or
ongoing business transactions, while some sellers require hard-copy "umbrella"
agreements for ongoing customers.

62. Electronic Commerce: Delivery and
logistics.
▶ Direct sales to consumers often require "delivered duty paid" terms of sale,
offering convenience for customers who expect door-to-door delivery.
▶ Timely delivery is crucial, especially for consumer goods, and maintaining local
inventory in the buyer's country is challenging.
▶ International courier services like UPS, Federal Express, and DHL have made
prompt delivery of smaller products more feasible, with the added benefit of
acting as customs brokers.
▶ Large capital goods, common in business-to-business (B2B) transactions, face
obstacles like packaging, transportation logistics, export licenses, and foreign
customs clearance.
▶ Establishing in-country inventory for immediate delivery remains challenging
without incurring the costs of establishing branch offices or subsidiaries.

63. Electronic Commerce: Prices
▶ Since many customers want to have delivery to their door, when they see a price
quotation on a Web site, they expect to see an ‘‘all-in’’ (delivered duty paid) price. The
difficulty of maintaining up-to-date quotations online, including freight charges,
insurance, duties, quotas, and value-added taxes for multiple countries of the world,
has forced many sellers to hire software companies that offer such services.

64. Electronic Commerce: Payment
For low-price consumer goods, payment by credit card has enabled sellers to
increase Internet sales. However, the fact that credit card purchases are not
guaranteed payments and the virtual impossibility of pursuing a collection lawsuit
overseas because of prohibitive cost has limited expansion. For expensive
purchases or ongoing accounts, the seller may need the security of a letter of
credit or documents against payment. On the other side, buyers dislike having to
pay for purchases in advance without inspection of the goods. Where the seller has
done business in the past on open account, or is willing to do so in the future,
Internet sales can be practical.

65. Electronic Commerce: Payment
Although one of the great spurs to the growth of electronic commerce in the past
has been the ability to avoid certain taxes in certain countries, such as sales,
value-added, corporate franchise, or personal property taxes, there is an
increasing demand by governments to recover those tax revenues that are being
lost. It is likely that some forms of taxation will increase, and sellers may have to
comply with foreign tax claims.

66. Electronic Commerce: Payment
Although there has been significant progress in maintaining the confidentiality of
information transmitted over the Internet, the sophistication of ''hackers'' has also
increased. For information from credit card numbers to purchase order numbers and
customer lists, confidentiality, particularly from competitors and fraud artists, is crucial.
The most secure current technologies using ''key'' systems are cumbersome, especially for
small orders and onetime sales. Furthermore, exporting such software may require an
export license.

67. Exporting: Sales
Documentation
The single most important document
in the export sale is the sales
agreement. Repeat: The single most
important document in the export sale
is the sales agreement! Most of the
problems that occur in exporting can
be eliminated or greatly reduced by
using a suitable sales agreement.
Generally, different types of sales
agreements are used for isolated
sales transactions and for ongoing
sales transactions. I will discuss these
as well as look at the important
provisions in international sales
agreements, distribution agreements,
and sales agent agreements.

68. Isolated Sales
Transactions
▶ Isolated sales transactions involve
infrequent or trial purchases, or
customers with no credit history.
▶ Written sales agreements are
recommended, often using
common preprinted forms.
▶ Sellers should ensure consistency
and resolve conflicting provisions
between their forms and those
from the buyer.

69. Isolated Sales
Transactions: Importance
of Written Agreements
▶ Some industries, like commodities,
often rely on oral agreements for sales.
▶ Although oral agreements may occur in
international sales, it's advisable to
formalize them in writing.
▶ The Uniform Commercial Code in the
United States requires a written
agreement for sales exceeding $500 to
be enforceable.
▶ A written sales agreement serves as a
checklist and a record of the
agreement, helping prevent disputes.
▶ Any modifications to the agreement
should also be documented in writing.

70. Isolated Sales Transactions:
Email or Facsimile Orders
• Email or facsimile orders and acceptances can meet the legal
requirements for written evidence of an agreement.
• However, such agreements often lack important terms and
conditions beyond quantity, price, and shipment date.
• To adequately protect the seller, email or facsimile acceptances
should explicitly incorporate the seller's standard terms and
conditions, which should be provided in the seller's response
to the buyer.

71. Isolated Sales Transactions:
The Formation of Sales
Agreements
▶ A sales agreement is a formal contract governed by
law, involving the passing of title and ownership of
goods for a price.
▶ Typically, an agreement results from a mutual
manifestation of assent to the same terms, often
through offer and acceptance.
▶ The formation of a sales agreement can occur
through a single signed document, exchange of
documents (like purchase orders), or conduct (such
as shipping goods).
▶ Preparation of a sales agreement in a single
document is ideal for clarity and risk reduction,
commonly used for large transactions or when
specific risks are involved.
▶ Sales agreements can also be formed through an
exchange of independently prepared documents,
which may create issues related to the time of
formation, governing law, and conflicting terms.
Conduct can also establish a sales agreement, but
it's important to clarify terms before proceeding.

72. Common Forms for the
Formation of Sales Agreements
There are a number of forms customarily used in the formation of sales agreements.
In order to save time (and discourage changes by the other party), both buyers
and sellers often purchase preprinted forms from commercial stationers or develop
and preprint their own forms. Not all of the same documents are used by the seller or
the buyer in all sales transactions. For example, a seller may submit a quotation to
a potential buyer without receiving any request for quotation, or the first
communication
the seller receives may be a purchase order from the buyer. However, it is
important to be familiar with the various forms and the role they play in bringing the
negotiations to agreement.

73. Price Lists
Sometimes a seller will send a price
list to a prospective buyer as its first
communication. Ordinarily, such price
lists would not be considered as an
offer to sell, entitling the buyer to
immediately accept. However, in order
to prevent the unexpected formation
of a sales agreement, such price lists
should specify that this is not an offer
to sell, and no agreement will arise
until a purchase order has been
received and accepted. Such price
lists should also specify their
expiration date and that they are
subject to change.

74. Requests for
Quotations (RFQ)
▶ The formation of a sales agreement can
begin with the buyer's request for a quotation
(RFQ), which typically seeks a price quote
for a specific quantity and shipping date.
▶ RFQs can be informal via email or fax or
formal through printed forms.
▶ Sellers should carefully examine RFQs to
check for other terms and conditions of
purchase that may be incorporated by
reference or in fine print.
▶ If other terms are referenced, it's advisable to
request the buyer to provide those terms for
review before responding.
▶ Reviewing potential conflicts with the seller's
own terms and conditions is essential,
especially in the context of email
correspondence. Buyers should also request
a copy of the seller's terms and conditions.

75. Quotations and
Costing Sheets
▶ Sellers responding to a request for a quotation should
carefully calculate additional costs related to an export
sale and shipment using a costing sheet to ensure
profitability.
▶ Quotations can be prepared on a case-by-case basis or
using printed forms.
▶ It's crucial for the seller to include all terms and
conditions of sale in their first communication with the
buyer, along with price, quantity, and shipment date.
▶ The seller can specify that they won't be bound until they
receive a written purchase order and issue a written
purchase order acceptance.
▶ Quotations, even if not designated as firm, may be
considered irrevocable for a certain period under the
laws of some countries, leading to differences in rights
and responsibilities for the seller if the sales agreement
is formed in the buyer's country.

76. Purchase Order
▶ The next document in a sales transaction is often a purchase
order (PO) issued by the buyer, which can be informal or on a
printed form.
▶ Purchase orders typically contain additional terms and
conditions desired by the buyer to become part of the sales
agreement.
▶ If the seller has previously sent a quotation to the buyer, the
terms and conditions in the buyer's purchase order may govern
the sales agreement.
▶ The terms and conditions in the buyer's purchase order are
typically favorable to the buyer.
▶ Sellers can protect themselves by clearly stating in their
quotations that the quotation is not an offer to sell, and no sales
agreement exists until they receive a purchase order from the
buyer and issue a purchase order acceptance.

77. Purchase Order
Acknowledgments,
Acceptances, and
Sales
Confirmations
Sellers often prepare purchase order acknowledgments
when they receive a purchase order.
A purchase order acknowledgment may indicate that the
seller is evaluating the purchase order and has not yet
accepted it, or it may serve as an acceptance of the order.
Sales confirmations typically serve the same role as
purchase order acceptances.
Sellers usually include their detailed terms and conditions
of sale in purchase order acknowledgments or
acceptances.
If the buyer's request does not contain detailed terms and
conditions of purchase, the seller's terms and conditions
will likely control. However, if the buyer has previously
provided terms and conditions, the seller should ensure its
terms prevail by stating that the order is accepted only
under the seller's conditions, and the buyer must confirm
its acceptance of those terms in writing.

78. Pro Forma
Invoices
▶ In countries with foreign exchange
controls, the buyer may need a pro
forma invoice from the seller to obtain
government approval for payment.
▶ The pro forma invoice is submitted to
the central bank to gain permission to
convert foreign currency into U.S.
dollars for payment.
▶ Care should be taken when preparing
the pro forma invoice, as changes in
price can be difficult once submitted,
and it should contain complete terms
and conditions of sale.

79. Commercial Invoices
The seller typically prepares a
commercial invoice when the product
is ready for shipment.
Commercial invoices are formal
statements for payment and may
include detailed terms and conditions
of sale.
If the seller mentions terms and
conditions for the first time in the
commercial invoice, they may not be
binding on the buyer due to prior
acceptance of the order.

80. Conflicting Provisions in Seller and Buyer Sales
Documentation
Preprinted forms are
commonly used in
international trade to simplify
negotiations and discussions
in sales agreements.
These forms often favor either
the buyer or the seller,
leading to potential
inconsistencies in terms and
conditions.
To avoid legal ambiguities
and ensure clarity in sales
agreements, sellers may
include language in their
documentation stating their
terms and conditions prevail,
but this may not always
guarantee success.
To establish clear terms and
conditions, sellers should
review the buyer's forms and
negotiate any conflicts or
differences in a rider or letter,
signed by both parties.
Sellers should establish a
dollar limit for when this
review process becomes
necessary and not rely on it
for larger sales transactions.

81. Side Agreements
Buyers may occasionally
suggest side or letter
agreements for various
reasons, including clarifying
specific provisions in the sales
agreement.
It is generally better practice to
incorporate all agreements into
a single document to ensure
clarity and enforceability.
Sellers should exercise caution
when considering side
agreements, as they may have
legal consequences, such as
being unenforceable or leading
to payment issues or legal
prosecution for violating laws.

82. Ongoing Sales
Transactions
▶ Ongoing sales transactions require more comprehensive
agreements between the seller and buyer.
▶ These agreements often result from the buyer's commitment
to regular purchases or a desire for lower prices.
▶ The three major types of ongoing sales agreements are
international sales agreements (direct sales to end-users),
distributor agreements (reselling the product in the
destination country), and sales agent agreements (soliciting
orders from potential customers).
▶ Documentation for ongoing sales transactions is similar to
that used in isolated sales but includes specific provisions
relevant to international sales, distributors, and sales agents.
▶ Important provisions unique to these agreements should be
included to address international trade, distributor
relationships, and sales agent compensation.

83. Correlation With Documentation
for Isolated Sales Transactions
▶ Long-term sales relationships often involve umbrella or blanket
agreements.
▶ These agreements govern the parties' relationship over an extended
period, allowing for production, marketing, and advertising planning.
▶ Special price discounts for specific purchase commitments are
common in such agreements.
▶ Umbrella agreements may specify quantities and prices, or prices
may fluctuate based on the seller's current rates.
▶ Specific transaction details, such as quantities, prices, and shipment
dates, are addressed using standard documentation like purchase
orders, acknowledgments, acceptances, pro forma invoices, and
commercial invoices. However, conflicts can arise between umbrella
agreement terms and specific documentation.

84. Important Provisions
in International Sales
Agreements
There are numerous terms and conditions
in an international sales agreement that
require special consideration different from
the usual terms and conditions in a
domestic sales agreement. Unfortunately,
sometimes sellers simply utilize sales
documentation that was developed for
U.S. domestic sales, only to discover that
it is woefully inadequate for international
sales. .

85. Selling and
Purchasing Entities
▶ Consideration of who will be the seller and buyer is
crucial when entering international sales agreements.
▶ Tax-saving structures, such as commission agent and
buy-sell structures, can be utilized to establish another
company as the seller, potentially reducing taxes.
▶ In the commission agent structure, a related company
is paid a commission on export sales.
▶ In the buy-sell structure, a related company is set up
to act as the seller for export sales.
▶ Customs treatment, valuation, and duties may differ
based on the relationship between seller and buyer,
the use of trading companies, and intermediary
arrangements in international transactions.

86. Quantity
Quantity terms are often more crucial than
price terms in sales agreements.
In the United States, an agreement on quantity
alone can make the sales agreement
enforceable, even if price is not determined.
Buyers may secure lower prices by committing
to purchase large quantities, allowing sellers
to plan production and reduce costs.
Quantity discounts should be carefully
structured to comply with price discrimination
laws.
Agreements can be for specific quantities or
target quantities, and minimum purchase
commitments may justify termination in case
of breach.

87. Pricing
• Sellers need to consider various factors
when formulating pricing policies for
international sales agreements.
• Sellers must identify all additional costs
associated with exporting to ensure that
quoted prices result in an acceptable net
profit.
• Constraints related to dumping laws may
apply, and prices for export must not be
lower than domestic prices in the buyer's
country.
• There are generally no U.S. legal constraints
on pricing for exports compared to domestic
sales.
• Selling below total production costs may lead
to issues such as predatory pricing
accusations and disputes over cost
calculations.

88. Pricing
▶ Rebates, discounts, and allowances in international sales
agreements are generally permissible but must be disclosed
to the appropriate government authorities.
▶ Falsely declaring prices on export documentation can lead to
violations of U.S. and foreign laws.
▶ Actions such as requesting two invoices for different amounts
or paying rebates outside the buyer's country can violate
foreign exchange control, tax, and customs laws.
▶ Retroactive price changes or escalation clauses may require
reporting to relevant authorities.
▶ Pricing considerations become more complex when selling to
affiliated companies, and tax authorities may require arm's-
length pricing between related entities.

89. Currency
Fluctuations
▶ Currency fluctuations between the seller's
and buyer's markets can impact the final
payment amount.
▶ Sellers may quote and sell in U.S. dollars
to avoid currency risk.
▶ Larger buyers or sellers may negotiate
sales denominated in foreign currency.
▶ If the foreign currency weakens before
payment, the exporter receives fewer
U.S. dollars.
▶ Long-term agreements may involve risk-
sharing arrangements to mitigate the
impact of currency fluctuations on both
parties.

90. Payment
Methods
▶ In international sales, different payment
methods are used to protect the seller.
▶ Sellers may insist on cash in advance,
especially with unknown or risky buyers.
▶ Documentary letters of credit from the
buyer's bank, often confirmed by a
seller's bank, provide security for both
parties.
▶ Some sales still allow payment upon
shipment or within a specified period.
▶ Buyers may prefer alternative methods
due to the costs associated with letters of
credit, potentially leading to less secure
payment options.

91. Payment
Methods
▶ Sight draft documentary collection, also
known as documents against payment
(D/P), is a payment method.
▶ In D/P transactions, a bank is used for
collection, but no bank guarantees
payment.
▶ The seller ships the goods and sends the
bill of lading and a draft to their bank.
▶ The seller's bank forwards these
documents to a foreign correspondent
bank, which collects payment from the
buyer before the goods arrive.
▶ If the buyer doesn't pay, the
correspondent bank doesn't release the
bill of lading, allowing the seller to
maintain control over the goods.

92. Payment
Methods
▶ Time drafts, or documents against
acceptance (D/A), are a payment method
where the buyer agrees to pay a certain
number of days after accepting the draft.
▶ The bill of lading and time draft are sent
through banking channels.
▶ This method allows the buyer to take
possession of the goods and potentially
resell them before payment is due.
▶ D/A transactions are riskier for the seller
because if the buyer doesn't pay on time,
the goods have already been released.
▶ Discounts, interest charges, and bank
guarantees may be used to mitigate risks
and encourage timely payment.

93. Payment
Methods
▶ Sale on open account is the least secure payment
method, where the seller sends the bill of lading and
invoice directly to the buyer for payment.
▶ Once the bill of lading leaves the seller's possession,
the seller loses control over the goods, and the buyer
can obtain them without making payment.
▶ Sellers using open account payment should consider
alternative methods for securing payment, such as
security interests under foreign law or commercial
risk insurance through organizations like the Foreign
Credit Insurance Association.
▶ Standby letters of credit can add security to
transactions by providing a guaranty from the issuing
bank in case of buyer default.
▶ Sellers may start with letters of credit for security but
may later offer more flexible payment terms as they
become more familiar with reliable customers.

94. Payment Methods
▶ In international transactions, alternative payment methods like wire transfers
through banking channels are often preferred over checks due to time delays.
▶ Wire transfers directly between bank accounts are efficient but may be delayed
until goods are sent or inspected.
▶ Cash payments or payments in third countries carry the risk of violating foreign
exchange control, tax, and customs laws, and should be carefully considered.
▶ Countertrade methods, such as barter, counter purchase, or offset, can be used
in international sales but come with higher risks and complications.
▶ Factoring of export accounts receivable can provide immediate payment to
exporters, although some factors may be hesitant due to the risks involved, and
the discount offered may vary based on whether the factor buys with or without
recourse.

95. Export Financing
▶ The substantive aspects of export
financing were discussed in Chapter 2,
Section T. If export financing is going to
be utilized, it should be discussed in the
international sales agreement. The buyer
will thus be clearly aware that the seller
intends to use such export financing. The
documentation that the buyer is required
to provide in order for the seller to obtain
such financing should be specified in the
agreement, and the seller’s obligation to
sell and make shipment at specific dates
should be subject to obtaining such
export financing in a timely manner.

96. Security Interest
▶ Sellers intending to use open account or
documents against acceptance payment
methods should consider obtaining a security
interest under the buyer's country's laws.
▶ Without proper registration of the security
interest, the seller may be unable to
repossess goods in case of buyer bankruptcy
or financial difficulties.
▶ Investigate the requirements for establishing
a security interest in the buyer's country
through legal counsel.
▶ Specify the details of the security interest
and registration in the international sales
agreement.
▶ Establish the security interest, including
public registration, before delivery to the
buyer, and ensure subordination agreements
from other creditors if needed.

97. Passage of Title,
Delivery, and Risk of
Loss
Ownership is transferred from the seller to the buyer
by the passage of title. Under U.S. law, title will pass
at the time and place agreed to by the parties to the
international arrival in the foreign country; after
clearance of customs in the foreign country; upon
arrival at the buyer’s place of business; or at any
other place, time, or manner agreed to by the
parties. Under the new Convention on the
International Sale of Goods (discussed in subsection
m), if the parties do not agree on the time and place
for transfer of title and delivery, title will pass when
the merchandise is transferred to the first
transportation carrier. Usually, the risk of loss for any
subsequent casualty or damage to the products will
pass to the buyer at the same time the title passes.
However, it is possible to specify in the sales
agreement that it will pass at a different time. Up to
the point where the risk of loss passes to the buyer,
the seller should be sure that the shipment is insured
against casualty loss.

98. Warranties and
Product Defects
▶ Warranty terms are a crucial provision in
international sales agreements.
▶ Unless explicitly limited in writing, the seller
can be held liable for foreseeable
consequential damages from defective
products.
▶ The agreement should specify the type of
warranty (e.g., "as is," limited, repair or
replacement), any dollar limits, timeframes
for warranty claims, and constraints on
consequential damages.
▶ Public policy and foreign laws may impact
the effectiveness of warranty limitations,
requiring legal consultation.
▶ Magnuson-Moss Warranty Act, applicable to
merchandise sold in the United States, does
not apply to export sales, but foreign laws
may be relevant.

99. Preshipment
Inspections
▶ Some countries, especially in South America
and Africa, may require preshipment
inspections before purchasing foreign
products to prevent fraud.
▶ Preshipment inspections aim to ensure the
quality and authenticity of goods.
▶ Buyers may request and sellers may agree
to preshipment inspections, but terms and
conditions should be outlined in the sales
agreement.
▶ Inspection agencies may review not only
product quality but also pricing, potentially
leading to price disputes.
▶ The agreement should specify the type,
scope, terms, and consequences of the
preshipment inspection, which can cause
shipment delays of 20 to 40 days.

100. Export Licenses
▶ Export license requirements should be
addressed in the international sales agreement.
▶ The exporter should specify that an export
license is needed and mandate that the buyer
provides the necessary documentation for the
license application.
▶ Failure to provide required documentation by
the buyer can excuse the seller from completing
the export sale and allow for damage claims.
▶ The agreement serves as evidence that the
seller informed the buyer about export control
laws.
▶ If the seller cannot obtain the export license, the
agreement should excuse the seller's
performance without payment of damages to
the buyer, with exceptions under the Incoterms
rules.

101. Import Licenses and
Foreign Government
Filings
▶ The buyer's responsibility for obtaining
import licenses and foreign
government filings should be specified
in the international sales agreement.
▶ The agreement should outline the
specific licenses and filings required.
▶ The buyer should commit to obtaining
these licenses and filings well in
advance, ensuring timely payment.
▶ The buyer should provide copies of
license applications before filing,
allowing the seller to verify information
and monitor progress.
▶ This process helps the seller ensure
alignment with pricing and schedules.

102. Governing Law
▶ International sales agreements are governed
by the laws of either the seller's country or
the buyer's country.
▶ Parties can agree on the governing law,
which becomes binding whether a lawsuit is
filed in the buyer's or seller's country.
▶ Generally, if bargaining leverage is equal, the
buyer may agree to the seller's country's law.
▶ The choice of governing law can have
significant legal implications, so
understanding the differences between
foreign and U.S. law is crucial.
▶ If no governing law is specified, disputes can
arise over which law applies, especially if
there's a conflict between the parties'
preprinted forms or no explicit agreement
exists.

103. Governing Law
▶ The Convention on Contracts for the International
Sale of Goods (the Convention) became effective on
January 1, 1988, among its signatory countries,
including the United States.
▶ The Convention contains over one hundred articles
that govern international sales agreements and is
similar to the U.S. Uniform Commercial Code but
differs in certain aspects.
▶ Parties from Convention countries can exclude its
application and choose the governing law of the seller
or buyer in their international sales agreement.
▶ If there's no agreement on the governing law, the
Convention's provisions automatically apply,
potentially benefiting the buyer more than the seller.
▶ Sellers should include governing law provisions in
their international sales agreements and be aware of
differences between the Convention and U.S. law if it
becomes applicable.

104. Dispute
Resolution
▶ Disputes between parties in international sales
agreements can be resolved through litigation in the
courts.
▶ Payment disputes, where the buyer fails to make
payment, are a common issue for U.S. exporters.
▶ U.S. exporters may need to go to the courts of the
buyer's country to seek a judgment and obtain assets of
the buyer.
▶ Risks in such disputes include foreign courts potentially
misapplying or disregarding U.S. law, lengthy legal
proceedings, high expenses, and unsatisfactory
outcomes.
▶ Exporters can reduce these risks by specifying in the
sales agreement that disputes must be resolved in the
courts of the seller's country, with the buyer's consent to
jurisdiction and lawsuit initiation through written notice.
However, obtaining such an agreement depends on
negotiating strength, and a U.S. judgment may have
limited value if the buyer has no assets in the United
States.

105. Dispute Resolution
▶ Arbitration may not necessarily save expenses or time in dispute resolution,
and it can involve substantial costs, including the payment of arbitrators' fees.
▶ Choosing an administering authority for arbitration is essential. Options include
the International Chamber of Commerce, American Arbitration Association, or
other authorities based on mutual agreement.
▶ The number of arbitrators should be specified; one arbitrator is suitable for
smaller disputes, while three may be needed for larger ones.
▶ The location of arbitration must be determined, preferably through mutual
agreement or an intermediate location to resolve conflicts.
▶ Sellers should confirm whether an arbitral award would be enforceable in the
courts of the buyer's country, particularly by checking if the New York
Convention, a multinational treaty, applies. Failure to do so may lead to the
need for relitigation in the buyer's country.

106. Termination
▶ Terminating international sales, distributor, or sales
agent agreements can be more challenging due to
protective laws in many countries favoring buyers and
agents.
▶ These laws are intended to prevent unfair terminations
by sellers who hold economic leverage, but they may not
always align with the actual circumstances.
▶ Sellers should seek legal advice and research the
protective legislation in the foreign country before
entering ongoing relationships.
▶ Specific provisions in the agreement can limit termination
liability, such as the right to terminate for buyer breach,
appointing another distributor, and addressing change in
control, bankruptcy, or insolvency.
▶ The agreement's term should be carefully considered, as
automatic renewals and long-term arrangements can
impact termination compensation under local laws.

107. Break Time!