Incoterms

‘Incoterms 2000' (or International Commercial terms) are a series of international sales with terms, published by InternationalChamber of Commerce. These are accepted by governments, legal authorities andpractitioners worldwide for the interpretation of most commonly used terms ininternational trade. They contain the rights and obligations of both partiesinvolved in a contract sale.

Incoterms rules were adopted in 1936. Changes and additions were made in1953, 1967, 1976, 1980, 1990 and 2000. As ofJanuary 1st, 2011 the eighth edition, Incoterms 2010, will be brought intoforce, one of the main innovations of which is the introduction of two newscales for international trade terms (one - for international, and the other -for domestic trade).

One of the main reasons for the development of Incoterms is that often,both parties of the same contract have different trading practices in their ownrespective countries, which may cause misunderstanding, disputes andlitigation, as well as loss of time and money. The advantage of using Incotermsis that it is supported by the courts, primarily by arbitration, in almost allcountries.

Incoterms regulation is limitedto matters relating to rights and obligations of the parties to the contract ofsale with respect to the delivery of goods sold. They are used to dividetransaction costs and responsibilities between buyer and seller and reflectstate-of-the-art transportation practices.

Today, the Incotermsinterprets 13 trade terms to help determine:

-      What the obligations of the parties are ontransportation and insurance, as well ensuring the proper packaging, loadingand unloading of goods. 

-      The risk of the accidental loss or damage,desiccation, outage, natural attrition, which have occurred regardless of whatthe parties involved in the contract. This does not apply to the risksassociated with the transportation of cargo. Liability for the failure topreserve the goods is attributable to the carrier before the party, with which the contract of carriagehas been signed, with the carrier remaining independent.

-      How the obligationsof the parties on export and import licenses are distributed, as well as customs clearance (customs formalities) for the exportation and importation of goods.

-      Order of notifications of the buyer on the delivery ofgoods, providing transport documents, notices, inspections, packing and markingof goods.

-      According to its legal status Incoterms relates to thecustoms of international trade and applies if they are referenced in theforeign trade contract. Incoterms are advisory in nature and their applicationin full to any part of a contract depends on the contracting parties. If the interpretationsof the basic conditions of the contract do not match with the Incoterms, thenthe contract has priority.

Paragraph 6 on page 1125 of the Civil Code of the Republic of Belarusstipulates that if the contract used is adopted by the internationaltrafficking trade terms, in the absence of the agreement otherwise indicated,it is believed that both parties agree to use their relationship forconventional values of the relevant terms.

However, if for somereason none of the 13 bases of supply are suitable (e.g., multimodaltransportation), the contracting parties may, by mutual agreement, decide tochange the content of the basic conditions of supply, to which they must refer toin the contract. The content and details of these changes should be specifiedin the contract, because they can significantly affect the price level of the goods.In addition, a detailed description of the conditions of supply of goods shouldbe included in the agreement if it avoids the Incoterms. If both parties of thecontract decide to use a commercial term not included in the Incoterms, theymust include this in the contract and describe in detail all the conditionswhich imply to that term.

If, by the end of yourcontract, you decide to use the Incoterms, it is necessary to state this in thecontract itself (e.g., "delivery is based on CIP Minsk on Incoterms2000".) In order to avoid different interpretations of the terms between the buyer and seller, in the contract of purchase and sale it is necessary to clearly indicate which edition of the rules is being used for the transaction (e.g. Incoterms 1990 / 2000).

It is important to highlight that Incoterms does NOTspecify:

    * themoment in whichthe ownership of goods are transferred. To determine the moment of transfer of ownership ofa foreign trade agreement it is always necessary to refer to national legislation (in Belarus this is in Paragraph 1 of Article 1120 of the Civil Code);
    * Exemptions from the obligationsof parties upon the occurrence of unforeseen factors;
    * the consequences of a breach ofobligations by either party, with the exception of cases involving the transferof risks and costs when the buyer is in breach of its obligations under theapproval or designation of the carrier under the terms of ‘F'.

When concluding a foreign trade contract, even with a reference to Incoterms,these issues should be specified separately.  

The Incotermsare always used in the preparation of statistical and other customsdeclarations as well as identifying some shipping documents (e.g. CMR andinvoice)