1. Introduction
How is International Trade Law dealing with, and provides solutions to, problems faced in international trade.
In this report, International Sale of Goods refers to International Trade transactions where an exporter sells its goods directly to an importer abroad under a contract of sale[1].
The report will begin by introducing some common International Trade Laws. While International Trade includes the supply of services[2], this report will focus mainly on rules, regulations and laws relating to International Sale of Goods to be in line with the module of this assignment.
Following that the report will discuss some problems that were faced, and in some case still facing, International Trade transactions. It will also cover how International Trade Laws has provided solutions and how strong are these solutions in resolving the said problems.
2. International Trade Law
In order to illustrate the strength of International Trade Law of current era, we will look at some of the most successful and widely adopted Conventions and Rules. These includes the Incoterms Rules, the Uniform Customs & Practice for Documentary Credits (“UCP600”) and the Convention on the International of Goods (“CISG”).
2.1. International Chambers of Commerce (“ICC”) Incoterms rules
ICC is the world business organization representing millions of companies in hundreds of different nations[3]. It has produces many text and soft laws over the years which includes Incoterms Rules, Arbitrations Rules, the Uniform Custom and Practice for Documentary Credits (also known as “UCP 600”) and many more.
Although the ICC is an informal source of International Trade Law, the texts and rules published by ICC had been widely accepted and adopted globally[4]. This includes the Incoterm Rules which has been paramount in unifying delivery terminology, such as FOB and CIF, in International Trade contracts.
The Incoterms Rules is one of the most influential text of the ICC [5]. The Incoterm Rules can be described as a set of mini contracts governing the sale of goods and clarifying the costs and risks involved in the delivery of goods from sellers to buyers.[6]
The Incoterm Rules has been revised and updated sufficiently regularly to tackle the modern day problems faced in International Trades.
2.2. UCP 600
The UCP is the set of rule produced by the ICC to deal with the usage and operation of Document Credits globally[7]. Having said that, the UCP is not a set of Law or have the force of Law in any nation. However, it is still globally recognized and adopted into almost all Documentary Credits in International trade transactions[8].
UCP 600 is the latest and most updated revision of the UCP released in 2007. UCP 600 took three years of drafting effort to develop from the previous version, namely UCP 500, which was introduced in 1994. A revision was deemed necessary by ICC because international trade has since evolved significantly and the previous version is no longer able to adequately deal with practice of Documentary Credits transactions[9].
2.3. CISG
CISG is the most widely adopted and most prominent set of International Trade rules. It is also often regarded as the most successful at what it does[10]. The CISG was developed with the aim to harmonize international trades, reduce barrier to trade internationally and improve overall economic well-being[11]. And these are providing practical solutions to real problems in international trades. This will be elaborated further at Section 3 below.
3. Harmonization of Law of International Trade
Legal scholars had encouraged the idea of harmonising the law of international sales of goods since the 1920s[12] and the process was initiated in 1930 under the sponsorship of the international institute for the Unification of Private Law (UNIDROIT).[13] As the Second World War started, the process was interrupted and it was not until early 1950s and 1960s that the two unpopular conventions[14] on International Sales of goods were adopted. Unpopularity of these two conventions meant that a new convention was required. The new task was given to the United Nations Commission on International Trade Law (UNCITRAL) as its members comprised of socialist states, developed nations, as well as developing nations which would decrease the possibility of objection to the proposal. Finally, the Convention on the International Sales of Goods (CISG) was submitted to Vienna Diplomatic Conference in 1980 and came into force in 1988 with compulsory 10 ratifications.[15] As of now, this uniform law has been ratified by 89 nations that comprises of most of the major trading countries.[16]
3.1. Interpretation and Legal Certainty
Creating harmonised private international law is a fascinating notion. When conducting trade with a party from a different state, one need not be aware of all the foreign legalities, but only the one set of rules that the whole world relies upon. This reduces the legal risk of conducting business on an international level and subsequently generates more profit in international commerce.
However, even if one set of uniform rules applies to all international transactions, the question arises as how to maintain uniformity in the interpretation of the rules. There are many methods that can insure uniformity in interpretation of the law. One method is use of a supreme court, or a comparable body, to pass on the exact interpretation of the law. Another method is use of a principle like the common law model, forcing the case law binding upon future courts.[17]
However, the CISG does not offer for any supreme body to hand on the exact interpretation of its laws. Additionally, the idea of a supreme body is an unattractive one as traders commonly desire rapid and efficient settlements to their disputes and such a body would cause delay.[18]
The CISG instead sanctions arbitrators and domestic courts to be the only interpreters. This would create the possibility that different jurisdictions interpret the provisions variously given the complex language.[19] To counter this possibility the Convention has included an interpretation provision. Article 7(1) of the Convention guides the interpreters to bear in mind the ‘international character and the need to promote uniformity on its application and the observance of good faith in international trade.’[20] Consequently, arbitrators and domestic courts, when applying the CISG, should follow the guidance of Art. 7(1) and interpret the Vienna Convention uniformly (i.e. to interpret the Convention independently from domestic laws regarding sale of goods).
Additionally, matters that are covered by the Convention but not explicitly settled in its provisions are addressed by Art. 7(2) which provides a gap-filling methodology. That is assuming if the matter falls under the scope of the Convention, and it does not relate to validity of the contract and hence falling under Art. 4, it will be covered by the Convention and therefore rules of interpretation set out in Art. 7(2) applies.[21] In case of lack of express statement in the provisions to settle the matter, the interpreter should first apply the general principles of the Convention[22]. Only in the instance where there is no general principle applicable to that particular matter, domestic law may be applied.[23]
In theory, the idea of including a provision in the Convention to interpret its provision uniformly is ingenious. In practice, however, the results have been different than expected. Due to the fact that some jurisdictions tend to use the domestic laws to interpret the Convention and inclination in some jurisdictions towards ignoring the Convention where it should be applied, some legal scholars are now suggesting that the Convention has not achieved uniformity.[24]
The fact that the Convention cannot be authoritatively interpreted by a sole superior body and domestic courts of the contracting nations interpret its provisions and these interpretations are not binding on other Courts, creates a legal uncertainty in the business community.[25] Even though the UNCITRAL maintains a comprehensive case database on the Convention, there is unwillingness on the part of domestic jurisdiction to refer to decisions from other courts as assistance to interpretation.[26] Due to the open possibilities of the interpretation of the Convention provision through the court’s domestic legal lens, in spite of the Convention’s Art. 7 which asks for an interpretation considering the internarial characteristic of the Convention, it is quite likely that deviating interpretations will emerge. Therefore, matters that require an interpretation are expected to remain unsettled.
4. Unification of Trade Terminology
Though common usage in International Trade transactions, some common Delivery Terms has been developed. Delivery terms such as Cost, Insurance & Freight paid (“CIF”) and Free-on-Board (“FOB”) are delivery terms that has been developed over the year through common practice. However, such delivery terminology may have slight variance from contract to contract and hence may cause disputing interpretations of each term.
For example FOB contracts may differ based on the type of FOB contract in question even though they share some main characteristics. In Wimble, Sons & Co. v Rosenberg & Sons[27] the essence of FOB contracts is that it is “a contract for the sale of goods where the seller agrees to deliver the goods over the ship’s rail and the buyer agrees to convoy it overseas.”[28]
Also, the fact that a contract is called a “FOB contract” does not mean that the delivery terms are absolute and with unchangeable requirements.[29] A contract can be broadly called an FOB contract, but the parties may change minor elements of delivery terms upon mutual agreement. In Pyrene v. Scindia Steam Navigation,[30] such “flexibility” of an FOB contract was recognized.
That being the case, even when the contract is termed a FOB contract parties’ risk and cost responsibilities are subject to different interpretations which often leads to argument and disputes.
It is therefore essential to have an internationally unified terminology that defines delivery terms such as FOB in a clear and precise manner. The Incoterms[31] produced by the International Chamber of Commerce (“ICC”) is a well-known and commonly used set of rules to establish trade terms such as FOB. Incoterms apply to a contract upon agreement of the parties.[32] They simply have to state, “ICC Incoterms rules shall apply.” It is worth noting that the ICC Incoterms rules explain parties’ obligations on the costs of delivery and risks of loss, but it does not cover the transfer of title to the Goods.
5. Documentary Credits
Documentary Credits are meant to be as good as cash for Sellers in International Trade transaction even though the encashment of such a document is subjected to a conforming presentation[33]. As such, Documentary Credits are subjected to strict compliance under many Laws including the English Law[34].
In order for a buyer to cash out a Documentary Credit, the buy will need to present the Documentary Credit together with several evidential documents to the bank. These documents are mostly made up of proof that the Buyer has fulfilled its obligations under the International Trade transaction. The bank will then examine the all the documents and match them to the payment conditions stated in the Documentary Credit. The bank, being a neutral third party, is expected to release payment moneys as long as all the documentation and conditions of the Documentary Credit is complied with. On the other hand, when any of the conditions is not fulfilled or when there is discrepancy in the documentations, the bank will not release any moneys until the discrepancy is rectified or the outstanding conditions have been fulfilled[35]. This will often cause significant delay for the Seller to receive their moneys.
In such a scenario, the intent of all parties when issuing the Documentary Credit and the requirements of all parties relating the Documentary Credit must be clear and aligned. Otherwise, payments may be wrongfully withheld from an honest Seller. Or payments may be unduly released.
Since Documentary Credit used essentially in International Trade transactions, it will be ideal that the compliance of the Documentary Credit is uniformed across nations.
The UCP is of great significance in dealing with this problem. The Articles in UCP 600 has simplified and provided a lot more clarification to the operation ad compliance requirements in Documentary Credits[36]. For example, while original documents are commonly required in conditions of Documentary Credits, the UCP 600 provides a set of comprehensive definition of that constitutes an “original document”. This surely help to eliminate confusions and disputes as the interpretation of the words “original documents” may be different for different parties in countries applying different laws. The UCP rules even provide for circumstance whether there can be multiple copies of original documents which accord with common sense and practical practices.
6. Short-comings
The various International Trade Laws has its short-comings. For example, some important topics of international sales transactions are excluded from the CISG.[37] Art. 4 of the CISG excludes areas of the validity of the contract. This means that topics such as mistakes, agency contracts, legal capacity and illegality are untouched.[38] Therefore, in the cases where the issues regarding validity of the contract arises, substantial law will be applied. Another important topic that is also excluded is the issue of property, as the negotiators felt that there are so many opposing approaches to this topic that a consensus could not be reached.[39] Although the Convention does broach the matter by obliging the seller to transfer the property to the buyer, the conflicts arising as to where, when and how it would be settled by applicable substantial law.
The areas of exclusion are extended by Art. 5 that excludes liability for personal injury and death. The Convention, however, remains silent on liability for damages to property.[40] The legal opinion on this issue is divided. Some scholars advocate that this is a matter for tort while others have the opinion that the Convention covers this area through Art. 74.[41] Moreover, burden of the proof under the Convention is another topic that has been widely discussed by both legal scholars and judges.[42] Notwithstanding Art. 79, the Convention remains silent on this matter. This silence brought up a discussion between legal scholars that whether to restore to domestic law in this regard, or not. The judicial opinion is also divided on this matter. While some courts have restored to domestic law, others have not and instead used the parole evidence approach.[43] The lack of comprehensive rules has increased the legal uncertainty surrounding the Convention.
7. Conclusion
International Trade Laws has been developed by various world organizations and informal sources. These comes in the form of rules and regulations or recommendations that do not have any force in any Law.
International Trade Laws are developed because there are actual problems constantly faced by parties in international trade transaction. International Trade Laws are developed specifically to solve such problems. Furthermore, revisions and updates are being implemented to ensure that International Trade Laws can resolve problems of modern times. These makes International Trade Laws effective.
With some of the International Trade Laws being well recognized and widely adopted globally, it makes these laws even more effective in unifying Trade Laws. This makes International Trade Laws even stronger.
Nevertheless, International Trade Laws have
some short-comings. However, these short-comings are often easily smoothed over
by applying local laws or other forms of International Laws, such as Contracts
Law.
- [1] ibid
- [2] Carole M., David H., Daren T., The Law and Practice of International Trade (12th Ed., Sweet & Maxwell – M.U.A., 2012) para 1-002
- [3] ICC website, “About us”, <https://iccwbo.org/about-us/> accessed on 17 Jul 2019
- [4] Eric L., Laurence R., “Informal Sources of International Business Law” (2011) I.B.L.J. 350
- [5] ibid
- [6] ibid
- [7] Y.L. Hang, UCP 600: the new rules on documentary compliance (2010) Int.J.L.M. 193
- [8] ibid
- [9] ibid
- [10] I Schwenzer, “Introduction’ in I Schwenzer (ed), Schlechtriem & Schwenzer – Commentary on the UN Convention on the International Sale of Goods (4th edn, Oxford University Press 2016) p1
- [11] Benjamin H., Bruna Z., Camilla A., The CISG and the United Kingdom – exploring coherency and private international law (2018) I.C.L.Q. 2018, 67(3), 607-641
- [12] Gilles, ‘IS the CISG Benefiting Anybody?’ (2012) Vanderbilt Journal of Transnational Law 39, 2 <https://wp0.vanderbilt.edu/wp-content/uploads/sites/78/Cuniberti.pdf> accessed 10 October 2018
- [13] Indira Carr, International Trade Law, (first published 1995, Routledge-Cavendish 2010) 57
- [14] Uniform Law on International Sales (ULIS) and Uniform Law on the Formation of International Sales (ULFIS)
- [15] Indira (n 13) p58
- [16] Gilles (n 12)
- [17] Hackney, “Is the United Nations Convention on the International Sale of Goods achieving Uniformaty?” (2001) Louisiana Law Review 61(2) p475
- [18] Ibid
- [19] Indira (n 13) p71
- [20] Convention on the International Sales of Goods, Article 7(1)
- [21] Lassila, ‘General Principles and Convention on Contracts for the International Sale of Goods (CISG) – Uniformaty under an International Umbrella?’ (2017) Russain Law Journal 5 (2), p 118 <https://www.russianlawjournal.org/jour/article/view/276> accessed 10 October 2018
- [22] Ibid
- [23] Ibid
- [24] Hackney (n 17) p476
- [25] Gilles (n 12)
- [26] Indira (n 13) p71
- [27] Wimble, Sons & Co. v Rosenberg & Sons [1913] 3 K.B. 743
- [28] Indira (n 13) p 35.
- [29] Jason Chuah, Law of International Trade Cross-Border Commercial Transactions, (first published 1998, Sweet & Maxwell 2013) p 46.
- [30] Pyrene and Co v Scindia Navigation Co Ltd [1954] 2 QB 402.
- [31] International Chambers of Commerce, Incoterms rules (2010).
- [32] Indira (n 13) p 11
- [33] Mohd H., The story of the English strict compliance principle in letters of credit and its consistency with the UCP (2014) J.I.B.L.R. 71
- [34] ibid
- [35] ibid
- [36] ibid
- [37] Jason (n 29) p177
- [38] Ibid
- [39] Indira (n 13) p66
- [40] ibid
- [41] ibid
- [42] Ibid
- [43] ibid
BIBLIOGRAPHY
Legislation
Convention on the International Sales of Goods
International Chambers of Commerce, Incoterms rules (2010)
Uniform Law on International Sales (ULIS) and Uniform Law on the Formation of International Sales (ULFIS)
Cases
Pyrene and Co v Scindia Navigation Co Ltd [1954] 2 QB 402
Wimble, Sons & Co. v Rosenberg & Sons [1913] 3 K.B. 743
Secondary Sources – Textbooks
Carole M., David H., Daren T., The Law and Practice of International Trade (12th Ed., Sweet & Maxwell – M.U.A., 2012) para 1-002
Jason Chuah, Law of International Trade: Cross-Border Commercial Transactions, (first published 1998, Sweet & Maxwell 2013)
Indira Carr, International Trade Law (4th edn Routledge-Cavendish 2010)
Secondary Sources – Journals
Benjamin H., Bruna Z., Camilla A., The CISG and the United Kingdom – exploring coherency and private international law (2018) I.C.L.Q. 2018, 67(3)
Eric L., Laurence R., “Informal Sources of International Business Law” (2011) I.B.L.J. 350
Gilles, ‘IS the CISG Benefiting Anybody?’ (2012) Vanderbilt Journal of Transnational Law 39, 2 <https://wp0.vanderbilt.edu/wp-content/uploads/sites/78/Cuniberti.pdf> accessed 10 October 2018
Hackney, “Is the United Nations Convention on the International Sale of Goods achieving Uniformaty?” (2001) Louisiana Law Review 61(2)
I Schwenzer, “Introduction’ in I Schwenzer (ed), Schlechtriem & Schwenzer – Commentary on the UN Convention on the International Sale of Goods (4th edn, Oxford University Press 2016)
Lassila, ‘General Principles and Convention on Contracts for the International Sale of Goods (CISG) – Uniformaty under an International Umbrella?’ (2017) Russain Law Journal 5 (2), p 118 <https://www.russianlawjournal.org/jour/article/view/276> accessed 10 October 2018
Mohd H., The story of the English strict compliance principle in letters of credit and its consistency with the UCP (2014) J.I.B.L.R. 71
Y.L. Hang, UCP 600: the new rules on documentary compliance (2010) Int.J.L.M. 193
Online Resources
ICC website, “About us”, <https://iccwbo.org/about-us/> accessed on 17 Jul 2019