Introduction to Business Law and Ethics
Documents in International Trade
Dr. Ahmet Cemil YILDIRIM, LL.B., LL.M., Ph.D.
Outline
Defining contract terms
Concluding the Sales Contract
How does the L/C system work?
Main documents to be provided by the seller
Other documents
First step Marketing the Goods
Traditional ways: trade fairs, chambers of commerce, diplomatic means (commercial attaches), publishing catalogues, etc.
Modern ways: websites and trade portals.
1. Defining contract terms
How to define the price?
Simple questions: Type and quantity of the goods requested, in a definite currency.
More complex questions: Where and to whom the goods are to be handed over? From/to which port? Who will bear the risk of damage during transportation? Who will bear the transportation costs? Who will arrange transportation? Will the goods be insured and who shall bear the cost? Who will clear the goods through customs?
INCOTERMS (International Commercial Terms) such as CIF, FOB, DDP, Ex Works
Proforma Invoice – Definition:
A price quote that a potential seller gives to a potential buyer that details the sale price. It is given in the form of an invoice. A proforma invoice exists in order to give a potential buyer a precise figure of the final cost of a transaction.
Same as the commercial invoice, except for the word “proforma”
includes all the elements requested by the potential buyer
neither binding as a contract nor valid as an invoice
Constitutes an “offer”
usually bears a time limit for the validity thereof (e.g. 60 days from the date of issuance)
Proforma Invoice
With respect to the potential seller’s position, the most important element of a proforma invoice is Terms of payment:
Cash/advance payment / cash before delivery
Cash Against Goods (CAG)
Cash Against Documents (CAD)
Letter of Credit (L/C) revocable/irrevocable, confirmed
Bank Payment Obligation (BPO)
Advice of opening of the letter of credit
2. Concluding the Sales Contract
Order by the buyer, confirmation by the seller if requested.
All the essential terms of a sales transaction are decided, therefore the contract is concluded.
A written contract may be prepared by lawyers of the parties.
Some sample/model contracts are frequently used, such as International Chamber of Commerce’s (ICC) model sales contract.
Rules of particular trade associations may be referred to.
3. How does the L/C system work?
4. Main documents to be provided by the seller
Invoice: A nonnegotiable commercial instrument issued by a seller to a buyer. It identifies both the trading parties and lists, describes, and quantifies the items sold, shows the date of shipment and mode of transport, prices and discounts (if any), and delivery and payment terms. It should be the same with the proforma invoice, except for the word « proforma »
Bill of lading: A bill of lading is a document issued by a carrier to acknowledge receipt of a shipment of cargo.
A bill of lading is a negotiable instrument and serves three main functions:
it is an acknowledgment that the goods have been loaded;
it contains or evidences the terms of the contract of carriage; and
it serves as a document of title to the goods
Bill of lading
Packing list: Itemized list of articles usually included in each shipping package, giving the quantity, description, and weight of the contents. Prepared by the shipper and sent to the consignee for accurate tallying of the delivered goods.
Packing list
5. Other documents
Insurance policy
Certificate of origin
Certificate of guarantee
Certificate of quality
Insurance policy
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