Incoterms are international trade terms in a dictionary format, International Commercial Terms. The purpose of Incoterms is to unambiguously interpret the most widely used trade terms in the field of foreign trade. As a result of their use, it is possible to significantly reduce the uncertainty in the interpretation of trade terms in different countries, since the parties to the contract are often unfamiliar with the different trading practices in the country of the trading partner, and this can ultimately lead to misunderstandings, disagreements and litigation.
Who, when and why, invented and created Incoterms?
Since its founding in 1919, the International Chamber of Commerce has facilitated international trade. In 1936, the International Chamber of Commerce, ICC, published a set of international rules "Incoterms 1936" for the precise definition of trade terms. This was done to eliminate the possible complications described above.
Amendments and additions were issued in 1953, 1967, 1976, 1980, 1990, 2000, 2010 to bring these rules in line with modern international trade practice. International trade terms are standard terms and conditions of international sales contracts that are predefined in an internationally recognized document, in particular, used in the standard sales contract developed by the International Chamber of Commerce.
In connection with the celebration of its 100th anniversary, the International Chamber of Commerce is pleased to announce the preparation and publishing new Incoterms® 2020... This latest edition of the rules will help prepare businesses for the next century of global trade. But in this article we will consider the 2010 edition of Incoterms.
The basic principles laid down in terms of Incoterms are
Distribution between the seller and the buyer of transport costs for the delivery of goods, that is, determining what costs and for how long the seller bears, and what, from what moment, the buyer.
The moment of transition from the seller to the buyer of risks (liability) for damage, loss or accidental destruction of the cargo.
Determining the date of delivery of the goods, that is, determining the moment when the seller actually transfers the goods at the disposal of the buyer or his representative.
The scope of Incoterms is limited to issues related to the rights and obligations of the parties to the contract of sale in relation to the supply of goods sold (the word goods here means "tangible goods", excluding "intangible goods" such as computer software).
Beyond the Incoterms rules are the transfer of ownership from the seller to the buyer, as well as the consequences of failure by the parties obligations under the contract of sale of goods, including the grounds for exemption from liability of the parties that governed by the applicable law or the Vienna Convention. The structure is formed in terms of volume growth of duties sequence Seller in respect of the basic conditions of supply.
The key to the use of Incoterms: is that the regulation of the moment of the transfer of ownership should be regulated separately in the contract, it is important that the transfer of ownership coincided transition to the buyer the risk of accidental loss or risk of damage to the goods.
In practice, the most common two options for misunderstanding Incoterms.
Wrong understanding of the terms of Incoterms as having more to do with the contract of carriage, and not with the contract of sale.
A misconception that they should cover all the responsibilities that the parties would like to include in the contract.
Incoterms regulate only the relationship between sellers and buyers under the sale and purchase agreements, moreover, only in certain aspects. At that time, both exporters and importers to consider the very practical relationship between the various contracts needed to perform an international sales transaction - where not only the contract of sale, but also contracts of carriage, insurance and financing.
Incoterms refer to only one of these contracts, namely the sales contract. It should be emphasized that Incoterms is not intended to replace the contractual terms required for a complete sales contract, either through the inclusion of statutory clauses or individually negotiated clauses.
Incoterms does not regulate the consequences of violation of the contract and release from liability due to various obstacles, these issues should be resolved by other terms of the purchase and sale agreement and the relevant laws. Incoterms were originally always intended to be used when goods were sold for delivery across national borders.
Incotrems are not an international agreement. But in the case of reference to the basis of the delivery of Inkotrems in the contract, various state authorities, primarily customs, as well as state courts considering foreign economic disputes, are obliged to take into account the provisions of Inkotrems.
In some countries, Inkotrems has the force of law, and this is especially important when concluding supply contracts with residents of these countries, in terms of determining the applicable law to the transaction. For example, when concluding a contract for the supply of goods between a Russian company and a Ukrainian company when determining the applicable law - the law of Ukraine, then Inkotrems is subject to mandatory application even if this is not specifically stipulated in the contract. Therefore, having concluded a deal with partners from these countries and not wishing to be guided by Inkotrems, this circumstance should be specially stipulated.
In Russia, Inkotrems is advisory in nature, and only the provisions of the contract with a link to Inkotrems are legally binding. But, if the contract makes a reference to the basis of delivery according to Inkotrems, but other clauses of the contract contradict the terms of delivery used according to Inkotrems, then the relevant clauses of the contract should apply, and not Inkotrems: it is believed that the parties have established certain exemptions from Inkotrems in the interpretation of individual delivery bases.
When choosing one or another delivery basis, it is necessary to strictly adhere to the Inkotrems terminology. It is better to indicate a specific term in English. Using this or that term, it is necessary to indicate a specific geographic point (and sometimes an exact place, such as in the case of delivery at the basis EXW), in which the seller is considered to have fulfilled his obligations to transport the goods, bear the risk of accidental loss or damage to the goods, etc.
Be sure to refer to the Incotrems editorial office. When concluding a foreign economic contract, it is necessary to clearly define the details of the basic terms of delivery. Thus, before specifying the delivery basis in the contract, for example FOB, it is necessary to carefully study the customs of the port indicated in the basis of the charter agreement, in order to accurately allocate costs between the buyer and the seller. All delivery bases requiring the seller to provide insurance, in the event of an insured event, are covered by insurers on minimal terms (cost of goods + 10%).
Unfortunately, they still continue to use the term FOB where it is completely inappropriate, while forcing the seller to bear the risks of transferring the goods to the carrier named by the buyer. FOB it is possible to use only where the goods are intended for delivery "across the ship's rail" or, in extreme cases, on the ship, and not when the goods are handed over to the carrier for subsequent loading on the ship, for example, loaded into containers or loaded onto trucks or wagons in the so-called "ro-ro" transport.
Thus, in the preamble of FOB strong warning has been made that the term should not be used when the parties do not intend to deliver the goods across the ship's rail.
There are cases when the parties mistakenly use terms intended also for the carriage of goods by sea, when another mode of transport is assumed. This could put the seller in a position where he cannot fulfill his obligation to provide the buyer with the relevant document (for example, bill of lading, sea waybill or electronic equivalent). To this end, the introduction to each term indicates whether it can be used for all modes of transport or only for transportation by sea.
The on-board bill of lading is the only acceptable document that the seller can submit in accordance with the terms CFR и CIF... The bill of lading serves three important functions:
Proof of delivery of the goods on board;
Certificate of carriage contract;
A means of transferring rights to transit goods to another party by transferring a document to it.
Transport documents other than the bill of lading will perform the first two specified functions, but will not control the delivery of the goods in transit to the destination or enable the buyer to sell the goods in transit by handing over the documents to the buyer. Instead, other shipping documents will name the party entitled to receive the goods at the destination. The fact that possession of the bill of lading is necessary to receive the goods from the carrier at the destination makes it particularly difficult to replace it with an electronic document.
Usually several originals of a bill of lading are issued, of course it is very important that the buyer or the bank acting in accordance with his instructions when paying to the seller ensures that all originals are handed over by the seller ("complete set"). This is a requirement of the ICC Rules for Documentary Credits (ICC Uniform Customs and Practice, "UCP" /. ICC Publication No. 500).
Transport documents must indicate not only the delivery of the goods to the carrier, but also that the goods, as far as the carrier can confirm this, have been received in perfect working order and good condition. Any entry in the shipping documents that would indicate that the goods were received in a wrong condition would render the document "unclean" and thus unacceptable under the UCP.
Despite the special legal nature of the bill of lading, it is now often replaced by an electronic document. The 1990 version of Incoterms took due account of this expected improvement. In accordance with Articles A.8. terms paper documents may be replaced by electronic information, provided that the parties have agreed to carry out electronic communication. Such information can be passed directly to the interested party or through a third party providing value-added services.
One such service that can usefully be provided by a third party is the register of successive owners of a bill of lading. Systems providing such services, such as the so-called BOLERO service, may require further support by relevant legal regulations and principles, as evidenced by the Electronic Bills of Lading Regulation 1990 CMI and Articles 16 - 17 UNCITRAL Model Law on Electronic Commerce.
In recent years, documentary practice has become much easier. Bills of lading are often replaced by non-transferable documents similar to those used for modes of transport other than maritime transport. These documents are called "sea waybills", "container waybills", "freight receipts" or variants of such expressions. Non-transferable documents can be used quite satisfactorily, unless the buyer wishes to sell the goods in transit by handing over a paper document to a new buyer. For this to be possible, the seller's obligation to submit a bill of lading must be retained in accordance with CFR и CIF... However, if the contracting parties know that the buyer does not intend to sell the goods in transit, they may specifically agree to release the seller from the obligation to provide a bill of lading, or, otherwise, they may use the terms CPT и CIPwhere there is no requirement to provide a bill of lading.
The buyer paying for the goods in accordance with the "C" - term is obliged to ensure that, upon receipt of payment, the seller does not dispose of the goods by issuing new instructions to the carrier. Certain transport documents used for certain modes of transport (air, road or rail) provide the contracting parties with the opportunity to prevent the seller from issuing new instructions to the carrier by providing the buyer with a specific original or duplicate waybill. However, documents used instead of bills of lading in maritime transport usually do not contain such a “hindering” function.
The International Maritime Committee has corrected this deficiency in the above documents by introducing in 1990 the "Uniform Rules of Naval Waybills", which allows the parties to insert a "no order" clause whereby the seller, through instructions, transfers to the carrier the right to dispose of the goods in relation to delivery of the goods to some other person, to another place other than that indicated in the invoice.
Contracting parties wishing to be able to apply to the ICC Arbitration in the event of a disagreement with their partner in the purchase and sale agreement must specifically and clearly agree on the ICC Arbitration in their purchase and sale agreement or, in the absence of a single contractual document, if exchange of correspondence, which is a contract between them. The fact that one or more versions of Incoterms are included in a contract or related correspondence does NOT in itself constitute an agreement on the possibility of applying to Arbitration.
The International Chamber of Commerce recommends the following standard arbitration clause: "All disputes arising out of / or in connection with this agreement must be finally resolved in accordance with the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with these Rules."
Each of the Incoterms rules are grouped into 4 basic categories, each of which has its own clear direction, defined as a term. Each term is an abbreviation, the first letter indicates the point of transition of obligations and risks from the seller to the buyer.
The Federal Customs Service and the Federal Tax Service of the Russian Federation have approved an electronic check format for returning VAT to foreign citizens when exporting goods purchased in Russia.