Chapter Outlines, Sample Tests and Review Questions	Poorna Pal, MS MBA Ph.D. Glendale Community College Phone: (818)240-1000 x 5517 ppal@glendale.edu Office: SG-152 Office Hours: TTh: 3 - 5 PM (SG-152) or by appointment
	with your questions

Chapter 8: Export Sales Contracts		The Class Text-Book Export-Import Theory, Practices and Procedures by Belay Seyoum (2nd Edition: Routledge, 2009) ISBN: 978-0-7890-3420-5 Click here on this image on the left to browse the information about this book at amazon.com
Chapter Outline	Seyoum Chapter 08
Sample Multiple Choice Questions Talking-Points for the Review Questions
Information and materials on this page are based on those provided by the author, Dr. Belay Seyoum.   Chapter Outline Harmonization of Contract Law Products rarely sell on one factor alone, and the exporter should be competitive on non-price factors of different kinds. Export sales contracts are central to international commercial transactions and around it revolves a series of connected, but distinct, relationships, including, cargo insurance, transportation, and payment arrangements. The rules and practices governing such contracts vary from one export transaction to another, based on the agreement of the parties as well as the legal system. National legal systems on contracts may differ, but the basic principles of contracts, such as good faith and consideration, are generally recognized and accepted in many countries.   Export Contract An export contract is an agreement between a seller and an overseas customer for the performance, financing, and other aspects of an export transaction. It also includes supply contracts for the manufacture of a product within a given period.		Chapter 01. Growth and Direction of International Trade Chapter 02. International and Regional Agreements Affecting Trade Chapter 03. Setting Up the Business Chapter 04. Planning and Preparations for Export Chapter 05. Export Channels of Distribution Chapter 06. International Logistics, Risk, and Insurance Chapter 07. Pricing in International Trade Chapter 08. Export Sales Contracts Chapter 09. Trade Documents and Transportation Chapter 10. Exchange Rates and International Trade Chapter 11. Methods of Payment Chapter 12. Countertrade Chapter 13. Capital Requirements and Private Sources of Financing Chapter 14. Government Export Financing Programs Chapter 15. Regulations and Policies Affecting Exports Chapter 16. Import Regulations, Trade Intermediaries, and Services Chapter 17. Selecting Import Products and Suppliers Chapter 18. The Entry Process for Imports Chapter 19. Import Relief to Domestic Industry Chapter 20. Intellectual Property Rights

Factors Behind the Move Toward Harmonization of International Contract/Commercial Law   Increases in global trade and economic relations between nations The growth of international customary law

The adoption of international convention and rules	The Vienna Convention on international sale of goods The ICC rules on contract agreements Standard contracts developed by trade associations
CISG: Essential elements:
Oral contracts	A contract need not be concluded in or evidenced in writing. Import companies that negotiate contracts by phone may be under the impression that the agreement will not be enforceable since it is not made in writing. However, they could be held liable under CISG if they either verbally accept an offer or their verbal offer is accepted by the other party. CISG, however, allows members to opt out of this provision (in favor of domestic law that requires a writing).
Parole evidence	Prior oral statements (including witness testimony) are potentially enforceable and can be used to challenge the provisions of a written contract. Thus, exporters-importers have to be cautious about representations made during the negotiations which are not intended to be part of the written contract since oral statements could be construed as part of the written contract (if used to prove intent). One solution is to include an integration clause which states that the written contract was the entire agreement and that no other agreements or evidence, which is contradictory would be admissible.
Battle of the forms	Apply to a sales offer which purports to be an acceptance but contains additions or modifications is a rejection of the offer and constitutes a counteroffer. However, if the counteroffer does not materially alter the terms of the offer, it constitutes an acceptance unless objected and notified by the offeror. Material terms include price, payment, quantity, and quality of goods, place and time of delivery, and liability.
Duty to inspect and proper notice	In the event that the buyer receives nonconforming goods, he/she must give timely (within a short period as is practicable) and effective notice of nonconformity (specify the nature of nonconformity).  The buyer’s notice such as “the goods are rancid” or “poor workmanship and improper fitting of the goods” were considered by courts as being insufficiently specific and regarded as no notice.
Right to remedy deficiencies	CISG permits the seller to remedy the delivery of defective goods after the time of performance has expired unless such delivery would cause the buyer “unreasonable inconvenience and uncertainty”. The buyer reserves the right to sue for damages caused by the delay or buy the initial delivery of nonconforming goods.
Exemptions from liability	The CISG exempts a party from liability for failure to perform any of his/her obligations due to reasons beyond his/her control and was not foreseeable at the time of the contract formation. Prompt notice of the impediment is required to avoid damages. The following circumstances do not give rise to exemptions from liability: Financial difficulties of seller’s supplier  Buyer’s inability to obtain foreign currency Increases in the cost of goods Delivery problems due to production stoppages.
Limitation period	There are no provisions in the CISG on limitation period (the time within which a buyer must bring a court action or seek arbitration).  Another United Nations (UN convention), “Convention on the limitation period in the International Sale of Goods” provides rules on limitation period and has been ratified by 18 countries including the United States in 1994. The convention provides a four-year limitation period for most claims.
Major Clauses in Export Contracts
Scope of work	The goods to be sold should be clearly spelled out in the contract. There is also a need to include the scope of work to be performed by the exporter, such as installation, training, and other services.
Price and delivery terms	The total price could be stated at the time of the contract, with a price escalation clause that provides for increases in the price if certain events occur. Such provisions are commonly used with goods that are to be manufactured by the exporter over a certain period of time and when inflation is expected to affect material and labor costs. The most common type of clause included in export contracts is one that provides for a fixed or approximate delivery date and that stipulates the circumstances under which the seller will be excused for delay in performance and even for complete inability to perform.
Quality, performance, and liability	Most contracts state that the seller warrants to the buyer that the goods manufactured by the seller will be free from defects in material, workmanship, and title and will be of the kind and quality described in the contract. It is not uncommon to find deficiencies in performance, even when the exporter provides a product with state–of–the–art design, material, and workmanship.
Taxes and duties	In the United States, Canada, and other developed countries, an exporter will not be subject to any taxes (i.e., when products are exported to these countries) if business is not performed through an agent, a branch, or a subsidiary. However, when the price includes a breakdown for installation and other services to be performed in the importing country, such income could be taxable as earnings from services.
Guarantees and bonds	It is quite common for overseas importers to require some form of guarantee or bond against the exporter’s default. Public agencies in many countries are often prohibited from entering into major contracts without some form of bank guarantee or bond. Guarantees are more commonly used than bonds in most international contracts. These are separate contracts and independent of the export agreement.
Applicable law and dispute settlement	The fundamental principle of international contract law is that of freedom of contract. This means that the parties are at liberty to agree between themselves as to what rules should govern their contract. Most contracts state the applicable law to be that of the exporter’s country.

 

 

Sample Multiple-Choice Questions

 

	True	False
1.			Export sales contracts are central to international commercial transactions, and around them revolve a series of connected relationships, including cargo insurance, transportation, and payment arrangements.
2.			A motive behind the move toward harmonization of international contract law is the decrease of trade and other political relations between nations.

In case of a bank guarantee, what document is issued by a bank, under which payment is made to the importer on demand upon failure of the exporter to perform its obligations under the export contract?		True	False
	3.			Standby letter of credit
	4.			Letter of credit

5.			In the United States, Canada, and other developed countries, an exporter (to these countries) will not be subject to any taxes if such sales are not performed through an agent, a branch, or a subsidiary.
6.			A contract provision that would be of service for an exporter includes shifting the risk to the overseas seller by requiring payment in exporter’s currency.
7.			An export contract also includes distributor contracts for the manufacture of a product within a given period.
Which of the following describes a method of protection against fluctuations in the importer’s currency?
8.			The addition of risk premium on the price at the time of the contract.
9.			The reduction of risk premium on the price at the time of the contract.
10.			Establishment of a risk account in the importer’s country.

Talking-Points for the Review Questions

1. What are some of the factors that militate in favor of harmonization of international contract law?

   Increases in global trade, growth in international trade custom, and the adoption of international conventions and rules.
   
    

2. State the major differences between the CISG and the Uniform Commercial Code.

   Oral testimony, enforceability of oral contracts, perfect tender rule, specification of quantity/price.

3. In certain transactions involving transfer of technology, the contract provides for the sale of goods and services. Does the CISG apply to such contracts?

   CISG views mixed sales and service contracts as sales of commercial goods unless the “preponderant part of the obligation” of the seller consists in the supply of labor or other services.
   
    

4. The CISG does not apply to certain types of contracts. Discuss.
   
   The CISG does not apply to certain types of contracts, such as sales of consumer goods, securities, labor services, electricity, ships, and aircraft, or to the supply of goods for manufacture if the buyer provides a substantial part of the material needed for such manufacture or production.
    

5. An Italian seller agreed to produce and supply 250 pieces of leather furniture to a buyer in the United States. The contract included certain specifications and was signed by the parties. It further stated that any changes may only be made in writing and signed by both parties. A few days after the contract was signed, both parties agreed by phone to change the specifications. A couple of months later, when the seller delivered the furniture pieces, with the modified specifications, the buyer refused to accept them, stating that the latest agreement was not binding since it was not part of the written (original) contract. Does the CISG apply? If it does, is the buyer obligated to accept the furniture?

Yes. A contract in writing that requires any modification to be made in writing may not be otherwise modified by agreement. However, a party may be precluded by his conduct from asserting such a provision to the extent that the other party has relied on that conduct. A manufacturer in California, United States, and distributor in British Columbia, Canada, agreed for the delivery of routers. The contract choice of law clause adopted “California Law.” In the event of a dispute, does it mean that the CISG will not apply? Both the United States and Canada are parties to the CISG. California law includes the CISG. CISG is a federal treaty and preempts all state laws. Thus, CISG applies.   What is the battle of the forms under CISG? Battle of the forms: a reply to a sales offer that purports to be acceptance but contains additions or modifications is a rejection of the offer. However, if the counteroffer does not materially alter the terms of the offer, it constitutes an acceptance unless objected and notified by the offerer. Material terms include price, payment, quantity and quality of goods, place and time of delivery, and liability.   Discuss a typical tendering process for export contracts. For typical tendering process for export contracts, see International Perspective 8.1.   What are some of the provisions in a typical export contract?

Scope of work, delivery, delay and penalties, taxes and duties.
 

10. How does an exporter protect against foreign exchange fluctuations?
    
    Shifting the risk to overseas customer by requiring payment in exporter’s currency, or fix the exchange rate to protect against devaluation if paid in importer’s currency.