PRINCIPLES OF PROCUREMENT

UNCITRAL, Incoterms
 Outline
 Conflict
of law rules in international trade
 Uniform law on obligational aspects
 UNCITRAL, Incoterm
Why is uniform law important for sale of international goods

 Fragmentation of sales law

 Which applicable law? (substantive law)
 Degree of harmonisation
 Specific characteristics of international sales of
goods
 Long distance
 Transport cost
 Time
International Trade Transactions
There are many considerations for purchasers when
transacting internationally, for example:
i. Jurisdiction, ie. whose legal system will be used
in the transaction?
ii. Language issues
iii. Different taxation systems
iv. Fluctuating exchange rates
v. Different customs and practice, including
documentation
The Vienna Convention
 The United Nations Commission on International
Trade Law (UNCITRAL) has devised a
framework to provide at least a degree of
harmonization in international trade transactions.
 The framework has not been adopted by all of the
world’s trading nations.
 It has been ratified by 89 states in the world.
 It does however attempt to address a number of
key issues for importers and exporters.
The Vienna Convention – Key
Issues
 When does an offer or acceptance become
effective in an international trade transaction
 When do title, property, and risk (in the goods
sold) pass from the supplier to the purchaser
 What are the rights of either party if the goods do
not conform to the contract as agreed?
Overview of INCOTERMS
 International Commercial Terms (Incoterms) are internationally
recognized standard trade terms used in sales contracts. They are
used to make sure buyer and seller know:
i. Who is responsible for the cost of transporting the goods,
including insurance, taxes, and duties. I
ii. Where the goods should be picked up from and transported to.
iii. Who is responsible for the goods at each step during
transportation.
 Defined as usages by the ICC (since 1936, several revisions; as of
Jan 1, 2020: version 2020)
 Applicable when inserted in the contract, expressly or impliedly
(specify the chosen version)
INCOTERMS
Purpose
• Analyze, simplify, harmonize and align public and
private sector practices, procedures and information
flows relating to international trade transactions both
in goods and related services.
Overview of INCOTERMS

 The Incoterms rules have become an essential part of the

daily language of trade.
 They have been incorporated in contracts for the sale of
goods worldwide.
 They provide rules and guidance to importers, exporters,
lawyers, transporters, insurers, and students of
international trade.
 Intended to remove uncertainty arising from potentially
different interpretation of the rules, customs, and
practices in different countries around the world.
What The Terms Mean
 Incoterms are used in contracts in a 3-letter format
followed by the place specified in the contract (e.g.
the port or where the goods are to be picked up).
 There are different terms for sea and inland
waterways (e.g. rivers and canals) compared to all
other modes of transport.
 VAT is not covered by Incoterms but rather who
pays the VAT on both imports and exports needs to
be specified.
INCOTERM – 4 Basic Groups
INCOTERMS
Rules for any mode of transport:
• EXW Ex Works
• FCA Free Carrier (hand over to the carrier named by the buyer; typically for
container shipments) (delivery completed before loading on board) (preferred
term for containerised goods)
• CPT Carriage Paid To
• CIP Carriage And Insurance Paid To
• DPU Delivered At Place Unloaded (former DAT: at Terminal)
• DAP Delivered At Place (even before unloading)
• DDP Delivered Duty Paid
Rules for sea and inland waterway transport:
• FAS Free Alongside Ship (esp. for bulk trade)
• FOB Free On Board (risk passes when goods put on board; in old versions: over
the ship’s rail)
• CFR Cost And Freight (risk passes over the ship’s rail)
• CIF Cost, Insurance and Freight (idem as CFR +paying insurance)
Rules For Any Mode Or Modes Of
Transport
1. EXW (‘Ex Works’):
 The seller delivers when it places the goods at the disposal of the
buyer at the seller’s premises or at another named place (i.e. works,
factory, warehouse, etc.).
 The seller does not need to load the goods on any collecting
vehicle, nor clear the goods for export, where such clearance is
applicable.
 The buyer is responsible for all other risks, transportation costs,
taxes and duties from that point onwards.
 This term is commonly used when quoting a price. E.g. Goods are
being picked up by the buyer from the seller’s premises in Tema.
The term used in the contract is ‘EXW Tema’.
Rules for
2. FCA (‘Free Carrier’):
• The seller delivers the goods to the carrier or another person nominated
by the buyer at the seller’s premises or another named place.
• The parties are well advised to specify as clearly as possible the point
within the named place of delivery, as the risk passes to the buyer at
that point.
• The buyer is then responsible for getting transported to the specified
place of final delivery.
• This term is commonly used for containers travelling by more than one
mode of transport.
• The seller fulfils his obligation to deliver when he has handed over the
goods, cleared for export into the charge of the carrier.
RULES for

3. CPT (‘Carriage Paid To’):

 The seller delivers the goods to the carrier or another
person nominated by the seller at an agreed place (if
any such place is agreed between parties).
 The seller must contract for and pay the costs of
carriage necessary to bring the goods to the named
place of destination.
 The seller pays to transport (delivers at the sellers
expense) the goods to the specified destination.
 Responsibility for the goods transfers to the buyer
when the seller passes them to the first carrier.
RULES for

6. DAP (‘Delivered at Place’):

 The seller delivers when the goods are placed at the
disposal of the buyer on the arriving means of transport
ready for unloading at the named place of destination.
 The seller bears all risks involved in bringing the goods to
the named place.
 An important difference from Delivered At Terminal DAT,
where the seller is responsible for unloading.
 Risk transfers from seller to buyer when the goods are
available for unloading, so unloading is at the buyer’s risk.
RULES for
7. DDP/DTP (‘Delivered Duty Paid’):
 The seller delivers the goods when the goods are placed
at the disposal of the buyer, cleared for import on the
arriving means of transport ready for unloading at the
named place of destination.
 The seller bears all the costs and risks involved in
bringing the goods to the place of destination and has
an obligation to clear the goods not only for export but
also for import, to pay any duty for both export and
import and to carry out all customs formalities.
Rules For Sea And Inland
Waterway Transport
8. FAS (‘Free Alongside Ship’):
 The seller delivers when the goods are placed alongside the
vessel (e.g., on a quay or a barge) nominated by the buyer at
the named port of shipment.
 The risk of loss of or damage to the goods passes when the
goods are alongside the ship, and the buyer bears all costs
from that moment onwards.
 This term is commonly used for heavy-lift or bulk cargo
(e.g. generators, boats), but not for goods transported in
containers by more than one mode of transport (FCA is
usually used for this).
9. FOB (‘Free on Board’):
 The seller delivers the goods on board the vessel
nominated by the buyer at the named port of
shipment or procures the goods already so
delivered.
 The risk of loss of or damage to the goods passes
when the goods are on board the vessel, and the
buyer bears all costs from that moment onwards.
 The buyer and seller share the costs and risks
when the goods are on board.
10. CFR (‘Cost and Freight’):
 The seller must pay the costs of bringing the goods
to the specified port.
 The buyer is responsible for risks when the goods
are loaded onto the ship.
11. CIF (‘Cost, Insurance and Freight’):
 The seller delivers the goods on board the vessel or procures
the goods already so delivered.
 The risk of loss of or damage to the goods passes when the
goods are on board the vessel.
 The seller must contract for and pay the costs and freight
necessary to bring the goods to the named port of destination.
 The seller also contracts for insurance cover against the
buyer’s risk of loss of or damage to the goods during the
carriage.
 The buyer should note that under CIF the seller is required to
obtain insurance only on minimum cover.
 Should the buyer wish to have more insurance protection, it
will need either to agree as much expressly with the seller or
to make its own extra insurance arrangements.