Ever since Vietnam’s accession to the WTO and many other free trade agreements, international goods exchange has taken place notably strongly. Many enterprises choose to seek foreign partners to cooperate in order to increase their business efficiency. One of the most common and major economic activities of manufacturing enterprises today is the international purchase and sale of goods. Enterprises are able to sell their products to international customers or import raw materials and equipment from foreign suppliers. In order to carry out international sales and purchase of goods, the law stipulated that international goods sale and purchase contracts must be made in writing. The contents of goods sale and purchase contracts are not only governed by the national laws of the parties, but also by other international legal documents. In particular, international trade practices (Incoterms) are documents used the most by parties when entering into international goods sale and purchase contracts.
In this article, Apra Law Firm will provide the Customers with notices to applying Incoterms to international goods sale and purchase contracts so that parties to international commercial transactions can guarantee their rights and obligations in the most optimal way.
What are Incoterms? Is the use of Incoterms mandatory in international goods sale and purchase contracts?
“Incoterms” is an abbreviation of the phrase International Commercial Terms. This is a set of international trade rules regulating the prices, modes of transport, risk transfer, and the rights and obligations of the parties in the international trade of goods.
The use of Incoterms is not mandatory in the international sale and purchase contract of goods. Therefore, if parties to the contract do not agree on the application of Incoterms, they will not be bound by these regulations.
Incoterms come in several versions
A special characteristic of Incoterms is that Incoterms have many versions, but the latter version does not negate the validity of the previous version. Hence, the parties can choose which version of Incoterms best suits their needs and conditions. Some previous versions of Incoterms were promulgated in 1936, 1953 (revised in 1967 and 1976), 1980, 1990, 2000, 2010 and 2020.
However, since all versions of Incoterms are valid, the parties must specify the version number in the contract to avoid making the validity of Incoterms indeterminable.
Referring to Incoterms correctly
Incoterms have detailed and specified the content of the methods. Therefore, when choosing Incoterms, the parties can make adjustments to increase or decrease the liability when performing the contract. However, they can not alter the essence of the terms.
The parties should properly record their choice of Incoterms according to the following structure: “Terms of Incoterms Applied, Location of Consignment, Incoterms Applied”
For example, if parties chose the FOB method in Incoterms 2010, and intended to deliver at Noi Bai Airport, Hanoi, Vietnam, they may refer to Incoterms as follows:
FOB Noibai Airport, Hanoi, Vietnam Incoterms 2010
Incoterms only regulate the time of risk transfer of goods
It is worth noting that Incoterms does not regulate the time of transferring the ownership or intellectual property rights of the goods when the parties implement the transport of goods, but only stipulate the time of risk transfer of the goods.
For example, the CIF method (regulates money, insurance fees, and charges) clearly states that any risk of damage or loss to the goods will be passed to the buyer as soon as the seller has shipped the goods on board. The seller will have to sign a contract with a third party, bear the charges to ensure the goods reach the agreed location of delivery. Moreover, the seller must buy cargo insurance at a minimum for the goods to be moved.
Ownership and intellectual property rights of goods are often regulated on separate terms in the contract. It is necessary to differentiate the concept of the transfer of ownership and the transfer of risks to avoid confusion when entering into a contract.
Legal validity of Incoterms
As stated above, Incoterms will only apply when the parties have agreed in the contract. However, in some special cases, even by agreement, the Incoterms will not come into force. The sales and purchase goods contract is not only governed by Incoterms but also governed by the laws of the country or territory where the purchase and sale of the goods take place. Agreements contrary to these regulations could also make Incoterms invalid.
Therefore, the parties must carefully study the provisions of the laws of the country or territory where the transaction is conducted to ensure that Incoterms can retain its legal validity when stated in the contract.
This is the article advising on “Notes for enterprises when applying International Trade Practices (Incoterms) to international sale and purchase of goods contract” by Apra Law Firm. If you have any questions or concerns, please contact the hotline for further advice and support.
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