Fundamental
requirement in any kind of communication is that
speaker and audience must understand each other
clearly and unambiguously. This is vital in trade
and commerce where any vague and unclear understanding
may lead to financial loss and/or costly legal
battle. Given the nature of International trade
where buyer and seller come from different country,
culture and language - it is imperative that buyer
and seller understand precisely the nature of
transaction - most important who is responsible
for what.
Using standard vocabulary or glossary
for export, import, logistics, finance etc. make
sure that there is less scope for ambiguity. There
are quite a few glossaries for exim terms but
the most important and widely accepted one is
the INCOTERM published by International Chamber
of Commerce (ICC).
WHY
INCOTERM ?
In any international transaction,
Incoterm can answer questions like:
-
Who pays port charge ?
-
Who is responsible for export
clearance
-
Who arranges transportation?
-
Who has a right to shipping
documents?
-
Who insures, for how much, at
what level of coverage? etc. etc.
So, if your foreign trading partner
is using these sales terms in their purchase orders,
quotations and invoices, you better know what
they mean. Remember, courts and international
organizations like United Nations Commission on
International Trade Law (UNCITRAL) have endorsed
Incoterm.
WHAT IS INCOTERM
?
INCOTERM provides a set of international
rules for the interpretation of the most commonly
used trade terms. It clearly defines the role
and responsibility of seller and buyer in the
trade term so that there is no scope for ambiguity
or misinterpretation.
Among the best known INCOTERMS are
EXW (Ex works), FOB (Free on Board), CIF (Cost,
Insurance and Freight), DDU (Delivered Duty Unpaid),
and CPT (Carriage Paid To).
ICC introduced the first version
of Incoterms - short for "International Commercial
Terms" - in 1936. Since then, ICC expert lawyers
and trade practitioners have updated them six
times to keep pace with the development of international
trade. The latest version is INCOTERM 2000, so
all sales contracts made after January 1' 2000
will refer to INCOTERM 2000 unless there is any
special agreement between seller and buyer.
Correct use of Incoterms goes a long
way to providing the legal certainty upon which
mutual confidence between business partners must
be based. To be sure of using them correctly,
trade practitioners need to consult the full ICC
texts, and to beware of the many unauthorized
summaries and approximate versions that abound
on the web.
IMPORTANT
POINTS TO REMEMBER ABOUT INCOTERM
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revised in 2000 (sixth time).
Use the latest version only from ICC Website
(please see ref. below).
-
is widely used throughout the
world
-
divides transaction costs and
responsibilities between buyer and seller
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reflects state of the art transportation
practices
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is available in most major trading
languages
-
closely corresponds to the U.N.
Convention on Contracts for the International
Sale of Goods
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runs like a thread through
all foreign trade disciplines.
MORE
INFORMATION
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