PRECAUTION FOR EXPORT CONTRACTS AND DISPUTE RESOLUTION

1. PRECAUTION FOR EXPORT CONTRACTS AND DISPUTE RESOLUTION Presented by: Knowledgentia Consultants Address: E-71, L.G.F., Greater Kailash-1 New Delhi 110048 Tele: +91-11-46012100 Email: info@knowledgentia.com Website: www.knowledgentia.com

2. INTRODUCTION • Export Import business is carried out on the basis of a Contract of Sale between buyer and seller. • The contract should comprise of all the necessary terms and conditions. • Presence of dispute resolution and jurisdiction for dispute resolution in the contract is very important.

3. INTRODUCTION • Clause for liability and duties. • Scope of work for both parties • Term and Duration • Exit Clause • Arbitration clause is important. • Indemnification clause. • Payment Terms

4. EXPORT/IMPORT CONTRACT • For International sale and purchase of goods/services • The buyer could be a trader, importer, distributor or wholesaler that will sell the products to another company or merchant.  • Seller an exporter, manufacturer or licensee of manufacturer • Usually, contracts are based only on Proforma Invoice, Bill of Lading • It is advisable to have a written and legal contract/agreement in place.

5. ESSENTIAL ELEMENTS OF AN IMPORT/EXPORT CONTRACT  • Products, standards and specifications. • Units of measure in both figures and words. • Total value. The total contract value in words and figures, and in a specific currency and bifurcation of taxes ( as applicable). • Inspection/Quality Check.

6. Deliveryterms and schedule. • Terms of payment • Amount, mode and currency. • Documentary requirements

7. Clauses for Delay in delivery.  • Insurance of goods against loss, damage or destruction during transportation. • Clause for Intellectual Property Rights to goods/services • Force Majeure.

8. Liability for non-performance of the contract. • Applicable law. • Jurisdiction • Arbitrationclause.

9. Cargo claims. • Terms of breach. • Indemnification. • Termination. • Exit Clause.

10. TERMS ON SALES CONTRACT/ PURCHASE CONTRACT The formal contract consists of the following main terms: • Name of the commodity. • Quality of the commodity. • Quantity of the Commodity.

11. Packaging of the commodity. • Price of the commodity. • Payment terms and Schedule.

12. Insurance. • Quality Check/Inspection. • Force majure. • Exit Clause

13. TERMS ON PRICE METHODS Below are methods generally followed for Price Methods: • FOB- Free on board • CFR or C&F- Cost and Freight • CIF- Cost, Insurance and Freight • DAF- Delivered at Frontier

14. FREE ON BOARD (FOB) • Free on Board means that the seller fulfills his obligation to deliver when the goods have passed over the ship's rail at the named port of shipment. • The buyer has to bear all costs and risks of loss of or damage to the goods from that point. • FOB terms require the seller to clear the goods for export. • This term can only be used for sea or inland waterway transport.

15. COST AND FREIGHT • Cost and Freight means that the seller must pay the cost and freight necessary to bring the goods to the named port of destination. • But the risk of loss or damage to the goods, as well as any additional costs due to events occurring after the time the goods have been delivered onboard the vessel, is transferred from the seller to the buyer when the goods pass the ship's rail in the port of shipment. • The C & F term requires the seller to clear the goods for export

16. CIF- COST, INSURANCE AND FREIGHT • CIF means that the seller has the same obligations as under C & F. • Seller has to procure marine insurance against the buyer's risk of loss of or damage to the goods during the carriage. • The seller contracts and pays the insurance premium.

17. DAF- DELIVERED AT FRONTIER • DAF means that the seller fulfills his obligation to deliver; • When the goods have been made available; • Cleared for export, at the named point and place; • The term is primarily intended to be used when goods are to be carried by rail or road, but it may be used for any other mode of transport.

18. PAYMENT METHODS • IRREVOCABLE L/C(LETTER OF CREDIT) • REMITTANCE • DOCUMENTARY COLLECTION • DOCUMENTS AGAINST ACCEPTANCE (D/A)

19. IRREVOCABLE LETTER OF CREDIT • Irrevocable L/C is the one that can not be withdrawn or amended by the opening bank without the agreement of the beneficiary; • Secure; • Internationally Acceptable method;

20. IRREVOCABLE LETTER OF CREDIT • Irrevocable or not; • Guidelines for International Trade - Uniform Customs and Practice Rules 600 (UCP 600) is the latest version with guidelines for comprising L/C; • Bank of buyer and seller are involved in the completion of the contract and payment

21. REMITTANCE • Mail Transfer (M/T), • Telegraphic Transfer (T/T), and • Demand Draft (D/D)

22. MAIL TRANSFER: • Buyer will hand over the payment of the goods to the remitting bank; • Authorizing its branch bank or correspondent bank in the country of the beneficiary by mail to make the payment to the Seller. • Mail transfer is cost effective but takes more time.

23. TELEGRAPHIC TRANSFER: • Buyer will hand over the payment of the goods to the remitting bank; • Buyer authorize their branch bank or correspondent bank in the country of the beneficiary by telegraphic means to make the payment to buyer; • Expensive but quicker.

24. DEMAND DRAFT • Buyer will come to the local bank to buy a banker's bill; • Deliver the Bill to the seller or beneficiary by mail; • When the seller or beneficiary has received it, they will redeem it from the designated Bank. • Apart from banker's bill, promissory notes or chequescan also be used in this way.

25. DOCUMENTARY COLLECTION D/P AT SIGHT: • Under D/P at sight, the seller might either draw or not draw a draft on the buyer. • Seller shall hand over the shipping documents together with (or without) the draft, and the shipping documents and the draft (or without draft) will be transferred to the collecting bank which will present them to the buyer and ask him to make the payment at sight.

26. The buyer, upon sight, should then make the payment and get the shipping documents. • When the collecting bank has finished the collection, it should immediately notify the remitting bank which will then make the payment to the seller. • Bank shall make payment to the Seller.

27. D/P AT _ DAYS AFTER SIGHT (DATE): • The buyer shall duly accept the documentary draft drawn by the seller at _ day’s sight upon first presentation and make payment on its maturity. • The shipping documents are to be delivered against payment only.

28. DOCUMENTS AGAINST ACCEPTANCE (D/A) • Under D/A, the buyer can get the shipping documents from the collecting bank after he has duly accepted the draft. • This is only applicable to time draft. • These will greatly convenience the buyer, but it means much more risk for the seller, for once he has delivered the shipping documents, he will have lost his title over the goods.

29. DOCUMENTS AGAINST ACCEPTANCE (D/A) • D/A has more risks for the seller, for the buyer might refuse to pay after acceptance of the draft and taken the delivery of the goods. • Certainly the seller might sue the buyer, but as often the case, the buyer claims bankruptcy and then the seller can do nothing to remedy the situation. • Buyer fails to remit payment to seller

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