Methods of international trade:
- Direct (Agreement without mediator between manufacturer and buyer)
- Indirect (Agreement with mediator)
Direct – Relative financial benefit. Intermediary costs are saved and possible non-professional steps of the mediator are excluded.
Indirect:
- Brokers – usual mediators – mediate buyers and sellers, and do not take part in the trading operation on behalf of themselves.
- Commissioners – Act on behalf of the seller, find buyers and sign contract on behalf their names, but at the expense of seller or buyer (with commercial risks). Commissioners play the role of vendor for the third parties.
- Consignor– the exporter sends the goods to the broker's (consignor) warehouse for sale on the market. Consignor makes payment on installments once the goods are sold.
- Distributors – act on behalf of their name and work at their expense. The main scope of international trade is realized through distributors.
International Agreement
International contract – an agreement between two or more parties in different countries for the supply of goods and services. "International Sale and Purchase Agreements" - The Vienna Convention is the legal basis for the purchase and sale contracts in the world market.
As usual, “Exemplary” contracts are used. “Exemplary” contract – a series of simplified terms related to a specific agreement.
Exemplary contract is the basis of negotiations and the contract. Certain items of the agreement can be unconditionally accepted or changed.
Essential, usual and occasional terms are distinguished in the Contracts.
Special conditions
- For example, the "Essential" term in the purchase and sale contracts is the indication of the price.
- Some terms are considered "essential" according to the law or trade tradition.
General conditions
- Legal norms are applied in case of the absence of the special note in the Contract.
- For example, if the contract does not contain a note about the advance payment, the buyer can realize payment when purchasing the goods.
Random conditions
- Occasional term - terms added in line with the requirements of the parties.
- These terms shall not be against to the law.
- Fulfilment of these conditions is mandatory.
Structure of the purchase and sale agreement:
- Introduction (title, date, contract number, signed place etc.).
- Objective
- Quantity
- Quality
- Delivery of goods (terms)
- Payment method
- Packaging
- Warranty
- Penalties
- Insurance
- Force-Majeure
- Arbitration
- Other conditions
Sample contract:
Introduction
Name, number, date, place and parties signing the contract (company name, legal status, address)
Note!
Place of signing the contract is important in case of non-consideration of any aspect in the contract and resolution of any dispute in accordance with the Law of that country.
Subject of the Agreement
Clear description of the subject of purchase and sale agreement. Various types of contracts are available depending on the subject of contracts (purchase and sale, insurance, freight etc.)
Quantity
The unit of measurement is indicated and the sequence of the quantity of goods is determined (exact or approximate quantity). Approximate quantity is specified when the quantity of the provided goods can be subject to change. (for example, sugar powder is not resistant to moisture and can increase the weight in humid conditions.) In these cases the possible changes are indicated with percentage).
- The contract specifies the possibility of obtaining additional goods. (The form the buyer shall order in the contract and the quantity of the additional goods to be supplied by the seller).
Quality
The characteristic of the goods is identified for designated use and uselfullness of the goods. Quality is determined per following indicators:
- Per Standard (standards established by national manufacturers, standards of large companies, etc.). The contract refers to the date and number of the standard and the creator organization of the standard.
- Per technical requirements (in the absence of standards). The specific properties of the goods are indicated, the materials are described, its inspection rules are specified in the contract or appendix.
- Per Specification - Detailed explanation of all technical parameters is provided.
- Per Sample (the number of samples and the rules for comparison with the goods indicated). Usually one copy of the sample is kept by the buyer, other samples are kept by the dealer and the neutral party). Exemplary - After the last batch of the goods are delivered, storage period of the samples are indicated as well.
- There is “Preliminary examination” method for determination of the quality of goods as well, but this principle is often used at the auction sale of goods.
Note!
Obviously, the critical moment is the availability of these standards in AZPROMO and awareness of the staff about these standards. (For example, requirements for nitrates and their quantity in the composition of the fruits and vegetables of Russian Federation, or requirements or limitations for conservants used in juices).
Currently, the European Union has applied zero-rate for the imported agricultural products from Azerbaijan, which also increases the competitiveness of our products in the market. But remember that there are other obstacles for access to the European market, and most importantly - quality standards.
Delivery date and time of the goods
The delivery date of the goods, i.e., the moment when it is transferred to the buyer is indicated.
- There are different ways to define Delivery Dates:
- Immediate - any day within 2 weeks.
- Determination of the exact date of the delivery of goods.
- In a specified period (monthly, quarterly). Usually the words "within" or "not later" are added.
- In some cases exact date of the goods delivery is not specified. In this case terms such as "when ready", "when navigation is opened" or "when the requested quantity is finished" is agreed. For example, prepare supply schedule within 9 months upon the notification day from the seller.
- Delivery of goods before the deadline is also agreed.
- "Delivery date of the goods" is depending on the delivery ways and is defined with the the date of the document confirming the transfer of the ownership for the goods stipulated in the purchase and sale agreement.
For instance: Date of signing of the document issued by the company involved in transportation, dates of certificate of warehouse, acceptance act, etc.
Unit price and total amount of the contract
- Unit of measurement
- Currency
- The principle of price determination,
- Benefits etc.
Contract price - the amount of all goods by of currency, delivery by the seller based on the basic terms. Main prices are defined on the basis of stipulation of delivery, insurance, storage of goods etc. terms in the contract.
The key element is a method of price regulation (rigid, post-adjustment, changeable, slippery):
- Rigid – can not be revised during contract period (usually applied for the short-term supply)
- Post-adjustment– Only adjustment period is specified in the contract (for example, prices are defined before delivery of the goods).
- Changeable – The contract contains such terms like the price in the contract is subject to change in case of the increase or decrease of the price of goods in the market during contract execution period. Typically, the contract specifies the deviation of market prices (2-6%) and in case of the change of market price, the contract price is not revised.
- Slippery– is applied for the sale of heavy equipment and is regulated by changes in the cost of goods during production.
Payment
Currency of payment, exchange rate
Comments minimizing currency risks are made (risk of loss from foreign currency exchange rate fluctuations)
Payment methods (cash payment, advance payment, full payment)
Cash settlement – is the most affordable way for the seller.
Advance payment – Partial crediting of the seller's production and reducing the seller's financial risks.
Payment types (bank transfers, accredited, collections)
Payment method - is a search for a solution to a certain type of dilemma, and letter of the credit is the the method adopted in international trade over recent years.
There are numerous types of letters of the credit - revocable and non-returnable, approved and not approved, transitional, guaranteed and non-secure, revolving etc.
Packaging and labelling
Top and bottom packaging requirements are explained. The aspects such as whether the packages will be transferred to the buyer's possession or not, and whether the price is to be included in the total amount or not etc. is indicated.
General requirements for packaging - the seller must ensure the physical integrity of the goods. Specific requirements are determined by the recipient (eg for specific placement).
Marking includes the followings:
- The contract number, the weight and dimensions of the "place", number and total quantity of the "places".
- Code of conduct for the companies dealing with the transportation.
- Warning about potential hazards that may arise as a result of careless handling of goods.
Reclamation (Dissatisfaction)
Rules, terms and solutions for reclamation is specified.
Warranty
Scope, period and invalid cases and conditions of the warranties.
Most contracts include quality assurance items. The buyer may claim regarding the quality assurance within a certain period of time. Sanctions may be imposed for the supply of low quality goods.
Penalty sanctions and reimbursement
- The maximum penalties are usually about 8-10% of the price of goods not delivered on due time.
- The reflection of the penalty sanctions in the contract does not impede for the claims of indemnification.
- Typically, penalties increase connected with the delay of the supply. Penalties for the delay of the payment is also envisaged.
Note!
At the same time, in case of the violation of the contract terms, the parties are either exposed to some losses or are deprived of expected revenues, therefore they apply to the court in the future. To this end, exporters usually are seeking to include an item that reflects the non-payment of indirect losses in the contract.
Insurance
The contract shall indicate the subject of the insurance, the list of risks and benefiting party from the insurance. Usually this item is complied with to the delivery terms of the goods listed in Incoterms.
Note!
Please note that if the buyer does not have specific requirements, the seller will attempt to goods at a minimum amount. (Per paragraph "A"). It only involves natural disasters.
Note!
You need to be acquainted with the insurance company's requirements when signing an insurance contract. It includes: in case of the occurrence of the event subject to insurance, in which period, what warnings and who should be notified and what steps should be taken. Meanwhile, this information must be delivered to the shipping company when dispatching the goods.
Force-Majeure
This paragraph envisages the cases of extension or full termination of the contract period (termination of the obligation of the parties).
Note!
Force-Majeure cases shall be definitely registered and approved by a neutral organization.
Arbitration
This paragraph reflects the terms and procedures for resolution of the possible disputes arising between the parties.
- In addition, the quantity of the arbitration costs and the party paying the arbitration costs shall be specified.
- Typically, the decisions of the Arbitral Tribunal are not subject to reconsideration at any other instance.
Note!
Tərəflər mübahisələrin hansı ölkənin arbitraj məhkəməsində baxılacağına aydınlıq gətirirlər. The procedure for selection and appointment of arbitrators is described, and the timing for decision-making process is specified. Party to pay the arbitration costs and the payment order for arbitration costs is determined as well. Usually it is agreed that the results of the arbitration is the final and can not be re-examined in the court.
