CONTRACTS IN INTERNATIONAL BUSINESS TRANSACTIONS

A Contract is an agreement of buy-back transaction between the Buyer and the Seller. It foreign trade transactions a Contract is drawn up to give legal expressions to the intentions of the partners.

According to the purpose and contents Contracts can cover goods, services, licenses, patents, technology and know-how.

In accordance with a Contract the Seller has sold and the Buyer has bought goods on definite terms from the ports agreed upon at the Seller or the Buyer's option. Grades, price and quantity are usually stated in the Contract.

Contracts usually cover different forms of foreign trade. In turn foreign trade comprises 3 main activities: importing (buying goods from foreign Sellers), exporting (selling goods to foreign Buyers) and re-exporting (buying goods from foreign Sellers and selling them to foreign Buyers without processing in your own country).

Clauses of a contract

A Contract forms the basis of a transaction between the Buyer and the Seller.

The clause Subject of the Contract contains information what exactly the Buyers buy and the Sellers sell.

The clause Price and the Total Value of the Contract is a rule the Buyers ask the Sellers to grant them a discount on the price, as it's a trial order or they have been partners for a long time, or decide to place a bulk order, or there can be another situation.

The next clause is Terms of Payment. Payment in foreign trade may be made in cash and on credit.

The next come Terms of Delivery. In accordance with the responsibilities of the parties in respect of the expenses of delivery and the risks of accidental damage to or loss of the goods there may be various terms of delivery

Inspection and Test Clause states, as a rule, that inspection and (or) test of the equipment shall be carried out at the Seller and his sub-contractors' works at the expense of the Seller in the presence of the Buyer's inspectors.

Guarantee Clause specifies that the Seller guarantees that the supplied equipment and technological process as well as the automation and mechanization of the process of production are in conformity with the latest technical.

According to the Packing Clause the equipment shall be shipped in export seaworthy packing in accordance with the requirements of each particular type of equipment or material. The Seller shall be responsible for any damage or breakage of the goods that may be caused by improper or faulty packing.

Marking Clause may state that the cases, in which the equipment will be packed, shall be marked on three sides: on the top of the case and on two opposite sides. The marking shall be clearly made with indelible paint in English and Russian.

Insurance Clause stipulates that the Buyer will insure at his expense all the equipment for its full value against all usual marine risks from the moment the goods are put on board at the port of loading.

Arbitration Clause is very important, too, because unfortunately in trade errors may occur and the goods may be mishandled: accidents may happen, usually because of a hurry and mistakes in carrying out orders. They may be caused by mistyping of figures, misreading of numbers and so on, or for more serious reasons.

Methods of payment

Today a modem businessman must be very educated in all spheres of market trade. So the knowledge of the main methods of payment under the different contracts becomes very necessary.

1) by cheque:

as a cheque is payable in the country of origin it is not very often practiced in international business. That's why cheques are usually used for payment in home trade.

2) by telegraphic or telex transfers or post:

this payment is made in the Buyers' letter of instruction and the terms of the Contract. Actually, this method of cash payment may sometimes take several months which is naturally very disadvantageous to the Sellers. Why?

3) by a Letter of Credit (or just: by credit)

A L/C is the most frequently used method of cash payment because it's advantageous and secure both to the Exporters and to the Importers though it is more expensive than payment by transfer.

4) by payment for collection:

this payment doesn't give any advantages to the Exporters because it doesn't give any guarantee that they will receive payment on time or at all

1) payment by drafts (Bills of Exchange - B/E):

the Exporter credits the Importer which is advantageous to the latter. A draft is an order in written form from a Creditor to a Debtor to pay on demand or on a named date a certain sum of money to a company which is named on the Bill, or to their order.

2) payment in advance:

the Importer credits the Exporter, for a example, the Contract may stipulate a 10 or 15% advance payment, which is advantageous to the Sellers. This method is used when the Buyers are unknown to the Sellers.

3) payment in an open account:

open account terms are usually granted by the Sellers to the regular Buyers or customers in whom the Sellers have complete confidence, but sometimes they are granted if the Sellers want to attract new clients.