International Purchasing “Rules-of-the-Road”:
Terms and Conditions in the International Marketplace
Charles E. Rumbaugh, J.D., C.P.C.M.
Arbitrator & Mediator
P.O. Box 2636, Rolling Hills, California 90274
This session will review some of the increasingly significant issues/problems associated with “striving” to attain the status of a world class “customer”, i.e. as a “buyer,” in the purchase of foreign goods.
Leading U.S. purchasers of foreign goods are constantly extending the envelope, or re-defining the model, of continuous
improvement to their purchasing processes so that they can be deemed a world class “customer.”
One very important aspect in this improvement endeavor is in the manner in which an international firm contracts and buys from foreign suppliers and, in particular, the use of certain basic terms and conditions that may impact those international transactions.
This session is intended to be interactive with the attendees asking/responding to those international issues through the facilitation of the speaker.
Most importantly, this session will provide THE occasion to interface with fellow “international expert NAPM buyers” and exchange thoughts and ideas on this very timely topic.
The Opportunity. Either as a U.S. manufacturer/purchaser of foreign provided/produced raw material, components, subassemblies, supplies, etc. or as a U.S. distributor, marketing outlet, etc. of foreign provided/produced finished goods, a buyer is concerned with the “terms” of engagement in the purchase of those items. Of special significance is the notion that is rapidly evolving that sellers are re-defining their core attributes/businesses and thus being more selective in the number of products they put into international commerce and/or reducing the number of customers they intend to transact business with. Consequently, this phenomenon has the potential of reducing the source(s) of supply for the U.S. purchaser and may cause a “re-awakening,” and add new meaning, of being a “world class customer.” In order to “persuade” those foreign sources that you really do care about them, buyers need to become sensitive to the dynamics in the international purchasing “Rules-of-the-Road.”
However, even without this phenomenon, buyers should strive to be world class “customers.” Buyers should capture that sensitivity and understanding within the foreign market and its ever-changing nature.
Accordingly, “knowing the right” international terms and conditions becomes of “paramount” importance in order to seize this opportunity that other buyers may miss! Finally, the United Nations Convention on the International Sale of Goods is the centerpiece of this session.
Session Objective. The objective of this session is to re-visit the “appropriate” international terms and conditions for the purchase of foreign goods.
Highlights of Session. Focus will be on the many facets of the international marketplace and the rules-of-the-road including the following:
· Why foreign purchases are necessary today in order to complement domestic suppliers.
ü The differences between domestic and foreign purchases.
ü The “Purchase Order” as the “legal” vehicle to accomplish both.
ü International Cultural differences—What are they? Are they important?
Quality of the Contract and the Relationship
Practicing “preventive law”
Recognize—there really is a difference in negotiation techniques!
ü What is the language for your business relationship?
· Are Letters of Intent (Memorandum of Agreements) “needed” to establish the business relationship?
ü How to gain entry: Strategic alliances, joint ventures, etc.
Do you “really” want to do business in a foreign country?
ü “Normal” buyer/seller relationship desired/expected?
ü “Binding” Letters of Intent—What are they?
· United Nations Convention on the International Sale of Goods (CISG)
ü US Law—January 1, 1988
ü Applicability—NAFTA and 50+ countries
ü Initial Impact—“May” replace domestic law, e.g UCC, for transactions between adopting countries for the sale of “goods.”
ü Do you want the CISG to apply to your international transactions?
Countries involved in your transaction
How to disclaim the CISG—the “Right” way verses the “Wrong” way in drafting!
ü Significant differences in CISG and the UCC—
Definition of “Goods”
Increased “pre-contractual” liability for statements. Any Parol Evidence Rule?
Usage of trade and prior course of dealing may be applicable
Duty of Good Faith
Are oral purchase/sale agreements over $500 enforceable?
Doing the “deal” on the phone or over the internet? What are the risks?
Is there a Statute of Frauds?
Is the ‘battle of the forms” principle (UCC 2-207) applicable to international
Perfect tender “required?”
Letters of Credit
Use of Alternative Dispute Resolution (ADR) in International transactions
· International Contracting Terms (“INCOTERMS”)
ü International Chamber of Commerce (New York)
ü International Rules for Trade Terms
ü Which INCOTERMS are most desirable from your point of view?
“E-Terms”—“Goods available at Seller’s premises” (EXW)
“F-Terms” –“Goods handed over to the carrier named by the Buyer” (FCA, FAS,
“C-Terms”—“Seller has to contract for carriage, but without assuming the risk of
loss of or damage to the goods or additional cost due to events occurring
after shipment and dispatch” (CFR, CIF, CPT, and CIP)
“D-Terms”—“Seller has to bear all costs and risks needed to bring the goods to
the country of destination” (DAF, DES, DEQ, DDU, DDP)
· Alternative Dispute Resolution (ADR) in International Transactions
ü What is ADR?
Why is it important and the attributes of ADR
ü One Form of ADR—“Baseball Arbitration”
ADR in “putting the deal together”
ADR in contract performance
ADR for claims resolution
· International Payment and Price aspects.
ü Price include/exclude packaging, transportation, and insurance?
ü Foreign taxation aspects
ü “Net 30 days” replaced by irrevocable (conditional) confirmed letters of credit for the benefit of foreign Seller?
Foreign Seller provides letters of credit to the U.S. Buyer?
· Impact of U.S. laws
ü Anti-boycott legislation
ü Foreign Corrupt Practices Act
ü Export Control laws
Transfer of “technical” information and/or goods to the Seller?
Are you prepared to deal with the Department of State, Commerce, and Defense
ü Custom and tariff laws
ü Currency exchanges
ü Criminal laws
Process Check. Are you a world class “customer”? How do you rate your organization? How do your suppliers rate your organization? Do you have a quality contract and quality relationship? Is it being measured? As a world class “customer” are you part of their “core” business plan for the new Millennium?