International Negotiation Terms Inconterms 1990

INCOTERMS

Frequently in a international contract of sale, for the different commercial excersises standing in the countries, exist disagreements in the interpretation, causes sometimes bad-endings, debates or litigation's, this causes money and time loses besides this obstruct the international commerce.
With the pourpose of avoid this problems the commerce international chamber compile and published international rules for the interpretation of the terms knowing like INCOTERMS.
The INCOTERMS objective is to establish a group of terms and rules with facultative characters, allowing to agree the seller and buyer, rights and obligations in international commerce transactions, so they can be used for internationals sales contracts with foreign countries.
With the INCOTERMS the companies have certainty of the interpretation of the negotiated terms between buyer and seller, that is because uniform and international rules are applying.
The INCOTERMS were compiled for first time in 1936, having corrections and additions on the years 1953, 67, 76, 80; the last version is from 1990.
The reviewing is with the purpose of having them up date dealing with international commerce practices. When a contract is quotation or making, is suggested to point that the used INCOTERM correspond to the 1990 version.
The latest obeys to the necessities of the present international business atmosphere.
It is necessary adequate the agreements INCOTERMS to the arising uses of electronic Data Interchange.
At present is possible to send by this way the necessaries documents for taking out of the custom and delivery certification of the products. Example: bills, certificates, letters, transportation documents, etc).
An exception for the use of EDI is the knowledge of negotiable shipment of the maritime traffic, which allows selling the products while they are in traffic. In this case to transfer the property is essential count with the originals documents in complete sets (full sets).
Other way new necessities appear, because of the changes in transport techniques, mainly for container use, multimodal transportation and semi-trailers by rail and wagons, by marine way in short distances.
In the INCOTERMS of 1990 the term FCA (Free Carrier) have been adapted to it can be apply to all kind of transportation and combinations.
The version of 1990 also has a presentation that makes easy it's reading and comprehension, grouping the terms in four categories.

E Category
EXW
This is the only term which the product in at the buyers disposition at the sellers address

F Category
FCA, FAS, FOB
Terms which the seller is assigned to deliver the product in the transport chosen by the buyer.

C Category
CFR, CIF, CPT, CIP
In this terms the seller contract the transport but without taking the risk of the product of lost or damage, or the additional charges owing by injures after the deliver and sending.

D Category
DAF, DES, DEQ, DDU, DDP
All the expenses and necessaries risks to carry the products to the destination country are assigned to the seller.

INCOTERMS explanation

a) EXW. Exwork
This means that the seller complete his responsibility of delivering when he has already leave the articles inside the establishment, no matter if is factory, office, storage. The buyer accept all the risk and charges, including the transport previous contract. That way this term won't be use when the buyer can't make directly or non-directly the exportation proceeding.

b) FCA. Free Carrier
The seller responsibility finished when he delivers the transacting articles for export to the designed transport by the buyer in the agreement place. If the buyer doesn't indicate a specific point, the seller can choose it, in the stipulated place or area, in this case the responsibility behoove on the Transportation Company. This term is use for any transport.

c) FAS. Free alongside ship.
It is consider that the seller responsibility finish when the articles have been placed next to the ship, over the wharf or in boats on the shipment seaport. So the buyer assumes from that moment all the charges and risk in case lost or damage of the product, as well as the exportation proceedings. The term of "FAS" will not use when the buyer can't do the proceedings and can only be used for marine transportation.

d) FOB. Free on Board.
Once the articles have been let on the rail, of the shipment port assigned, finishes the delivery responsibility of the exporter. From this point the buyer has to assume the charges and risks in case of lost or damage of the products. This term requires the seller does the exportation proceedings and it's used only for fluvial or marine transportation.

e) CFR. Cost and Freight
The seller has to pay charges and the freight necessaries to deliver, in the products in its destination. However the risk of lost and damage of the products and additional charges, generated after the articles have been delivered on the ship, are transfer from the seller to the buyer, when the products have getting through the ship railing on the port. In this term is required that the seller does the exportation proceedings and its just used for fluvial or maritime transportation.

f) CIF. Cost, Insurance and freight
In this term the seller has the same obligations that in the CFR, besides he's obligated to give the maritime insurance in charge and risk of the buyer, in case of lost or damage of the merchandise during the voyage. The seller contracts and pays the insurance duty.

g) CPT. Carriage paid to.
With this term the pay of the merchandise freight to the assigned place is the seller responsibility. The products risk of lost or damage, as well as additional charges for latest contingencies of deliver to the transportation company, its transfer from the seller to the buyer, if the merchandise was deliver in custody of the transportation company. If during this process are used successive transportation services until the place of destination, the risks is transfer, when the merchandise has already delivered to the first transport. These terms needs that the seller does the exportation process and in can be applied in any transportation mean, including the multimodal.

h) CIP. Carriage and Insurance paid to.
The seller has the same obligations that in the CPT, besides he must give the burden insurance that shelter the risk of the buyer in case of lost or damage of the merchandise during the transportation. The seller contact the insurance pays the duty and makes the merchandise exportation procedure. This term can be applied for many transportation means including multimodal.

i) DAF. Delivered at frontier
It means that the seller realize his obligation when the articles are available and the exportation is proceeding in the assigned place at the frontier, but before the custom of the importer country. The term is mainly applied when the merchandise is transporting by rail or road, but it can be used in any transportation mean.

j) DES. Delivered exship.
The seller finish his obligation when the articles are in the buyer disposition board the ship without making any importation procedure in the assigned port. The seller assumes the risk and cost for carry the articles to the destination port. This term is used only for maritime or fluvial transport.

k) DEQ. Delivered ex- quay (duty paid)
When the seller leave the products at the buyer disposition, on the wharf of the destination port with the exportation proceedings make, its considered that the obligation have been realized. So he has to assume all the charges that include duty and costs of delivery. This term shouldn't be used if the seller can't obtain directly or non-directly the importation license. If both parts agreed that the seller has to make the importation proceedings and pay the duty, it should use the legend "duty on paid" in place of duty paid. Instead of, they want to excuse the seller to make any of the importation expenses, it must specify "delivered ex-quaid" "vat unpaid", and the meaning is delivered out of the wharf vat un paid (destination port assigned). This term is only use in maritime or fluvial transportation.

l) DDV. Delivered duty unpaid.
The seller finishes his delivery obligation when the articles are at the buyer disposition in the assigned place of the importer country. The buyer has to assume all the costs and risks at the moment to make the customs proceedings. The buyer pays all the additional expenses and assumes the risk for not leaves on time the merchandise of the custom. If both sides want that the seller realize the custom proceedings and take the risks and inherent expenses, it should include an explanation, specifying this way, if the sides want to include, in the sellers obligations, some of the importation expenses. They must add the necessary declaration:"delivered duty on paid" "vat un paid", it means: delivered with duty un paid and the destination place. This term is used independently of the transportation mean.

m) DDP. Delivered duty paid.
With this term the sellers responsibility finish when the articles are in disposition, in the assigned place of the importer country. The seller must assume all the risks and added costs: tariff duties, and other expenses, for the product deliver, with the importation custom proceedings already do. This term doesn't be use when the seller doesn't have the importer license. If both parts agree that the buyer take the responsibility of merchandise importation proceedings and pay the duty, the term "DDV" can be used. If they want to exclude the seller of inherent charges of the articles importation like: VAT, it should be explained adding the word "delivered duty paid, vat un paid", the destination place. In this term is use the requested transportation mean.

Its important to emphasize the utility of the INCOTERMS when a contract is traded, that is, in case of doubt with them the legal position is explained completely and in a complementary way. If it's wanted to enclose clauses to specify the application of an INCOTERM, these will be over placed to any interpretation pattern of the INCOTERMS.
Example: when a trade is finished, maybe the delivery place can't be determined, this is where the merchandise must be deliver for its transportation to the final destination. In this case the added clauses gives the buyer the right of determine later, the exactly place, if they don't do that they must pay all the additional expenses, derived for his non-fulfillment.

By other hand if the buyer doesn't practice this right to indicate the exactly delivery place, and allows the seller to choose the place that he wants.
To finish the INCOTERMS determine clearness the rights and obligations that both parts acquired, they are flexible and allow being adapted for the international commerce contingencies.

If a process is restricted, the INCOTERMS can be specified special considerations
Next some cases are mention:

Is desirable, that the part that resides in that country realizes the expedition from the custom or at least a person that does the expedition by its name. That way the seller has the expedition responsibility of the exportation and the buyer of the importation.

If in the terms EXW and FAS the buyer has the compromise of the product expedition in the exporter custom.

Something similar happen with DEO and DDP terms in which the seller has the importation expedition responsibility in the destination custom.
In this cases both sides must assume any risk, like restrictions and bans, and count with the autorithy consent of that country, to realize the customs expeditions for someone that doesn't reside in that country this is for internal taxes effects.
We know there are some troubles in the case of the terms EXW and FAS for the merchandise expedition by the seller. The solution is added to these terms " cleared for export". In the term DEO, the seller has the obligation for deliver the merchandise, without paying the exportation total duties, taxes or physical charges, it must to be added the expression "duty on paid" in case of partial obligation, it must exclude the freights that the seller doesn't want to pay, example: "deq vat unpaid".
In many countries is difficult for a foreign company to obtain the importation license and quit taxes. Because of the term DDC exempt the seller from all this obligations. If the seller wants to realize the expedition without pay duties, for the merchandise deliver at the buyer's address in the importation country, the term DDV in must be applied this way "DDV cleared".
Definitions of "Revised American Foreign Trade Definitions""Rafta" "Revised USA Chamber External Commerce Definitions"

Exportation Price Formulation

To make the exportation price formulation two proceedings are used
One takes the factory price and then other concepts are added to obtain the exportation price.
The other takes the market price (the best) and take the added concepts and they are calculated separately, this is too adequate the education varieties to the foreordain result.
The additive base procedure will be the deep in this guide, this is because the other involves to use the distributions roads in the destination market, and this is not common for the smaller and medium exporters.
Next we make some precision:

i) Pricing. Quotation with the market place of base
In this method is established the best final price, different for each market and calculated with the supply and demand conditions base, of similar products and competitive in the analysis area.
The gross profit is different from one place to another, according with the product advantages and inconvenient, relation with others, similar and agree with the single market stability. For someone that is starting the exportation, this isn't the best method, that is because from a base price it will exist variables unknown, and some of them aren't in the exporter control.

ii) Costing. Cost price base
From the production cost is added a profit border, besides it fix the sales strategy that include the varieties, dimension, prices, times and finances, knowing the gross profit, and added the back expenses to the ex-work price

iii) Exportation Expenses. This will be explained by an example:
Using this, the method can be developed.
Is Probably that some expenses of the first five aren't carry out necessary, but there are other that have to be calculated to establish the ex-work price.

1. - Exportation Container and Packing.
2. - Tag, Label, Inscription or printed, special to the packing exportation.
3. - Freight in the best conditions. Making groups and unites
4. - Exportation Inspection, Certification, and Verification in the company factory or storage.
5. - Local Storage preliminary, if it requested.

1+2+3+4+5 Exportation product Price = Ex-works price

6. - Documents Proceedings
7. - National Transportation or Compilation, including special equipment rent, if is necessary
8. - Exportation Taxes, and custom proceedings.
9. - Custom Expedition, bill of custom expenses
10. - Merchandise Insurance, until its deliver to the International Transport

Ex-works Price +6+7+8+9+10= Free Carrier (airlift)= Delivered at Frontier (terrestrial)
Ex-works price +6+7= Alongside Ship (maritime)
Free Along ship +8+9+10= Free on Board (maritime)