Incoterms ® and Contracts

At times parties entered in international sale contracts are unaware of the different trading practices in their respective countries. This can give risk to misunderstandings, disputes and litigation, with all the waste of time and money that this entails. In order to remedy these problems, the International Chamber of Commerce (ICC) - www.iccwbo.org - first published in 1936 a set of international rules for the interpretation of trade terms. These are known as the INCOTERMS® rules. The word is an abbreviation of International commercial terms and the chosen Incoterms® rule is a term of the contract of sale (please note: not of the contract of carriage).

Since then these rules several times have been amended in order to bring them in line with international trade development and global market changes. In recent years, Incoterms® rules have been revised at 10-year intervals (Incoterms® 1980, 1990, 2000, 2010). From first January 2011 new version of the rules “Incoterms®2010” (ICC Publication № 715 E) came into force, which consists of 11 following terms - EXW, CPT, CIP, DAT, DAP, DDP, FCA, FAS, FOB, CFR, CIF.

Very often sellers and buyers do not pay attention that each chosen term of the Incoterms® rules requires that contents of sales contract must match to the conditions of the term. By mistake they feel that all aspects of the deal are stipulated by the Incoterms® rules and are included in the rules. Sometimes this is the reason of the problems they have in their trade transaction. Our recommendations will help to avoid such mistake and in a correct way prepare trade contract.

To avoid confusion and difficulties in applying Incoterms® rules a reference to the current version should always be made in the contract of sale. Presently, when parties negotiate their contract individually, they should take care not only to refer to Incoterms® rules but also to add the year 2010.

If they use a standard contract, they should check whether it has been updated to include reference to “Incoterms®2010”. If not, the previous year should be replaced by the year 2010.

It is very important to understand that all details of sale/purchase transaction for each chosen term are not included in Incoterms® rules. Therefore the needed details to be listed in sale contracts.

The recommendations of what should be included in the contracts of sale are included.

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Trademark Notice:

“Incoterms” is a trademark of the International Chamber of Commerce (ICC).

ICC has authorized the use of the “Incoterms” trademark on this application. Such authorization does not imply any endorsement, or entail any responsibility, on the part of ICC for this product, which remains the sole responsibility of the Licensee. The Trademark is being used in accordance with ICC’s “Incoterms” trademark rules as available on the ICC website.