Law of International Trade - Essay Example

Law of International Trade

Import and export activity can either involve easy transactions that entail individual buyers and sellers or a chain of traders and buyers. In many occasions, goods are sold more than once during the voyage. Also, a buyer may decide to ship his goods and according to delivery contracts, the seller can deliver goods to the customer’s business (Gopal, 2006). The most commonly used form of international sales contracts is cost insured freight (c.i.f.) and free on board (f.o.b.). Under cost insured freight, the seller is obliged to be a party to the contract of carriage but in free on board contract he may decide not to. During the shipment of the cargo, the seller makes a contract of carriage with the carrier (Ohlhoff and Schloemann, 2001). The shipper is issued with a document called Bill of Lading that confirms that the cargo has been loaded on board. In the event the owner of the cargo wants to split the cargo into smaller quantities, he or she needs to find amended bills of lading called ship’s delivery orders, from the carrier (Gopal, 2006). This paper will discuss some of the contracts within the framework of the law of international trade from the position of an exporter of goods ferried by sea. It will also look at the importance of the applicable documents and any proposals that have been made for improving the situation of the exporters.

The Bill of Lading

There has been always a conflict of interest in the international trade transaction between the seller and the buyer. Although not the case today, a bill of lading may be shifted from the seller to the buyer and in some occasions from one buyer to another. In the past, the bill of landing could be transferred to the buyer long prior to the arrival of the shipment. The delay was due to slow postal system, normally where documentary credit were included, and the sense that the documents had to go through two separate banks meant that the shipment arrived long before the bill of lading (Mcrae, 1997). This delay can only be solved when the emailing system and electronic methods of sending the bill of lading will be involved. The bill of landing needs delivery to the owner of the bill, but it may contain the name of the buyer. Only the genuine holder of the bill can claim for the cargo from the carrier after they arrive at the port of destination. The owner of the ship is not allowed to hand over the goods to any person who cannot show a bill of lading. The main aim of the Bill of Lading is to give a channel of solving this conflict. Initially, the Bill of lading is given by the carrier who is chartered or the owner of the ship. The bill of lading is a legal document that has the following functions:

Receipt

The shipper is issued with a received for shipment bill of landing immediately the goods are handed over to the carrier. In this case, the bill of lading performs as a receipt from the carrier to the seller (Mcrae, 1997).

Evidence of shipment

The carrier issues a shipped bill of lading to the seller after the goods are loaded on the ship. The bill of lading contains the date, which enables the buyer to crosscheck if the goods were shipped within the stipulated time frame. Besides, the documents contain the name of the port and of the vessel, and the port of delivery. This information is vital especially to the free on board buyer for insurance needs (Trappe, 1981).

As a statement of quality

The carrier indicates in the bill of lading the status of the consignment after loading it on the ship. A clean bill of lading gives the buyer assurance that the good he is going to pay for are in perfect condition (Mcrae, 1997).

Terms of bailment and carriage

The bill of lading contains terms and conditions concerning the shipment and the care of the cargo(Mcrae, 1997).

Banker’s Documentary Credits (B.D.C)

Banker’s Documentary Credit can be used to make payments in the contract between a buyer and a seller. The B.D.C can be either irrevocable or revocable. A revocable Banker’s Documentary Credit is only allowed if requested. In the normal scenario, the buyer’s bank, which is found in the buyer’s country sends to the seller a message specifying that an irrevocable B.D.C has been issued in the sellers favour (Wood, 2002). However, the seller has a right to decline shipping of the goods until assured of the existence of the B.D.C. After being assured that the Bankers Documentary Credit exists, the seller ships the goods and sends the bill of landing together with an insurance policy and invoice to the bank (Todd, 1990). In a normal situation, the seller’s bank pays the seller and afterwards regains the cash in exchange for the documents (Eliot & Harris, 1918). On the other hand, the buyer takes delivery of the goods after presenting the bill of lading to the carrier. On the other occasions, the buyer may take delivery of the bill of lading from his bank after signing a Trust Receipt. Afterwards, the buyer may opt to sell the bill of lading to another buyer. For the receipt to be discharged, the original buyer has to make payment to his bank. The trust receipt acts as a legal security in the event the client goes bankrupt (Siehr, 1994).

An irrevocable Banker’s Confirmed Documentary Credit has the following benefits to the seller. One, in the event of a dispute, his bank that is in his homeland deals with it. Secondly, the seller may use the banker’s confirmation as security when raising credit. Lastly, the seller is paid immediately after the shipment of the consignment. In addition, the irrevocable Banker’s confirmed Documentary Credit has advantages to the buyer (Hedley, 1986). For instance, the buyer is issued with shipping documents once his bank pays the seller’s bank (Cass, 2001). The buyer’s bank issues the bill of lading to the buyer and other relevant papers in exchange for a Trust Receipt. Hence, the buyer can resell the goods before paying for them. In addition, the buyer’s flow of cash is not disrupted since the bank caters for the entire operation. Once the buyer and the seller agree on payment by Documentary Credit, the seller is obliged to tender all relevant documents such as bill of lading, receipt, and insurance policy to his bank or to the buyer’s bank. Another option is that, the seller can tender the Documentary Credit directly to the buyer and claim for payment (Hedley, 1986). Nevertheless, contracts may be financed through Bank guarantees and bill of exchange. However, the bill of exchange has a disadvantage to the seller since he carries the whole burden of financing the credit and the financial risks involved.

The contract of carriage, the contract of sale and the documentary credit are all independent but pecuniary intertwined contracts. The financial institution such as banks have no privity of contract at a common law with the carrier. The carrier may involve a ship’s master or a loading broker who gives him a Mate’s Receipt that shows the arrival of the goods (De May, 1984). Until recently, a mate’s receipt had no legal bearing on the buyer further than being a normal receipt for goods. The seller is held responsible for shipping the cargo. The seller contacts the freight forwarder who makes the contract of carriage on behalf of the seller. The freight forwarder ensures that there is no problem with the privity of the contract between the carrier and his client (the seller).

Problems involved in the contracts of international trade

There are a number of contractual problems that arise in both c.i.f. and f.o.b. sales. For instance, the cost insured freight buyer of goods has no mutual contractual relationship with the carrier. This is because he has already paid cost of freight to the seller as part of the sale's contract, hence, there is no need to pay an extra amount to the carrier for freight. However, in the event the goods are damaged during transit, the buyer may get difficulties in suing the carrier since he cannot proof ownership of the cargo at the time of damage (Branch, 2000). During the contract of carriage which is between the buyer and carrier, the free on board seller of goods in not a party to it. In the event the goods are damaged in transit, the free on board shipper holds the carrier to account. If the cargo is damaged or lost in transit, the seller bears the burden of recovering the loss from the carrier; however, in this scenario, the law of contract has no relevance (Keegan, 1989).

Insurance of goods on transit is marred by many problems, and extra care has to be taken. The free on board buyer is caters for his insurance hence, a seller cannot depend on the buyer's policy to recover for the good lost or damaged during the transit (Pennsylvania, 2015). Therefore, the seller must look for his own policy to cover the risks. Besides, the cost insured freight seller has to exercise extra caution as well, since the policy is under his name, the moment the policy is moved to the buyer the seller loses the right to claim for damages (Paliu-Popa, 2008). In the event the transaction fails to materialize and the buyer rejects the cargo and refuse to pay for it, the seller may discover he has no legal rights to claim for the damages under the policy. For this reason, it is advisable for a seller to equip himself with an insurance for post assignment risk (Branch, 1988).

The importance of the relevant export and import documentation

Once of the most important aspect of a fruitful international trade transaction is the correct completion of the relevant export and import documentation. The lack of this documentation can be an impediment to the successes of any international trade transaction. In more serious cases, an exporter or an importer can be subject to fines or imprisonment for failure to comply with international trade documentation requirements (McGuiness & Little, 1981).

There are three vital documents that importers and exporters are required to produce in order to ship cargoes outside and inside their countries. The first one is a commercial invoice, which entails the list of each commodity, the buying price, and quantity of the product. Besides, it includes the name and address of the shipper and the name and address of the recipient (Gopal, 2006). Also contained in the commercial invoice is the condition of the goods and the signature of the supplier. This document is imperative because it acts as an official record of the pecuniary transaction between the importer and the exporter (Schmitthoff, 1985).

The next document is the packing list, which concentrates more on the contents of the cargo as opposed to the pricing. It gives a comprehensive list of the components of the cargo and also contains information related to the total amount of packages supplied with the consignment. The third crucial piece of the document need to be presented in the international trade is a Certificate of Origin abbreviated as COO or C/O. The Certificate of Origin indicates where the goods ferried were originally made, and it is filled by the exporter (Peter, et al., 2011). This documents is importance because products in a certain country may be banned in the country of destination. Besides these three documents, there are other documents that may be necessary for the international trade transactions, for instance, the non-negotiable seaway bills. The processing of the bills of lading is often slow due to a lot of bureaucracy involved. To solve this problem, the non-negotiable sea waybill was created to prevent unnecessary time wastage in handling of goods at a point of destination (Goh, 1986).

Incoterms 2010

Incoterms 2010 are internationally accepted rules that interpret most common commercial terms. The rules are used as a benchmark in international business and are monitored by experts gathered by International Chamber of Commerce (ICC). The Incoterms rules help buyers and sellers to avoid unnecessary costs by explaining to them clearly the risks, tasks, and costs involved in the delivery of goods and services from the traders to the buyers. Incoterms deals with components of the sales contract, for example: the responsibility of buyers and sellers for paying for the cost of transportation and arranging the necessary documentation. The rules give a framework to the exporters that help them to reduce carriage costs. However, there are a number of misconceptions that revolves around Incoterms (Bianchi, 2001). Firstly, incoterms are not sales contract but only trade terms. Secondly, Incoterms do not settle all disputes that arise between parties. Their responsibility is only to arrange the contract of carriage of products from the trader to the buyer and to determine which party is responsible for paying shipment cost, insurance, and customs clearance. Besides, incoterms does not settle disputes in respect to goods ownership and late delivery of goods (Weiler, 2000).

Proposals made for improving the position of exporters/importers

According to World Shipping Council (2015), the European Commission has been working tirelessly to amend the cargo data-reporting requirement. Fortunately, it is now in the last stage of finalizing its proposal, which will be part of the new Union Customs Code (UCC). There are many proposal made to amend laws that pertain to containerized maritime trade but only two are standard out to be crucial. The first proposal is to necessitate non-vessel operating common carriers (NVOCCs) to give entry summary declarations (ENS) the same way as the ocean carriers. Secondly, the commission is seeking ways of obtaining the identity of the seller and the buyer of the cargo before the ship is loaded (WSC, 2015). Other than getting the identity of the seller and buyer from the importer, the proposal suggests that the information should be given to the carrier before loading the ship. The World Shipping Council (WSC) has continuously instructed the commission that the seller and the buyer information is confidential and should not be disclosed to anyone whatsoever (WSC, 2015). If this proposal is implemented, exporters to the European Union will be needed to give the identification of the buyers of their cargoes to the NVOCC or their carrier before loading the vessel. Other bodies such as European Shippers Council (ESC), European community Ship-owners Association (ECSA), and European freight forwarders’ association has joined World Shipping Council (WSC) in opposing vehemently the commission’s idea of requesting identity of the seller and the buyer of cargoes entering the European Union to be constituted in a carrier’s ENS filing. Additionally, trade unions representing European importers have raised concerns regarding the commission’s proposal but the opposition has been unfruitful to date (WSC, 2015).

In conclusion, it is evident that law of international trade is complex and entails a lot of documentation. It is also clear that there is an existing conflict of interest between the buyers and the sellers when it comes to terms and conditions of international commerce. However, there are no clear demarcations provided by international trade legislations that address this conflict lucidly. Therefore, it is incumbent upon the policy makers to amend legislations that are ambiguous to prevent future confusion. Finally, all nations should ensure that there is a conducive environment for international trade. For this goal to be realised, nations should waver taxes on the exports and imports.

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