Solving and International Trade - Math Problem Example

Unit title Unit number Assignment number and name Assignment due date Student name Student number Name of lecturer/tutor Submission date International trade involves buying and selling goods across borders and territories thus, giving the buyers and sellers an opportunity to expand their markets. The existence of international trade occurs due to the following reasons; presence of uneven distribution of resources between nations thus, need for international trade to close the gap, due to the fact the every country have diverse weaknesses and strengths in terms of capital, technology, labour and land thus through specialisation, international trade occurs. Also, the existence of international trade provides opportunity to exposure of goods that are not in the country, expands the demands of the customers in various countries thus reducing domestic market dependency and finally, international trade contributes to the GDP of the country through economic growth1. The key steps involved in contract conclusion include identification of products and services, negotiation of a contract, signing of the contract, production and delivery and settlement. Negotiation of a contract involves addressing of the quantity and the unit price of the product, documentary requirements, shipping requirements, settlement methods, and arrangements on insurance2. Given that the buyer is unknown, settlement methods or the methods of payment are essential. The international methods of payments that need to be considered for this transaction include open account, advance payment, documentary credit and documentary collection. An open account will involve delivering of the agreed goods before making payment. This may pose a higher risk to the seller but at the same time, the seller will maintain a relationship that is long-term with buyer and also it makes the seller competitive in global market. Various considerations must be made in this method which includes the seller being confident the buyer will accept the goods and also pay at agreed time and the seller must also mitigate risks associated with lack of payment such as through credit insurance on expert. This might favour the buyer. Advance payment will involve payment of all or part of the due sum before shipment of goods. This may favour the buyer as the risks associated with non-payment are eliminated and also there is immediate utilization of funds. In this method the seller needs to employ trade relationships in order to survive in competitive market. Documentary credit involve an undertaking which the bank issues for the buyer’s account to settle the payments to the seller given that there is compliance of the terms and conditions of the credit. Title of goods is retained by bank as it serves as the third party. In this method, seller has to be very specific in the documentary credit amount as the banks pay the specified amount even if there may be any additional cost such as charges on insurance. Also the payments depend on the documents in the documentary credit but the physical conditions of the goods or the terms of sale of goods. The documentary collection involves the arrangements of shipment of the goods and then the seller draws the bill of exchange on the buyer where the documents are sent to the bank where the seller owns an account giving clear instructions about the collection of the payments. Until there is an acceptance of the goods or the payment of the draft by the buyer, the title of the goods remains with the seller. This method favours the seller if he has no interests in transacting on the basis of an open account3. The terms to incorporate in the in the contract from the case include price, payment, warranty, delays, transportation and delivery, export license, inspection, change orders, cancellation, arbitration, and limitations of liability. The price may include any increments such as future duties and taxes covered by the contract which may be added to the price the purchaser was supposed to pay. Terms of payment are also essential in the contract. It may include the period of making payment after or before delivery of goods, the duration of payment after provision of the invoice. The payments may also involve if the buyer will make partial or full payment before or after the delivery of the goods. It also involves the conditions in case the payment is not made on the fixed date such as the applicable law according to the contract. Warranty is essential as it will ensure that the goods exported are in conformance with the description of the goods as in the contract. This will also ensure that the goods will not be altered, repaired or neglected in the process of shipment. The liability of the seller is also is also stated in case of special or consequential damages. Delays are also an important term to consider in a contract such as the scheduled shipment dates may be estimated on the basis of the anticipated and current capabilities in manufacturing. The dates of delivery are also very essential as they state the liability of the seller in case of any damages caused in the course of failure in shipment according to a certain fixed date. It should also state the conditions where the seller is not liable in case of late in shipment due to failure arising from different conditions. It should also address possibility of an extension period in case of failure in delivery of the goods at specified time. Delivery and transportation are also important as they will tell the point of change of the liability of the seller or the buyer during the shipment. This will allow each party to take corrective responsibility in the process of shipment of the goods. Exports license will enable compliance with regulations and all the laws that are applicable during the sale of goods where the buyer or the seller will be required to obtain any license or permit which is required for completion of various transactions under the international sale of goods. The buyer should warrant that the goods are imported for commercial purposes but no for domestic purpose as per the contract. Inspection of goods is also important as the goods arrive immediately in order to inform the seller about the condition of the goods. Failure to inspect the good at the greed period of time may lead to assumption the all the goods as sent by the seller are present and in good condition. Acceptance of the goods means compliance with the contract while cancellation means lack of conformity. Change orders can also be considered in the contract as any proposed change of goods according to the contract will need informing the seller where the seller reviews the changes for acceptability. This will be followed by changes in pricing and scheduling of the shipment of goods. The decision of the either the buyer or the seller to accept changes in goods will depend on the conditions in the contract. Limitations of liability also forms the terms of the contract as it will show the limits of the liability of the seller for expenses, damages or losses incurred directly or indirectly on the goods. It also states the limitations of the buyer on any damages or losses in the process of shipment. Cancellation is also an important factor as the contract subjection to cancellation depends on the agreement between the buyer and the seller. Cancellation of the contract may not be allowed until the full payments of the goods while the charges on cancellation will be proportional to losses or damages incurred in the shipment of the cancelled goods. Arbitration in as a term in the contract provides a period in which the buyer and seller may resolve issues through mutual agreement. Failure to that or the expiry of such a period may lead to settlement of any issue by arbitration4. From the case, the two countries A and B are operating business whose places are from different countries. Given that these parties have different places of business; this is according to article 1 of the CISG. The seafood in the case is sold for commercial purpose which means the buyer in country B is not buying seafood for household or personal use. Also it is clear that the goods involved in this case are not vessels, aircraft or ship, and they are not used for electricity. This is in conformance with article 2 of the CISG. The contract of supply of goods from country A to B is for sale to a buyer in this country. This shows that the contract apply to article 3 of the CISG. By transacting from a seller in country A to a buyer in country B, for this to be successful it requires formation of the contract or the agreement of sale and also the obligations and the rights of both the seller and the buyer as a result of this agreement. This is in conformance to the article 4 of the CISG. Hence, article 1 to 5 of the CISG gives information about the applicability of the CISG, thus parties in the case came from different states and the goods involved in the contract are according to CISG. By conforming to these articles on application of CISG, it is clear that CISG apply to these transactions5. In planning for trading internationally, the key considerations are distribution and transport. Given that country B is land locked in our case, choice of an essential transportation mode ensure that the operations on international transactions are cost effective and efficient. In our case three main ways of performing international trade include air transportation, rail and road. In making choices, there is a need to consider if you as the seller plan to handle logistics individually or to outsource the logistics to freight forwarder. Although there is no clear indication on the how far or close countries A and b are, air transport will be the best option for performing transaction in international trade. This option is attributed to quick delivery for long distances, high security levels, and best applied for a wide range of goods. In adoption of this option, the following issues needs to be put into consideration; this mode of transportation costs more, payment of taxes is common in any used airport, fright cost will be added due to currency and fuel surcharges. The level of insurance is also importation in air transport. The level of insurance should match with the potential risk in which you put your consignment. Documents and regulations are also essential as the contract between you and the carrier is set out by air waybill6. In case of cargo carriage, the liability of the carrier in case of any damage, delay or destruction of the cargo will be limited to a certain amount per kilogram unless at the time of package the consignor had made special declaration on delivery interest at destination and in addition, the carrier has made the payment of supplementary sum if it is required in the case. In case of the liability of the carrier will be required to pay a sum which does not exceed the sum declared unless it is proven that the sum is more that the delivery interests of the consignor at destination. Thus, the seller in this case has limited liabilities in case of destruction, damage or delay of the cargo. In case there is destruction, damage, delay or loss of a section of the cargo, the determination of the seller’s liability will involve consideration of the entire cargo. Also, if the damages, delays or losses will affect other packages value in the same waybill, determination of liability will include consideration of the packages’ total weight. In case the damages on the cargo result from carrier’s omission or done with the knowledge and intention of damaging then the liabilities will not be applicable. Thus, thus the liability of the seller in case of delay or cargo, in air transport which is the major consideration due to land lock is applicable to article 22 of the Montreal convention7. Given the country B is land locked, there is no possibility of water transportation in international trade. The seller will not be in a condition to enter in to a contract with the shipper due to lack of water body to connect country B with A. However, the seller may apply The Hague rules in the process of connecting between different countries before transportation by air, land or rail to country B. Seafood in this case are goods involved in the contract while the contract of carriage relates to goods carried by water where the carriage is covered by a bill of landing. Connection of various means of transportation will be applicable in our case since use of ship only will not be applicable in the case. Carriage of goods in our case will involve the period when goods when goods are loaded in the ship to the time when they will be unloaded or discharged from the ship which in our case cannot be the destination of the seafood given that country B is land locked. Thus, according to the article 1 of The Hague rules, this covenant may not be efficiently applicable to our case as country B is land locked8. However, live animals are not goods and their contract of carriage will be differently stated such as being carried on deck. Transportation of animals requires more strict rules and regulations which you must follow. Collection of payments on overseas transactions is very crucial in international trade. The decision to the financing option depend on feedback required from your banker internationally, you cash flow needs, customer, the exporting country’s economic conditions, type of good, demands of the supplier, credit worthiness of your customer, and the urgency of the transaction. Suitable financing options in our case include payment in advance, payment online, and letters of credit. Payment in advance is the best method since you can use the money immediately and you are not exposed to the risk of losing your money. This is also best in our case since we do not know anything about our customer. The main challenge for this method would be to make it happen, thus it is reasonable for the seller to ask for part of the sale in advance and the settlement of the rest at a given period of time. Payment online is also a suitable method in this case as you can wait to release your goods after clearing of funds in your account. Letters of credit is another suitable option as one is able to secure payment with flexibility9. References Anemostat (2009). International Sales Contract Terms and Conditions. InTeLS (2012). International transport and distribution. Retrieved on 22 March 2012 from: http://www.intels.biz/cours/view/84 Monning & Feketekuty (2010). International Trade Negotiations. Retrieved on 22 March 2012 from: http://www.commercialdiplomacy.org/manuals/trade_negotiations.htm Montreal convention (2010). Article 22 - Limits of liability in relation to delay, baggage and cargo. Retrieved on 22 March 2012 from: http://www.montrealconvention.org/montreal_convention/Article22.htm Mercatoria (1968). The Hague-Visby Rules - The Hague Rules as Amended by the Brussels Protocol 1968 multilateral. Retrieved on 22 March 2012 from: http://www.jus.uio.no/lm/sea.carriage.hague.visby.rules.1968/doc.html NAWBO (2012). How to Get Paid on International Transactions. Retrieved on 22 March 2012 from: http://nawbo.org/content_8355.cfm United Nations Convention on Contracts for the International Sale of Goods (1980) [CISG]  UOB (2010). Introduction to International Trade. Trade products and services, pp. 3-6 Read More