Fundamental requirement in any kind of communication is that speaker and audience must understand each other clearly and unambiguously. This is vital in trade and commerce where any vague and unclear understanding may lead to financial loss and/or costly legal battle. Given the nature of International trade where buyer and seller come from different country, culture and language - it is imperative that buyer and seller understand precisely the nature of transaction - most important who is responsible for what.
Using standard vocabulary or glossary for export, import, logistics, finance etc. make sure that there is less scope for ambiguity. There are quite a few glossaries for exim terms but the most important and widely accepted one is the INCOTERM published by International Chamber of Commerce (ICC).
WHY INCOTERM ?
In any international transaction, Incoterm can answer questions like:
So, if your foreign trading partner is using these sales terms in their purchase orders, quotations and invoices, you better know what they mean. Remember, courts and international organizations like United Nations Commission on International Trade Law (UNCITRAL) have endorsed Incoterm.
WHAT IS INCOTERM ?
INCOTERM provides a set of international rules for the interpretation of the most commonly used trade terms. It clearly defines the role and responsibility of seller and buyer in the trade term so that there is no scope for ambiguity or misinterpretation.
Among the best known INCOTERMS are EXW (Ex works), FOB (Free on Board), CIF (Cost, Insurance and Freight), DDU (Delivered Duty Unpaid), and CPT (Carriage Paid To).
ICC introduced the first version of Incoterms - short for "International Commercial Terms" - in 1936. Since then, ICC expert lawyers and trade practitioners have updated them six times to keep pace with the development of international trade. The latest version is INCOTERM 2000, so all sales contracts made after January 1' 2000 will refer to INCOTERM 2000 unless there is any special agreement between seller and buyer.
Correct use of Incoterms goes a long way to providing the legal certainty upon which mutual confidence between business partners must be based. To be sure of using them correctly, trade practitioners need to consult the full ICC texts, and to beware of the many unauthorized summaries and approximate versions that abound on the web.
IMPORTANT POINTS TO REMEMBER ABOUT INCOTERM
- Newsletter on Business Opportunties from India and Abroad
Vol: 3, Issue 2 April