In international sales of goods contracts, commercial practices play an important role in regulating and supporting international goods sales transactions to be performed properly. In this article, TNTP will present which practices and customs are commonly used in international goods sales contracts.
I. Definition of commercial practices
The Commercial Law 2005 provides definitions for commercial customs and commercial practices. According to Clause 3, Article 3, commercial customs in commercial activities are understood as clear and repeatedly established rules of conduct over an extended period among the parties, which the parties implicitly recognize to determine the rights and obligations of the parties in commercial contracts. Clause 4 of Article 3 defines commercial practices as a set of commercial practices and customs widely recognized in commercial activities in a region, area, or commercial sector, acknowledged and regularly applied by multiple entities in commercial relationships with clear content for the parties to determine their rights and obligations in commercial transactions.
Commercial practices are usually categorized into the following groups:
Common Commercial Practices: These are commercial customs recognized and applied in many countries and regions worldwide. For example, Incoterms (International Commercial Terms) compiled and drafted by the International Chamber of Commerce (ICC) are widely recognized and applied in international trade transactions.
Regional Commercial Practices: These are international commercial customs applied in each country, region, or port. For instance, in the United States, the FOB (Free on Board) delivery terms are commonly used. The FOB terms in the United States are outlined in the “Revised American Foreign Trade Definitions of 1941,” which specifies six types of FOB with certain differences in rights and obligations for the seller and buyer compared to the FOB terms in Incoterms 2000.
II. Common commercial practices in international sale of goods contracts
When entering into international sales contracts for goods, due to the international nature of the contract, parties may encounter barriers related to language, culture, legal systems, etc. This can lead to situations where the same clause is interpreted differently by the parties, thereby posing a risk of disputes. Commercial pratices, especially widely recognized ones, play a crucial role in clearly defining consistent rights and obligations for the parties, thus reducing some of the barriers mentioned. In practical international sales contract negotiations, some typical commercial customs include:
• Incoterms: Incoterms, or International Commercial Terms, are a set of international trade rules established by the International Chamber of Commerce (ICC) and used in international sales contracts. Incoterms provide a set of common rules and general guidelines to facilitate international trade. Essentially, they offer a common language that traders can use to set terms for their transactions. Incoterms govern various aspects, including the responsibilities of the buyer and seller, delivery of goods, risk transfer, transportation responsibilities, and insurance obligations. While Incoterms are commonly used for sea and inland waterway transport, they can also be applied to all modes of transportation. A unique feature of Incoterms is that different versions of Incoterms are valid independently of each other. That means that parties can use the 2000 version of Incoterms for transactions in 2023, provided they explicitly specify this in their contract.
• Uniform Customs and Practice for Documentary Credits (UCP): UCP is a set of rules issued by the International Chamber of Commerce (ICC) that provides guidelines for the uniform practice of documentary credits applied by financial institutions issuing Letters of Credit—a financial instrument that facilitates trade financing. Many banks and lenders must adhere to these rules to standardize international trade, reduce risks in the exchange of goods and services, and manage international trade. These rules are applied to international payment transactions in many countries worldwide.
• Institution Cargo Clauses: It is a part of the initial marine insurance developed by the International Chamber of Commerce (ICC), an agency that manages global businesses. These clauses were first introduced in 1982, and they have been modified over time to accommodate changes in global business practices, risk levels, and threats. Insurance clauses are categorized into levels A, B, and C, each with different coverage, value, and insured cargo types to suit the needs of parties requiring insurance for goods during transportation.
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