International Trade Law: Obligations, Remedies, and Incoterms

INTERNATIONAL TRADE LAW

When we discuss international commercial law we refer to a certain set of rules, that may be national, European and sovra-national that contribute to fix rules concerning international commercial trade.

International trade may be sales of goods, international agency agreement, international distribution agreement, establishment of a new company in another country and so on. International trade needs a set of rules in order to regulate the relationship by and between seller and buyer, agent and principal ...

If we have a business by and between an Italian seller and an Italian buyer part of the same State and they start a controversy, what kind of controversy we may have between them?

• A non conformity of goods
• Delayed of delivery of the goods

Sales of goods= the seller shall transfer the ownership The main obligations of the seller are:

• to deliver the goods on time
• to deliver a conformity of goods
• However, the main obligation of the seller is to transfer the ownership which shall also be followed by the delivery of the goods on time and the conformity of goods.

But what is the exact moment in which the seller fulfils the obligations to transfer the ownership? Normally we have no obligation to have a written form in sales agreement, we can even sign an agreement through oral ways or behaviour through which a company may conclude agreements or amends (mandati). The law works in order to accelerate the circulation of the agreement. So, in general, when we discuss international trade we shall bear in mind what is the applicable law to the specific agreement.

We need to identify the specific laws applicable to the agreement and who are the parts involved in the agreement: such as an Italian buyer and an Italian seller, an Italian agent and an Italian principal. Then we may identify the specific applicable law, for instance, if we have an italian buyer and an italian seller the applicable will be the italian law.

However, sometimes we may have a controversy between seller and buyer for different reasons:

• Non conformity of goods
• Delayed of the delivery of goods

The written form of an agreement is fundamental in order to avoid misunderstandings; normally we may have misunderstandings also due to translation problems e.g. clausola penale may be translated as consequential damages or liquid damages and not penalty clause. Misunderstandings can be a consequence of a bad translation, since the judge may consider the clause as null and not correct. This means that you shall write in a correct legal way taking into consideration the specific law which may impose different legal approaches to the same issue.

-> We may have an agreement in a written way, in an oral way and through behaviour.

Problems in International Trade Law

When we discuss about international trade law we may have different problems:

• The first problem is understanding which is the applicable law to the agreement, so the law that governs the contract

EXAMPLE: If we have two companies that have legal seats in Italy, then the applicable law will be the italian law.

Normally, in international commercial law we refer only to companies and not to private people

• The second problem concerns conflict of law and this happens when we have two companies with legal seats in two different countries. The best solution is that the parties insert in the agreement a specific clause in which they directly fit the applicable law of the agreement.

EXAMPLE: We may have an Italian seller and a German buyer, they sign a written agreement in which they say which law shall be applicable, the Italian law or the German law.

This introduces a relevant concept in commercial law which is the freedom to contract (autonomia contrattuale). Normally parties may insert in an agreement all terms and conditions that they consider current with the only limit, the mandatory rules (regole inderogabili).

When we have national or international agreement, the freedom of contract (autonomia contrattuale) represents the relevant principle of business. Sometimes companies decide not to use or to use in part the freedom, so now we shall solve the problem.

EXAMPLE: We have an agreement between a seller and a buyer, one has a legal seat in Italy and the other in the USA. The buyer decides not to pay the goods, the seller shall perform its own obligations but also the buyer shall pay on time in a correct way.

Let's imagine that the buyer (italian) does not want to pay, the seller (american) decides to start a controversy, but where? In Italy or in the USA?

We do not know if the competent court is the italian one or the one in the USA

There are some problems:

• Who's the competent court?

It depends if we have a clause in the agreement, it also depends on the specific agreement and on the specific event that determines the fundamental breach (inadempimento essenziale al contratto).

Only if we have a fundamental breach, the seller or the buyer may decide to solve the agreement. Sometimes the judge may oblige the seller, for instance, not to terminate the agreement, instead to maintain the agreement and to obtain a reduction of the price. Since the purpose of the law is to maintain the agreements alive.

• What is the applicable law?

Key Clauses in Agreements

Two relevant clauses in a agreement are:

• The competent court
• The applicable law

The Competent Court

Normally we may consider a good solution for the seller that the competent court is the court of the country of the seller. If we exclude the European Union and other countries like Morocco, Argentina, China and UK we know that an italian sentence is not enforceable out of the European Union (non viene riconosciuta una sentenza italiana in una corte americana per esempio).

Normally when you decide to negotiate and draft an agreement, you shall also take into consideration the existence of international conventions by and between the States involved in the agreement. There shall be an international convention that allows the enforcement of a foreign sentence.

1. You apply and accept an international arbitration
2. Or you are, in a certain case, obliged to identify as competent tribunal, the tribunal of the party that you consider is not fulfilling some obligations

Example: If the seller says that the buyer is not paying him, the buyer can either accept an international arbitration or identify as the competent tribunal the one of the country of the buyer.

It is important to understand the difference between:

• MEDIATION: it is just a tool relevant to avoid a controversy in which a mediator helps parties to arrive to a new agreement in order to solve a problem (avvicinare le parti ad una nuova soluzione)
• ARBITRATION: the arbitrators are private judges (they may be engineers, lawyers, doctors) that have a specific competence in a specific field, however, the sentence of the arbitrators creates obligations (it is like the sentence of the judge). Normally arbitration may be considered faster than a sentence in court, it is more expensive and more or less the countries of the world ratify the Brussels Convention of 1968 that created the obligation to enforce foreign arbiter's sentences.

The Applicable Law

After having decide the competent court, the judge involved in the controversy shall identify the applicable law:

• We may have a specific clause in an agreement
• Otherwise the judge shall solve the conflict of law (conflitto di legge)
• Article n 3 of the Rome Convention says that the applicable law will be the law chosen by the parties
• Article n 4: in absence of choice by the parties, the applicable law is the law of the country in which has a legal seat (sede legale) the party who shall perform the main obligations of the agreement (il soggetto che deve compiere l'obbligazione caratteristica).

The obligation of the seller is more relevant to produce a specific product.

If the criteria fits the obligation of the country in which has legal seat the party who shall perform the main obligation, then we arrive at the applicable law. If the seller is an Italian seller then the Italian judge or the UK arbitrator shall apply Italian law.

IMPORT-EXPORT PRACTICE

When we discuss import-export practice, we shall take into consideration the applicable law that may lead to different consequences.

If we remain in the EU what kind of risks and problems we shall evaluate in order to adopt a professional approach to exporting and importing in international commercial trade?

The Risks of Exporting and Importing

What kind of problems and risks are involved in international trade?

• Transportation of the goods: as a matter of fact international transportation tends to involve greater distances, with cargo often changing hands or undergoing prolonged storage, so that there is a bigger risk of damage, loss or theft, than in domestic trade.
• Custom related problems: customs offices control goods, and people carrying goods, by all means of transport at the country's external border. There may be some problems in the export custom or in the import custom for different reasons. Nowadays geopolitical events have relevant consequences to the business that shall be taken into consideration while talking about international trade.

Example: Let's imagine that a company decides to sign an agreement with a russian company, the russian company agrees with the price, with the delivery terms, with the applicable law and even pays in advance. However, the seller shall evaluate if the sale is permitted or not, for example by checking if the buyer is part of a black list.

• Modification and update of new norms: this may happen if a country introduces a new regulation. For instance there are some products considered dual use products and when you sell these products you shall obtain by the local authorities a specific licence.
• Commercial risk: it refers to market uncertainties and obstacles that might lead to losses and might jeopardise trade. When we have a sales agreement, the main commercial risk of the buyer is if he decides not to pay, by consequence, the main risk of the seller is that he never receives the payment. In order to solve the commercial risk, export partners shall work in order to create a specific mode of payment to reduce and control the risk of no payment.

Mitigating Commercial Risk

There are some solutions or mode of payment that may mitigate the commercial risk:

1. Advanced payment (but in this case the buyer pays in advanced but he may never receive the product)
2. Another solution may be a letter of credit
3. Documentary credit
4. Cash against document (CAD)