Objectives of International Contracts
•“Objectives” here refers to common objectives of both parties to a commercial contract with regard to their rights and duties in the execution of the contract.
• Goods are dispensable to international trade. And whether visible or invisible, goods have their qualities, and the quality of a certain kind determines to a great degree its market and price. Hence the description (including the name, the quality, quantity and packing) of the goods is among the main terms upon which a sales contract is based and constructed.
Name of Commodity
•Name of commodity must be
•definite and specific
•practical, realistic and truthful
•given for the sake of cost reduction and facilitation of customs clearance.
Quality of Goods
•The quality of the goods refers to the intrinsic attributes and the outer form or shape of the goods.
•The intrinsic properties mean the chemical composition, mechanical performance, biological features, and the like, while its outer form or shape is manifested in the modeling, structure, color, and luster (shiny appearance) of the goods.
•In another sense, a certain kind of goods possesses both natural and social attributes. From a narrow point of view, it possesses natural attributes, while from a broad point of view, it also includes its social attributes, that is, how it meets the subjective requirements and different tastes of its customers.
Methods Used to Express the Quality of Goods
•Different methods are employed to express the quality of different goods in IB. These methods include sales by inspection, by sample, by specification, by grade, by standard, by brand or trade mark, by description, by drawing or diagram, etc.
Sales by Inspection
•Sales by inspection is concluded with the spot inspection by the buyers or their agents and the quality is determined thereof. This method is of special necessity for particular goods such as ornaments, jewels, paintings and artworks, etc. It is often used in consignment, auction, fairs and sales,etc.
•In many cases, the buyer may be advised to arrange for inspection of the goods before or at the time they are handed over by the seller for carriage (pre-shipment inspection or PSI). Unless the contracts stipulates otherwise, the buyer would himself have to pay the cost for such inspection that is arranged in his own interest.
Sales by Sample
•A sample is a product, often taken out from a whole lot of consignment or specially designed and processed. It is given for perspective customers to see and buy the product or set aside as the quality standard of the whole consignment. Garments, light industrial products, and agricultural native produce are generally sold by sample.
•Sales by sample falls into two categories: sales by seller’s sample and sales by buyer’s sample.
Sales by Seller’s Sample
•Samples are usually provided by the seller. When the sample is accepted by the buyer in quality, the seller is obliged to deliver goods of the same quality as shown by the sample. In case the goods delivered by the seller do not correspond with the sample in quality, the buyer is entitled to claim compensation for losses or reject the goods. That is to say, the goods must be the same as its sample represents. Also, having sent a sample to the buyer, the seller should retain another sample of the same quality for later reference. This is called a duplicate sample（复样/留样）. The exporter sometimes needs also to send another sample to the commercial inspection bureau if commercial inspection is needed for export.
• Some samples are marked as being “sample for your reference only”. They are then reference samples and are not binding upon the seller. They are for sales promotion only.
Sales by Buyer’s Sample
•Samples can also be provide by the buyer. They are given as the quality standard for the goods to be produced and delivered by the seller. Under such circumstances, to avoid future disputes over the quality of the goods, the seller usually first duplicates the sample and then sends the duplicate to the buyer for confirmation. This confirmed sample is called counter sample(“对等样品”or“回样”).
•Before producing what the buyer’s sample requires, the seller should first make sure that he has the necessary technical and productive resources. Besides, it is necessary for the seller to declare in the contract that any disputes arising from property right shall be tackled by the buyer.
Particular Points about Sales by Sample
•1. Under Sales by Sample, the quality of the goods delivered must be in exact conformity with that of the sample.
•2.It is necessary to take into consideration some circumstances in employing the method of “Sales by Sample” to express the quality of the goods. (vague in concept, different interpretations, hence disputes possible)
•3. It is sometimes impossible to deliver the goods that is exactly the same as the sample provided earlier, thus a flexible clause is often found in a contract. For example, “Quality shall be about equal to the sample.” or “Quality is nearly the same as the sample.”
Sales by Specification
•Specifications are detailed descriptions of the goods to be sold. They include the chemical composition, content, purity, strength, size, etc. of the goods.
•e.g. 1) Plain Satin Silk
• Width Length Weight Composition
• 55inch 42yds 16.5m/m 100% silk
• 2) Plush Toy Bear, Size 24 feet
Sales by Grade
•The same kind of goods might also be classified into different grades, such as large, medium, or small; Grade A, Grade B, Grade C. Every grade has its own specifications. These grades are often given by commercial chambers or relevant government departments, or informally by the producers or the traders themselves. There are no uniform international standards for goods, and they are not so formal as standards.
•E.g. Fresh Hen Eggs, shell light brown and clean, even in size
• Grade AA: 60-65gm per egg
• Grade A : 55-60gm per egg
• Grade B : 50-55gm per egg
Sales by Standard
•Standards are the specifications or grades officially recognized by the governmental department or commercial organizations of a country. They have legal effects and hence are binding upon the traders. If the goods do not conform with the requirements demanded by the standards, they are not to be marketed. Different countries have different standards. It has become an important aspect for exporters to meet the standards and get the quality recognition of their target countries. Also, most countries make alternations and amendments to their standards and it is therefore necessary to state the quoted publications of the standard in a contract.
•E.g. Rifampicin B.P. 1993 (Note: B.P.: British Pharmacopoeia)
F.A.Q (Fair Average Quality)
•In the trading of agricultural products, F.A.Q (Fair Average Quality良好平均品质 ) is often employed to indicate the quality of the goods. F.A.Q is rather sweeping. From a technical point of view, it indicates the average quality of the current crop. Besides F.A.Q., specifications are still necessary unless the transaction is done between regular trading partners. To be different from F.A.Q., the term “selected” is sometimes employed. With this term, the seller needs to state the specifications of the goods to show how selected it is.
•E.g. Chinese Tung Oil
• F. A. Q. F. F. A.(游离脂肪酸） 4% max.
G.M.Q. (Good Merchantable Quality)
•For the trading of wood and aquatic products, G.M.Q. (Good Merchantable Quality上好可销品质) is employed to indicate the quality. It means the goods is free from defects and is good enough for use or consumption. G.M.Q. is usually not supplemented with specifications and when disputes arise because of the quality of the goods, exporters will have to be invited to make the arbitration.
Sales by Descriptions and Illustrations
In the sales of machines, precision instruments, complete sets of equipment and the like, technical manuals of directions, drawings or diagrams are necessary for sellers to indicate their product qualities. They are needed because such products are complicated in structure, functions, installation, and maintenance.
•Products sold in this way usually require a quality assurance clause and a pre-sale or post-sale technical service clause in a sales contract. Within the life of quality assurance, any quality problem of the products should be tackled by the sellers. Also, for the sales by this way, a clause should be made in the contract stating that the seller is to answer any disputes arising from property right.
Sales by Trade Marks or Brand Names
•Brand is the name, term, symbol, or design or a combination of these to identify a product. It has a narrow meaning in which an enterprise means to distinguish its products from the products of other enterprises.
•Trade Mark is a legal term. It includes all those words, symbols, or marks that are legally registered for use by a single company. Some reputed products have well-known trade marks and brands, hence the trade marks and brands can represent the quality of the products.
•Sales by brands or trade marks are conducted mostly for goods with fixed quality. It is unnecessary to inquire much about the quality of these products in business negotiation. But you should state the types and specifications of the products you want.
Sales by Place of Origin
•Some products are famous by brands or trade marks, while some others, esp. native products, are often well-known by the place of origin.These products sell well when the places of origin are mentioned to signify their quality.
Quality Tolerance Clause
•Tolerance is the allowed deviation from a given standard of size, content, performance, purity, or some other measurable characteristics in the specifications of a product. This is necessary for the sales of some products as deviations are sometimes unavoidable for some natural, technical, or productive reasons. To avoid disputes arising from hereupon, the parties need to make a tolerance clause stipulating the allowed deviations from the standard.
Three Ways Used to State the Quality Tolerance:
•(1) Flexible area: That is to define an area within which flexibility is allowed, e.g. plank (thickness) 3”-5”
• cloth (width) 5” – 6”
•(2) Maximum and minimum. This is to state the maximum or minimum of the specifications.
•e.g.: Fish Meal Protein – 55% Min.
• Fat - 9% Max.
• Moisture – 11% Max.
• Salt - 4% Max.
• Sand - 4% Max
•(3) Allowed deviations. e.g.: Chinese gray duck down with 90 percent down content, 1% more or less is allowed.
•If the quality of the goods delivered does not go beyond the range of the flexibility stipulated in a contract, it usually does not affect the price. Sometimes the parties may agree that the price is to be adjusted in accordance with the actual deviations from the given standards, e.g.:
•Specifications of the Northeast China soybeans
•Moisture 14% - 1% price +1%
•Oil content 18% +1% price + 1.5%
•Admixture 1% - 0.5% price +1.5%
•Broken grains 7% - 1% price +0.5%
The Quantity of Goods
•Units of Measures and Weights
•The Calculation of the Weight
•More or Less Clause
Units of Measures and Weights
•Units of Measures and Weights are complicated in that different countries have different systems. It is of great importance to have an understanding of them, esp. the metric system. The British System and the American System are most often applied in international trade.
•(1) Weight: Metric system: 1 metric ton = 1,000 kilograms
•British system: 1 long ton = 1016kgs
•American system: 1 short ton = 907.2kgs
• (2) Length: We use kilometer, meter, centimeter, etc. in metric system while in British and American systems, mile, yard, foot and inch are used.
•1 mile = 1,760 yards = 5,280 feet
•1 meter = 1.0936 yards = 3.2808 feet
•(3) Area: Area units are used in the calculation of plank, board, or leather, etc. 1 square meter = 1.1956 square yards
•(4) Volume: The units of volume are mostly applied in the trade of wood, and the like.
• 1 cubic meter = 1.308 cubic yards
•(5) Capacity: Units of capacity are usually used in the trade of liquid goods and agricultural products. We have litre, gallon, bushel, etc.
•Package Units: bale, bag, carton, and case, etc.
The Calculation of the Weight
•In international trade, goods are often measured in the units of weight. The methods to measure the weight of goods are stated as follows:
•1. Gross Weight: The gross weight means the over-all weight of the commodity, including the tare, i.e. the package weight.
•2. Net Weight: The net weight of the goods refers to the weight of the commodity alone, the tare is not counted in. Four ways are used to calculate the tare of the goods:
•(1) By actual tare or real tare. That is, the package is weighed to have its actual weight.
•(2) Average tare. The package of a number of the goods are weighed to get their average weight, then the total tare is got by multiplying the average tare with the total number of the packages.
•(3) Customary tare. Certain standard packages have generally recognized weight, which is used as the cust, omary tare to denote the weight of such packages.
•(4) Computed tare. That is the tare previously agreed upon by the seller and the buyer.
•If the contract does not state whether the goods are to be calculated by gross weight or net weight, they are usually to be calculated by net weight.
•3. Conditioned Weight公量: This refers to the weight of the goods derived from such a process with which the moisture content of the commodity is removed and standardized moisture content is added by scientific means. Conditioned weight is chiefly applicable in the calculation of the weight of such commodities like raw silk, wool, etc., which are of high value, and with unsteady moisture content. This is done by first measuring the actual moisture weight from the total weight of the commodity and then adding the standard moisture weight.
•4. Theoretical Weight理论重量: Commodities such as steel plate have regular specifications and regular size. They are often subject to the use of theoretical weight. Their unit weight is the same and the theoretical weight is got by multiplying the unit weight with the total number of the goods.
•5. Legal Weight法定重量 and Net Net Weight实物净重: Legal weight is the weight of the goods and the immediate packages of the goods. Such kinds of goods include cans, small paper boxes, small bottles, etc. Net net weight of the goods is got by deducting the weight of the immediate packages from the legal weight of the goods.
• Legal weight and net net weight are chiefly used in the exercise of customs duties.
The More or Less Clause
•The contractors are usu. required to state clearly the quantity of the deal in a contract, expressions like “about”, “approximately” should not be allowed. However, in practice, there is often a “more or less” clause in the contract. This is used because quite often the shipment is over-delivered or under-delivered, esp. for the trading of bulk goods. e.g.:
•More or Less Clause: The seller has the option of 4% more or less on contracted quantity.
•Generally speaking, the more or less quantity is paid at the contracted price. But sometimes, to prevent speculation with fluctuating price, it is stipulated in the contract that more or less quantity should be paid at the market price.
•Uniform Customs and Practice for Documentary Credit (UCP) rules that if there is any word like”about”, “approximately” in the quantity clause in the letter of credit, it should be interpreted that 10% more or less in quantity is allowed; and unless the letter of credit declares that the goods to be delivered should not be more or less in quantity or the goods are to be calculated by number of packages, 5% more or less of the goods in quantity should be accepted.
The Packing of Goods
•Packing is one of the important ways to realize the value of commodities. It protects and prettifies commodities and forms an important process in the storage, transportation, and sales of commodities. In international trade, packing is also decisive in identifying commodities. Hence, packing is one of the key terms in the business communication and negotiation.
•Cargoes fall into three groups:
•(1) Bulk cargoes or cargoes in bulk: like wheat, mineral ore, coal, etc.
•(2) Nude cargoes: like planks, vehicles, bronze or steel plates
•(3) Packed cargoes: all the other cargoes
• The first two groups of cargoes do not need packing while the third group does.
Packing for Transportation / Outer Packing/Big Packing
•To stand long transportation and for other purposes, the outer packing of the cargoes should meet the following requirements: be solid and durable, adaptable to the changing climates at the loading and unloading ports and transit areas; be uniform so as to convenience storage, stowing, calculation, cargo inspection and identification; have the least weight, volume, and cost increase. As packing materials, wood must be disinfected and many countries forbid straw to be used for the packing of imported goods.
•Packing Variety: Exported commodities are quite different from one another in nature, so is their outer packing. Outer packing can be unit outer packing and assemblage outer packing.
Containers for Unit Outer Packing
•(1) cases, which include wooden cases, carton, plastic cases, skeleton cases, crates and baskets;
•(2) drums or casks, which include wooden casks, iron drums, plastic casks;
•(3) bags, which include paper bags, gunny bags, plastic bags;
•(4) bundles, bales etc.
Containers for Assemblage Outer Packing
•To convenience transportation, unit goods are assembled or consolidated into large containers. This we call assemblage outer packing. Containers for this purpose include flexible containers, pallets, and large containers. Flexible containers are bags made of fiber able to hold powdery commodities; pallets are a kind of portable platforms intended for handling, storing, or moving materials and packages; large containers are one of the important inventions of the 20th century in transportation.
•Containers are of different sizes, but now the universally-used containers in international trade are 8ft x 8ft x 20ft and 8ft x 8ft x 40ft, with the former being taken as the standard container unit, called TEU (Twenty-foot Equivalent Unit). It has a dead weight of 18 metric tons and a capacity of 31-35 cubic meters.
•Shipping marks are the designs, letters, words, or numbers stenciled on the transportation packing of cargoes. It is used for identification, for understanding the place of origin, for simplifying the examination of documents, for keeping the secret of business, and for the protection of cargoes. They are not only stenciled on the transportation packing of the cargoes but also appear on the invoices, insurance documents, bills of lading and some other documents. Previously it consisted of a particular geometric figure, abbreviations or initials of a consignee, the unloading port, and the package number. Now to promote the application of electric data interchange, relative United Nations organizations and some major trading nations have developed new standard shipping marks, which have been adopted in China. The new shipping marks consist of the following four parts:
•(1) Abbreviations of Consignees or Buyers: no full name is to be used here. But in railway or highway transportation, full names are required.
•(2) Reference No.: it is one of the numbers of the shipping documents and should not be too long.
•(3) The Name of the Unloading Port: It should be clear and complete. In case the name refers to more than one place, it should be followed by the name of its country. If the cargo needs transshipment, the place names of the transshipment should be given as, e.g. Berlin via Singapore. But if the transshipment is made by multi-modal transportation, it is unnecessary to list the transshipment port. For cargoes which are to be carried to a free port or a free trade zone, the name of the destination should be preceded with “free”. Optional ports should be preceded with “option”, e.g. Option Hamburg, Rotterdam. For goods to be transported by OCP (over-land common point), both unloading ports and the destinations of the OCP should be listed, e.g. Seattle OCP Boston.
•(4) Package No.: Exporters should list in the shipping mark the total number of packages of the whole lot of cargoes and number the individual packages consecutively so as to convenience the verification of each individual consignment of the whole patch, e.g. No. 1-100, No. 2-100/ No. 40/100
•Here is a standard shipping mark:
•Shipping marks are usually made by exporters. The parties need not discuss this matter while negotiating the contract. But the shipping mark must appear in shipping documents.
•Indicative marks are to remind the porters and the container-openers that improper handling might cause damage to the goods. they consist of figures and written languages. For exported commodities, English is used.
• China and many other countries in the world demand warning marks on dangerous cargoes like explosives, corrosives, radio-actives, oxidizers, and combustibles or inflammables. The warning marks are to remind the handlers to take necessary safety measures.
Dimension Mark, Weight Mark, and Mark of the Place of Origin
•Sometimes according to the stipulations of the relevant regulations or laws of the importing countries, or upon the request of the importer, it is the practice of the sellers to supply the dimensions of the package which may be used in customs entry or in assessing the freight. Moreover, it is preferable for the gross and the net weight to be otherwise shown. And also, in many cases and in many countries, the place of origin needs to be printed on the outer package.
• e.g. GROSS WEIGHT 500 KGS
• NET WEIGHT 450 KGS
• MEASUREMENT 1.5 X 1.5 X 2.0 m
• MADE IN P. R. CHINA
Universal Product Code
•Universal Product Code: shortened as UPC, and also called linear code, refers to the electric identification code, attached on the commodities. This is necessary on the commodities sold on international markets as without UPC, commodities can not be sold in supermarkets.
Packing for Sales/ Inner Packing/ Small Packing
•Packing for sales will not only protect, but also prettify commodities. It provides some information about the quality, function, origin, usage and some other things about the commodities. Inner packing plays an important role in sales promotion. Various forms of inner packing have been developed to meet the demands of consumers and marketing competitions, including suspensible packing, transparent packing, portable packing, window packing, gift packing.
•Inner packing should be artistically attractive. With the development of consuming taste and science and technology, inner packing becomes something like a kind of art. Good inner packing may impress consumers with creative designs and suitable colors. Of course, it should also help to make itself easy for people to carry and use the commodities.
•Inner packing should also meet the different tastes and requirements of people in different countries. People of different social systems, religions, and social customs are quite different in their favorable designs and colors. Some even have their taboos, e.g. among the symbols for inner packing, Islamic people do not like to see pigs and pandas; Italians do not like to see chrysanthemum, British and southeast Asian people do not like to see elephants; French people do not like to see peaches, while Japanese people favor tortoises and ducks but dislike lotus. Also among colors for inner packing, Brazilians dislike to see purple, yellow, dark brown; French people do not like green and Germans do not like to see red, black, dark brown, and deep blue.
•Neutral packing is the one that makes no mention of the country of origin. This is sometimes needed because the exporters want to break down the high tariff duties or to avoid the problems caused by the import quota imposed by the importing countries on their exports, or for some other marketing reasons.
Brand Supplied by the Customers
•Sometimes the importer may ask the exporter to use a specified brand, under such cases, the contract should stipulate that the brand or trade mark is to be supplied by the importer and the importer should answer for the disputes arising hereof.