An export contract (also referred to as a sales contract) is essentially an agreement between you and a foreign importer to do business. The export contract can take many different forms. For example:
- A telephonic offer to sell, covering essential issues such as the product details, quantities offered, price per unit, delivery particulars and payment terms, made by the exporter to the foreign buyer (or an offer to buy from the importer to the exporter) and confirmed by the second party is one example of a legitimate export contract. Such an agreement may or may not be confirmed in writing. Telephonic contracts are somewhat risky and are not that common in international trade. They may occur, however, between long-standing trade partners or between reputable firms dealing in commodities that are subject to rapid price fluctuations.
- Similarly, any written offer (quotation), either contained in a formal written contract and posted or couriered to the importer, or sent by e-mail, fax, telex or cable to the importer, and confirmed (usually also in writing) by the importer, is another form of legitimate contract. Again this could also be a written offer to buy, initiated by the importer, which is then confirmed by the exporter, although this is seldom the way it works unless it is a long-standing customer.
- A proforma invoice sent by fax, e-mail, courier or post to the importer (usually on his/her request) and confirmed by the importer, is another common form of export contract. The confirmation could be as simple as the importer writing “I agree to these terms and conditions” on the proforma invoice and signing it or perhaps the importer may generate a separate, signed document agreeing to the proforma invoice which is then attached as reference. Alternatively, the importer may indicate that (s)he is happy with the proforma invoice, but may request a formal contract containing the terms and conditions stipulated in the proforma invoice to be drawn up and signed by both parties.
The first offer is seldom accepted
It is seldom the case that the importer will accept the first offer made by the exporter and normally this first offer will be followed by a series of counter-offers sent back and forth between the exporter and the importer until each party is satisfied with the terms and conditions outlined in the final offer and agree to abide by it.
You need to be clear and precise
Whatever form the export contract takes, you need to be careful in formulating this document as they are drawn up between companies from countries which may have very different legal systems, regulations and attitudes to doing business. These differences may cause disputes even when trading with other fairly developed nations. The challenge is to make your export contracts as clear, precise and comprehensive as is possible.
The provisions in the contract
The basic provision of any contract for the sale of goods is that you, the seller (in this case, the exporter), will transfer ownership of the goods to your buyer (the importer) in exchange for payment (which, in international trade, made be made in a foreign currency). The export contract needs to specify the terms and conditions for doing this, and should at least describe:
- Who is party to the contract
- The validity of the contracts
- The goods being sold (usually described in some detail)
- The purchase price of the goods and the currency in question
- The terms of payment
- Inspection of the goods if required
- Where the goods should be delivered
- At what point transfer of title to the goods takes place
- Any warranty and/or maintenance conditions associated with the sale
- Who is responsible for obtaining import or export licenses, if these are required
- What supporting documentation and/or certificates are required
- Who is responsible for paying import duties and other taxes
- Any contract performance security requirements, such as bank letters of guarantee
- What will happen if either of the parties defaults or cancels
- The provisions for independent mediation or arbitration to resolve disputes, and whether this would take place in South Africa or the importer’s country, or elsewhere
- The contract’s completion date
The role of Incoterms
To provide a common terminology for international shipping and minimize misunderstandings over contract terms, the International Chamber of Commerce has developed a set of terms known as Incoterms. These are the basic terms used in international sales contracts, and you can learn more about them at the Incoterms 2000 Web site or in the Glossary of International Trade Terms in Appendix A.
Intellectual Property (IP)licensing contracts are particularly tricky
If the contract involves the licensing of proprietary information or technology, be very sure that it’s precise about the licensee’s rights. Vagueness about these rights can create serious problems and can lead to the loss of your intellectual property. If the licensee uses your technology to create other technologies, for example, this can severely undermine the value of your asset.
Make sure the contract is signed by all contracting parties
Also – and this would seem obvious, but it’s sometimes overlooked – be sure that all parties to the contract have signed it. For instance, if you’re working through a representative, be sure that the actual buyer signs the contract. The representative’s signature is not necessarily enough, because without the buyer’s signature, there is no written evidence that the buyer owes you money. Last but certainly not least, have the contract examined by a lawyer familiar with the export market.