I'm Chris Southworth secretary-general of ICC United Kingdom speaking to
Charles Debattista, ICC special advisor on Incoterms and Arbitrator at 36 Stone
and David Lowe, Co-Chair of the Incoterms Drafting Group and Partner at Gowling WLG.
We're here to talk about ICC Incoterms which are a fundamental set of rules
supporting global trade, used in over 100 countries, translated into 30 languages.
Now Charles, why don't we start with you, what are Incoterms in simple language?
Incoterms stand for International Commercial Terms, Incoterms,
they've been around since the 1930s. They've been through several different versions, this is, I think,
the seventh or the eighth version and they're currently revised every 10 years.
They're basically a voluntary code of words or terms which international
around the world can, at any stage, incorporate into their sales contracts
and what they do is set out where the seller's responsibilities are
and where the buyer's responsibilities are
Who has responsibility to clear export, who has the responsibility to pay the carriage, who bears the risk if things go wrong?
So David, who are they for? Who's the core audience? The most important audience are the people
who sell and buy goods because the Incoterms set out the relationship
between them - who is responsible to do what, on what costs. But it's not just them
everyone who helps them along that whole supply chain, they're also an
important part of this so that's the freight forwarders and logistics
providers, the port authorities, the customs brokers, the trade finance
providers, the insurers they all need a good understanding of Incoterms to help
the seller or buyer make a successful trade. So anyone in this whole jigsaw puzzle
that David has just described, whether they be sellers, buyers, banks, insurers, carriers,
logistics people who think of the connections to CIF or FCA or CIB and think
"oh, I can't quite remember what that means for me in terms
of my obligations, in terms of my rights, in terms of the moment at which goods are delivered, the moment at which
risk is transferred" they think CIP, CIF and they will find them in Incoterms 2020.
So, if I were a classic goods exporter in Birmingham, where should I be using Incoterms
and why should I use them? In every one of your contracts. It should be in your standard sale terms
and any other bespoke contract you should be setting it out because what could be more basic
than to agree with the other party where the delivery point is
what the responsibilities are. It should be part of your pricing.
And Charles, the question we often get asked is what's the relationship between Incoterms
and trade financing and trade insurance?
there are 11 Incoterms in the 2020 version,
let's state CIF or let's state CIP costs insurance stage two. You've got 20 terms
in the CIF term, term for the seller, term for the buyer - but that is not your
contract of sale. If you're selling sugar or shoes or bananas,
whatever, you do need a contract. What Incoterms does
of the safety net of definitions,
which underlie that contract. Now, Incoterms are not a sale contract,
neither are they an insurance contract, neither are they a trade finance contract,
neither are they a transport contract, instead it's saying they all have some effect,
they’re all impacted by Incoterms to some degree which is why
these other players in international trade need to be aware.
So some Incoterms will say that if a party has a particular responsibility to carry insurance,
say CIF carriage insurance rates, the seller is responsible for getting
some insurance and, therefore, if you're the insurer around that you need to understand that.
Some Incoterms don't mention insurance but if you're selling goods you need to make sure
you're insured at the point of delivery in case
something goes wrong, its obvious risk management and, again, the insurer
needs to understand that. And then on trade finance, you need to understand
what's going to be required to affect the sale that needs to be financed,
how that's going to fit in with the trade financer if you're using a letter of credit,
the letter of credit will demand certain documents to be presented to be paid,
so as the trade financer you need to understand whether that's a realistic set
of documents and whether there is a list of documents that you need as a trade financer to
secure your position. So is the buyer or insurer likely to ask you to make sure
that you have Incoterms in your contract, is that possible? Yes.
So, I'm a classic goods trader back in Birmingham, so what if I don't use them,
what's going to happen? Do you need lawyers? What will happen is that if you use the
wrong Incoterm - if your insurance arrangements don't tally with what
you're meant to be doing under your sale contract, if your letter of credit doesn't
match the documents that you are entitled to under your terms of Incoterm,
if there are gaps between the contracts or misunderstandings on various terms -
then the likelihood is that if there is a motive for a dispute,
if the market moves against you, if your buyer loses interest in your goods, then
there is likely to be a dispute and then, of course, everyone reaches for their lawyers,
start to make costs.
All of this could be avoided by some care and attention right at the start, by training yourself in Incoterms. If you don't use Incoterms that's not a problem in itself, you don't have to use
Incoterms but it’s a really convenient way of covering all the main points with just one phrase,
you can incorporate all legal terms. If you have to think about the detail
of the drafting of who's responsible for export clearance terms
then it's just convenient but if you don't use Incoterms, you're going to have to
detail each and every one of those points in your contracts and most people
just don't have the time or inclination to do that. And this is why the ICC revises them
every 10 years, to reflect changes in trade practice, to try and respond to
problems which has been brought to the attention of national committees and ICC
HQ in the interview in 10 years. The process of change
and revision is very, very user friendly. You may
think that it's an exercise indulged in only by lawyers but we're only two of four lawyers
where there is in a group eleven draftsmen the rest were real people, with real problems
and the several revisions for it went out to national
committees around the world and the drafts were looked at very,
very carefully by real businessman with real problems,
real issues, they were fed back to the drafting group in order to respond to those problems.