What should an Import/Export Agreement contain?
An import/export agreement is used when a buyer agrees to purchase goods from an overseas seller. These agreements cover all aspects of the international transaction and relevant rights and liabilities of the buyer, seller, and carrier.
Aspects covered include buyer/seller identification, product specification, insurance, and liability. Import/export agreements are necessary in that they identify each party’s responsibilities and essential details of the transaction. Alongside this, if a dispute arises the jurisdiction of the agreement is decided and parties liabilities identified, assisting the resolution process.
What do these agreements cover?
Import and export agreements cover:
- Parties to the agreement
- Product details
- Price and payment terms
- Delivery details
- Transfer of risk and title (Incoterms)
- Insurance, duties and taxes, and import/export licenses
- Remedial action and jurisdiction
- Options if either party default
- Termination of agreement
- Completion date
Parties to the agreement
The agreement must specify the identity of the buyer, seller, and carrier involved in the transaction. This may be either an individual or company. Once acknowledged, the agreement assigns all duties and obligations to these entities. This makes clear those involved in the transaction and who has rights regarding the import/export if a dispute arises.
It is essential that all parties agree to the specific details of the product involved in the transaction. Product details include product name and specifications, size, packaging, quantity (including units of measurement), and total value. Parties must also inspect the nature of the goods if possible and agree upon this quality.
Price and payment details
This part of an agreement involves deciding on a price for goods and when payment will be made. Generally, these conditions are heavily relied upon and therefore must be specific. The complete price and whether payment will be made in full or instalments before or after the delivery of goods would need to be explicit.
Delivery details include delivery address, estimated time for arrival, and shipment process. As goods are being transferred internationally, parties will decide on either direct or transhipment. They will also need to arrange for the transportation of goods from initial to end destination. Parties should agree on who is responsible for organising and paying for delivery. Parties should note if delivery time is of the essence, therefore delayed deliveries make the buyer eligible for damages.
Import/export agreements should acknowledge when the burden of risk and liability for damage shifts from the seller to the buyer. The International Chamber of Commerce developed terms known as Incoterms which are used commonly in import/export agreements and outline when liability shifts between parties. Each incoterm is unique and varies in appropriateness depending on your import/export transaction. For example, when agreed upon, the term CIF (cost, insurance and freight) regulates that the seller is responsible for organising the safe delivery of goods to the transport vessel and is liable for loss or damage until the goods are on the ship.
When engaging in an import/export agreement, the buyer and seller would agree upon an appropriate incoterm like the above mentioned example and therefore risk and liability would be allocated to each party accordingly. If you wish to view all incoterms and discover which is right for your agreement, you may refer to the International Chamber of Commerce’s website.
Insurance, duties and taxes, and import/export licenses
Import/export agreements also cover taxes, duties and charges. Parties should discuss whether the quoted price includes all relevant taxes. Regarding insurance, the incoterm selected should outline whether the buyer or seller is responsible for purchasing insurance for the goods whilst in transit. Parties should also agree on who is responsible for obtaining relevant documentation, licenses, and permits.
Remedial action and jurisdiction
In the chance any issues or disagreements arise, the import/export agreement should note procedures for dispute resolution. Examples would include parties agreeing to initially mediate before progressing to litigation. Importantly, parties should express the jurisdiction of the agreement. This is necessary as importers and exporters being from different countries would have different laws and trading standards. Parties should note which country’s jurisdiction and laws apply to their agreement, as this affects not only remedial actions but also the formation and validity of the transaction.
Options if either party default or terminate the agreement
Import/export agreements cover avenues and solutions for the possibility that a party to the agreement may be unable or fail to fulfill their obligations. The agreement should acknowledge the possibility that a party to the agreement may default on their end of the bargain and therefore remedies are available. Remedies will be available in all defaulting instances except where force majeure has occurred, meaning a supervening circumstance prevented performance. Parties should also elect a date or period of time prior to performance where they can decide to terminate the import/export agreement.
The agreement would need to specify the completion date of the transaction. This may be a one off import or export and have a simple end delivery date, however it is common with imports and exports that parties to an agreement trade on a continual basis. Completion dates therefore may not be explicit, however at the least parties should agree to a date or period of time after which they will discuss the continuity of their arrangement.