Law of International Trade Essay

Introduction Coffee Beans that were bought in Sao Paulo, Brazil are to be transported to a depot based in Durham, England. The total weight of the Coffee Beans to be shipped is 1500 tonnes. At first, this may seem to be an ordinary shipment on the surface. However, when putting into perspective the amount of legalities to be fulfilled and the massive quantity of beans involved, the daunting nature of the task becomes evident. Every country has its own set of peculiar trade laws. These laws become more complex and stringent when it comes to International trade. However, while trading across boundaries, the local domestic law needs to be respected at any cost. An International trade law is a combination of the law of the land and international laws governing the transactions of goods or services across borders (Cornell, 2005). Multilateral treaties are also signed between countries to resolve disputes and effectively enforce mutually consented terms and conditions. This is done to standardize the entire process and prevent conflicts. For instance, the Convention on contracts for the International Sales of Goods  (CISG) is one such international trade agreement put forth by the UN to govern International trade operations. The different modes of transportation available for transportation need to be considered, keeping in mind a host of factors. This includes ensuring the safe transit of the beans at each and every point, right from the spot of purchase to the destination depot. Efforts also need to be made to make the process as economical as possible. The reduction in transportation charges would translate to higher levels of profit. The sharing of the costs involved in shipping the beans should be properly worked out and the decisions should be incorporated into the agreement. The point at which the seller’s liability ends also needs to be appropriately documented.   It is usually indicated by the INCO terms. Although economy in transportation is essential, it should not come at the cost of invaluable time. The goods also need to be transported within a reasonable timeframe. The laws regulating trade in the departure as well as destination points need to be properly interpreted, in order to avoid confusion at a later point of time. This calls for relevant paperwork which would certify the legitimacy of the whole process. To start with, the whole process needs to be broken down into different steps. The purchase of coffee beans can either be from a manufacturer or a wholesaler. Relevant proof of purchase provided should be provided by the seller, after receiving the agreed price. Other export licences should be purchased, in order to ship them to the depot in Durham. Then, the purchased beans are moved to a warehouse. Since the purchased goods are quite voluminous and bulky, transporting the goods through best the most cost-effective solution. However, the goods from the seller’s premises have to be transported to a warehouse. A warehouse is usually an empty storage with adequate facilities for moving goods. It is used by manufacturers, businesses, importers, wholesalers, exporters and customs agency to intermediately store goods. The seller would have to notify the buyer about the estimated time of arrival. The seller would also have to provide necessary proof documents of each stage involved in the carriage of the goods. A host of expenses are usually incurred during the carriage of goods from one country to another. This includes expenses incurred in Warehouse storage and labour, export packing, loading charges, inland freight, terminal charges, forwarder’s fee, vessel loading charges, charges upon arrival, ocean/ air freight, excise duty, taxes, customs and charges upon delivery at the destination. While carrying out International trade, the main concern is the surety of obtaining payments within an acceptable period of time. This concern is addressed by the concept of Documentary Credits. Documentary Credit is a system by which the buyer instructs his bank to pay the seller. On the basis of customer trust, the bank transfers the funds to the seller’s bank account on the behalf of the buyer. However, adequate documents in support of the concerned transaction will have sent from the ship to the seller’s bank. After verifying these documents, they are sent to the buyer’s bank for further processing (Fraud Aid, 2005). In this arrangement, the bank becomes the primary obligator, thereby promoting healthy International trade by eliminating doubts and concerns about payment. The written instruction given by the buyer to his bank is also commonly known as letter of credit (L/C). The International Chamber of Commerce has defined some internationally recognised trading terms. These terms are otherwise referred to as INCO terms 2000. These trading terms are commonly used during the overseas transportation of goods. They are used to indicate whether it is the seller or buyer that has to produce the required documents essential for carrying out trade on a global scale. The INCO terms should be followed by the named place mentioned in the contract (International Business Institute, 2000). The named place in this case is Durham, England. These terms are capable of designating the liabilities as well as rights of each party involved. Incoterms 2000 ‘Ex Works’ refers to type of delivery where the entire cost and risk of transporting the goods from seller’s premises to the final destination is borne by the buyer. This model is highly beneficial to the seller, since there is no risk involved. The seller does not even have to take up the responsibility of loading the goods from his premises, as the only obligation will be to make goods available. The relevant invoice and testimonials mentioned in the contract will also have to be provided by the seller. The short term for Ex Works is EXW. ‘Free Alongside Ship’ transfers the risk and cost of transportation when the seller transports the goods to the quay, alongside the ship. The abbreviation for Free Alongside Ship is FAS. In ‘Free Carrier’, the responsibility of ensuring the safety of the goods ends for the seller when the goods are handed over to the Carrier’s custody at a mutually agreed location. This location is referred to as the named point. In Free On Board, the seller bears the liability until the goods are put on board the ship at the Port of shipment. The port of shipment is mentioned in the contract. From this point, the risk transfers to the Buyer. This is commonly known as FOB. In Cost & Freight (CFR), the seller ships the goods to the named Port of destination mentioned in the contract, by paying the freight charges. The buyer then takes up complete responsibility when the goods pass over the ship’s rail at the Port. The conditions of Cost Insurance & Freight are similar to the previous one. However, the Seller has to take the additional responsibility of paying the insurance premium on the buyer’s behalf. This is denoted by CIF. The seller has to also incur expenses in insuring all the risks until the named destination, in the case of Carriage & Insurance Paid (CIP). When the seller bears the freight charges of the goods until they reach the mutually agreed location, it is mentioned as Carriage Paid (APT). As soon as the goods reach the first carrier, it becomes a liability of the buyer. In Delivery at Frontier (DAB), the seller bears the charges and liabilities until the goods enter the Frontier.   When the goods reach the Customs process, it risk transfers to the buyer. Delivered Duty Paid (ADP) is most favorable to the buyer, since the seller will bear all charges incurred in delivering the goods to the buyer. Delivered Duty Unpaid is similar to ADP, with the exception of import duty and other official import charges that are borne by the buyer. In Delivered Ex Ship (DES), the responsibility and cost of transferring the goods passes from the seller to the buyer when the ship carrying the goods reaches the destination port. It will be the buyer’s responsibility to discharge the goods.   Delivered Ex Quay (DEQ) is of two types; Duty Paid and Duty on Buyers Account. The seller has the obligation to deliver the goods in the quay of the destination port. Either the buyer or the sealer takes up the responsibility of the paying the duty, according to the initial agreement. Farther considerations Many factors have to be considered when it comes to structuring a carriage contract agreement. There are three forms of carriage; common carriage, contract carriage and private carriage. Common carriage is a type of carrier service catering to the general public to perform common transportation services. These services have to be authorized by various government regulatory agencies. The tariffs that are charged for the service lawfully demanded locations are held by these agencies. Contract carriage involves transportation services to an unlimited number of posts. These agencies also have to get necessary authorization from the same agencies. Relevant contracts consisting of details about the minimum rates and charges are filed at different granting agencies and. Copies of this contract are also retained at the facilities of the shippers as well as the carriers.  Private carriage offers transportation services to business enterprises.   This service is for meant for manufacturers and distributors that transport their goods in their private vehicles driven by their own employees. It is also commonly known as shipper-carrier. The ‘distinct needs’ provision takes care of distinguishing the different carriage types. It is very essential to distinguish between a normal contract and a carriage contract; failure to accomplish this could result in several liability issues on both sides. This distinct needs provision helps to distinguish a carriage contract from a regular one. This provision incorporates certain unique terms and conditions including specific requirements of a shipper and the obligations that need to be satisfied by the contract carrier. Some of the commonly mention distinct needs in a carriage contract agreement are price adjustment clauses, terms of credit, incidental transportation charges, cargo transfer charges and specific delivery schedules. However, the shipper should truly comprise these unique services if they are mentioned. A certain degree of reasonableness should be allowed while dealing with carriage contracts. First of all, one has to understand various shipping term in order to comprehend the shipping rules better. ‘Carrier’ is a term used to refer to the person who signs the contract of carriage with a shipper. It is usually the owner or charterer who hires a ship to carry their cargo, passengers or other goods. ‘Shipper’ refers to the person who pays money to the carrier to transport his goods (Arnold, 2003). Hence, the term ‘shipper’ may either refer to the buyer or the seller of the beans, depending upon the INCO term in use. Carrier is the company or agency which undertakes to ship the beans from Brazil to England. The Contract of carriage will apply to agreements mentioned in the bill of lading or any similar document that concerns the carriage of goods by sea.   The term ‘goods’ is used to refer to wares, merchandise and other articles. However, live animals are not included in the goods category. Goods such as brandy and gun powder were classified as dangerous goods. The validity period of the Contract of carriage starts from the time of goods being loaded until they are unloaded from the ship. Hague & Hague Visby Rules Hague rules were framed by the International Convention for the Unification of Certain Rules of Law relating to Bills of Lading and Protocol of Signature. It came into effect on 25 August 1924 in Brussels. It was an effort to constitute a minimum mandatory liability for carriers, since most of them were evading the liability due to loss or damage of cargo. According to the Organisation for Economic Co-operation and Development   (OECD), this was a move by the International community to fabricate a fair system for the shipper as well as the carrier. Even today, these rules act as the foundation for framing marine trading laws for a majority of the nations around the world. According to Hague Rules, the carrier will be liable to bear the cost of damaged or lost goods only if the shipper is able to prove that the shipper’s lack or absence of diligence. However, the carrier would not be held liable if the ship was unseaworthy. The carrier will also lose the liability to compensate for the goods, when the damage is caused by a natural calamity termed as ‘Act of God’ or a fire accident which is caused to due to any reason other than a fault in the carrier vessel. The carrier will also not be liable for damages caused due to the act of terrorists, war or and other anti-social elements like pirates. The carrier would not be responsible for a delay in the delivery of goods, if the delay was caused due to an emergency situation like lockouts, quarantine operations or public strikes. The shipper would not be able to claim damages from the carrier, even in the event of neglect of the duty by the employees of the ship.    Hence, this enabled the carrier to get away with liabilities arising as a result of errors made by the people working on board such as mariners and the carrier’s working staff, if the carrier was in a position to prove that the ship was seaworthy and adequately and appropriately manned (Admiralty Law Guide, 2006). Since this provision lets carriers to get away scot-free, it has posed a serious conflict in balancing liabilities between the carrier and shipper. Transportation of goods involves two main types of contracts. They are Carriage Contract Agreement and Bill of Lading Contract. Carriage Contract Agreements are usually signed when long shipments are involved. It serves as a continuing contract that stands for the safe delivery of goods to promised destination. It usually covers multiple shipments that are necessary to carry out a long shipment process. The complete shipment process may involve other modes of transportation such as ground and air shipment.   However, carriage contract can not serve as a receipt of merchandise. The Bill of Lading is issued by the carrier as a proof of receiving the goods and serves as receipt of merchandise. A Bill of Lading is an agreement for a single shipment process which may be a part of a long process. In the practical sense, it is a list of expenditures incurred towards loading goods into a vessel. It is governed by all the terms and conditions mentioned in the Carriage Contract. It also acts as certificate that verifies the authenticity of the loaded goods. Further, it indicates whether the received goods were in good condition or not. Depending upon condition of the goods and packaging, the Bill of Lading is classified as Clean or Foul Bill of Lading. It also is further proof of the existence of a Carriage Contract (Wikipedia, 2006). However, the Bill of lading and Carriage Contract are completely different entities and they serve different purposes. Hence, the Bill of Lading can not be used as a Contract Carriage and vice versa. There are three types of bill of lading; straight bill of lading, order bill of lading and bearer bill of lading. In straight bill of lading, the consignee can claim damages from the consigner when the goods are not delivered on time due to defaulting or negligence of the consigner. This bill of lading is non-negotiable. In order bill of lading, the consignee can obtain delivery of goods if the consignee provides a bill and evidence showing the consigner’s interest to transfer. This bill of lading is negotiable. In bearer bill of lading, any person holding the bill of landing is entitled to receive the goods. When the consigner does not mention the consignee’s name, it becomes a bearer bill and can be negotiated. Goods that are issued with a negotiable bill of lading can be received only if the original documents are presented at the time of delivery. However, the speeding of trade and transit operations has given way to the issue of non-negotiable documents for goods, which enables the consigner to receive the goods by just presenting the non-negotiable bill of lading (Forwarder Law, 2005). Some of the standard obligations that have to be fulfilled by the consigner include providing the carrier with consignee’s name and address and destination of the carriage. The nature, weight, volume and the quantity of the goods to be shipped are also to be clearly stated. Even the packing and wrapping style, number of packages and any other details needed to identify the goods need to be provided by the consigner. The consignor would be held be responsible for any damages, in the event of false or insufficient details being provided. According to Article 283 of the Carriage of Goods by Sea Act (CGSA) (1924), the Bill of Lading can be issued either in the name of a particular person or the bearer.   It usually consists of the following details, 1) Date of issuing the bill. 2) Venue where the bill was signed and brought to effect. 3) Place of departure and destination. 4) Names and addresses of the consignor, consignee, carrier and the carriage commission agent. 5) The value and identification details of the shipped items. 6) Date of shipping. 7) Freight and other expenses with an indication of whether they are payable by the consignor or the consignee. 8) The conditions pertaining to the loading and unloading, type of transport means required to be used for carriage, the route to be followed, a determination of the responsibility and any other special conditions which may be included in a carriage contract. In addition to the bill of lading, the carrier also issues a non-negotiable receipt called waybill which proves to be useful in a situation when the goods arrive before the transaction documents. It is also issued when the consignee and the consigner is the same person (Evans, 2001). This option can be chosen when the consigner decides to reduce paperwork. A ship’s delivery order is another document that undertakes to carry goods by sea. The provisions for this document are provided by the CGSA (1992). However, this document can neither substitute a waybill nor a bill of lading. According to Article 284 of the CGSA (1924), the carrier would be required to issue a bill of lading to the consigner. Alternatively, the carrier can also give a receipt mentioning the details of the goods carried and date of consignment to the consigner. The consigner would be required to deliver the goods to be shipped at the carrier’s premises. The consigner should also produce relevant document deemed necessary for shipping. The consigner will be held responsible for any liability arising as a result of inaccurate or incomplete information in the documents provided. According to Article 288 of the CGSA (1924), Since the carrier possesses the right to examine the packaged goods and the standard of packing before the carriage, the damage of goods arising due to improper packaging is not entirely borne by the consigner; the liability is shared with the carrier. According to Article 289 of the same Act, the initial examination of the goods would require the presence of the consigner, if opening of packaging is involved. If the consigner is absent during the inspection process, the examination would progress and examination costs would be levied from the consigner. If the carrier finds the goods to be unsuitable for transit, the consigner would be informed about the same. Such goods would be shipped by the carrier only if the consigner bears the liability of damage of goods and the consigner’s consent about the same is incorporated into the Bill of Lading. Cargo Insurance compensates the shipper with losses caused due to fire, loss of cargo and damage. However, losses that can be recovered from the carrier will not be compensated by Insurance Company. It is also popularly known as Marine insurance. It is further classified into Inland and Ocean Marine Insurance. Inland Marine Insurance is issued for goods that are transported without the involving any form sea transport and Ocean Marine Insurance is meant for goods that are shipped through waterways. The three pillars of Marine Insurance are insurable interest, utmost good faith, and indemnity (Export 911). Marine Insurance is not mandatory, unless it is mentioned so in the agreement. The proof of Insurance is provided by the Insurance policy duly signed by the authority of the Insurance Company.   Generally, the insurance would cover the loss or damage of coffee beans under normal circumstances. However, the insurance would become void when the shipper tries to or succeeds in causing intentional damage. When the loss of coffee beans is meagre or caused as a result of improper packaging, the insurance would not cover the loss. According to Article 292 of the CGSA (1924), the carrier is obliged to travel in the mutually agreed upon route mentioned in the agreement. However, the carrier is expected to take the shortest route if a route is not mentioned in the agreement. However, the carrier can change course if any unavoidable situation arises and the carrier would not be held liable for any loss caused to the consigner due to the late delivery of goods, provided a genuine reason is established. The goods being transported by the carrier should be properly safeguarded. The costs incurred in achieving this objective, such as repackaging charges are solely borne by the carrier. However, this does not imply taking additional care of the goods being transported. For instance, when animals are being shipped, the carrier will not be responsible for maintaining the health of the animal by providing food and water. The same condition will stand good while transporting plants as well. However, the carrier would have to take up such responsibilities, if such conditions governing the well-being of plants and animal are incorporated in the agreement Generally, the carrier will have the obligation to discharge the goods from the ship and bear the charges incurred towards it. In the event of the agreement not requiring the delivery of the shipped item to the consignee’s facility, then the consignee would have to receive the same on a particular date fixed by the carrier. If the consignee fails to do so, then s/he would have to bear the charges incurred by the carrier for storing the shipped item. However, the consignee has the right to examine the contents before acknowledging the receipt and refuse the same, if the carrier is not co-operating. The next protocol towards the emancipation of the shippers came in the form of the Brussels protocol in 1968. It was responsible for infusing an important clause called the ‘container clause’. It enabled shippers to claim the compensation for each container specified in the Bill of Lading (Admiralty Law, 2005). As a result, this liability system came to be known as the Hague-Visby Rules. An additional protocol was added in 1979 to enhance and revise the rules. However, neither of two supplementary protocols of the Hague rules was able to effectively modify the basic liability provisions. Hamburg Rules The Hamburg rules were enforced at the United Nations Convention on the Carriage of Goods by Sea held in Hamburg on 30 March 1978. The chief objective was to enforce a system that would share the liabilities and obligations between shipper and carrier in fairer manner. However, it was only able to mildly move the liabilities to the carrier.   In addition to the terms carrier, shipper, goods and ship, a term called ‘Actual carrier’ is defined by the Hamburg rules. It refers to a person or an agency to which the carrier hands over the complete or partial responsibility of carrying the goods. The time period for claiming the liabilities caused by the carrier is also specified by the Hamburg rules. The shipper can sue the carrier for any liabilities with a two year time period from the date of delivery of the goods. This period can be extended by issuing appropriate legal declarations. However, this time period gets reduced to 90 days, in the case of a second claim after the verdict is reached for the first claim. First of all, a written complaint has to be instituted to the carrier within the next working day, in the case of apparent damage or loss. However, in the case of damage or loss not being evident, the shipper would have to file a written complaint to the carrier within 15 days of receiving the goods. In order to be in a position to claim damages due to delay, the carrier would have to give a compliant to the shipper within 60 days of the delivery. The complaint can be sent to the carrier in writing or via telegraph. Adequate facilities will also have provided by both parties to inspect and clarify these claims. If the shipper fails to satisfy any of the aforementioned conditions, he or she will not be able to claim damages from the carrier. The Hamburg rules also specify the limits for liability compensation. The compensation for the liabilities arising as a result of damage or loss can not exceed an amount more than 2.5 units of account per kilogram or 835 units of account per package. This unit is quantified by the International Monetary Fund as a result of a Special Drawing Right. If the shipper’s State is a member of the International Monetary Fund, then the units would be changed into the State’s currency on the judgment day. If the shipper’s State is not a member of the International Monetary Fund, the units would be converted according to the State’s local laws. The liabilities for delay in the delivery of goods should not be more than the total freight payable; it can be up to two and a half times the freight payable for the goods that are delayed, under the contract of carriage. Arbitrations & Disputes The arbitration of these claims and general disputes would normally take place in a venue of the claimer’s preference. However, the place should be with in accordance to the stipulations mentioned. It should not be a place outside the State where the defendant’s business or residence is located. It can also take place in a State where the contract was signed or at the place of loading or unloading the goods. Judicial action may also be taken against the carrier in the same places mentioned above. It is better to insure the coffee beans before they are to be shipped onboard a vessel, due to the risks involved in transportation. Since the carriers have only restricted limitations, it does make sense to obtain insurance. Most carriers shipping from Sao Paulo to Durham, for instance ‘Xiameter’ (2006) follows Carriage and Insurance Paid (CIP) delivery. Therefore, it is better to ship the coffee beans through a reputed carrier, in order to minimise risks and complete the shipping within a desired period of time. 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