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Rules of Trade

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International trade usages

International Commercial Terms, known as Incoterms, were the first major achievement in standardizing trade practices. Developed in 1936 by the International Chamber of Commerce (ICC), Incoterms guide the buyer and seller by allocating transport costs and risks, as well as determining responsibility for insurance and customs. The current version, Incoterms 2000, contains 13 terms and will probably not be revised before 2010.

In the banking sector, ICC has also standardized the practices for international letters of credit through its rules known as the Uniform Customs and Practice for Documentary Credits (UCP 500). The current version was released in 1993.

These are only two of the standardized trade practices developed by ICC, which are extensively used by international sellers and buyers. Further information can be found on ICC’s web site: http://www.iccwbo.org

Model contracts

Model contracts are growing in number and in use. They serve to standardize legal approaches across countries and cultures and answer frequently-asked questions when drafting international business agreements.

In the 1950s, standard contracts were used mainly in the commodity sector, where they are part and parcel of daily practice. The Grain and Feed Trade Association, for example, proposes 80 different contracts, all drawn up by trade members, for the sale of wheat, rice, beans and other cereals.

In non-specialized areas, model contracts were scarce. However, hundreds of thousands of small and medium-sized enterprises (SMEs) were entering into international contracts, often without legal assistance. The need arose, therefore, to provide model contracts in an ever-widening circle of activities. Thus the ICC, again a pioneer in the field, proposed a Model Contract for the International Sale of Manufactured Goods, while ITC presented a Model Contract for the International Sale of Perishable Goods. The texts of over 150 model contracts are published by ITC on its Juris International web site (http://www.jurisint.org). 

Trade treaties

A third set of common ground rules is found in trade treaties. Governments and national trade promotion organizations need to know which are the most basic treaties that a country should ratify to encourage trade. These treaties set out the basics for international sales, arbitration, patents, trademarks, transport and other issues. Ratifying them sends a signal that the country is adopting an internationally-recognized, safe legal context in which to conduct trade.

The UN treaty section alone contains over 40,000 treaties published in over 1,900 hard-copy volumes. The most important trade treaties signed in the last 50 years, however, number about 200. These can be found on Juris International web site.

Model laws

Treaties are not very flexible. (A treaty is drafted through lengthy diplomatic conference meetings. It comes into force only when a certain number of countries have ratified it and it is not easily modified.) To provide flexibility, the United Nations Commission on International Trade Law (UNCITRAL) has developed a groundbreaking process to harmonize trade laws through “model laws”. UNCITRAL creates a model, and then govern-ments simply incor-porate that model into the laws of their respective countries. For example, in order to harmonize laws on arbitration, UNCITRAL developed a model law on international commercial arbitration that has been adopted by 45 countries on all continents.

Harmonizing regional laws

Standardizing and harmo-nizing trade laws on a regional basis can stimulate intra-regional as well as other international trade.

The success story in this case is in Africa, a continent that is too often depicted simply as a recipient of foreign aid. Through its pioneer harmonization of trade laws in 16 west African states, OHADA (Organization for Harmonization of Business Law in Africa) has set a pattern for several countries to follow: one business law, one company law, one accountancy law and one supreme court are used by a set of countries. Incidentally, this also means considerable economies of scale. And it works!

From courts to arbitration

Out-of-court settlement is also an enduring trend in modern business. Most countries are creating arbitration centres within their chambers of commerce for various pragmatic reasons, not the least of which is the impressive backlog of cases.

The Permanent Arbitration Court of the Croatian Chamber of Commerce has to face an enormous challenge, considering the number of cases before the Croatian courts; over 1.3 million court cases for a population of about 4 million. As Brendan Francis, an Irish author, said: “The best way to escape a problem is to solve it.” 

From trials to contracts

Nowadays many business lawyers never actually work in the courtroom, but instead focus on drafting contracts for businesses that aim to avert disputes before they occur. This change of direction can draw a parallel with changes in the mindset of quality controllers. Quality specialists like to recall a 1982 incident that made news throughout the United States: a nine-year-old girl failed to find a toy in the popcorn package she had purchased. The maker of the popcorn explained that this was impossible since every package underwent three inspections to make sure it contained a surprise toy. Today, the emphasis has shifted from “inspection” to “prevention”. The shift to prevention in the legal field also requires a change of attitude on the part of businesses. An investment in legal advice before a contract is ready to be signed may be more appropriate than “throwaway” expenses in a court dispute.