Terms for trade

EXW, FCA, FOB, CIP... These abbreviations fall among the 14 frequently used terms in the arena of international trade. But they are not just terms as they capture in themselves standardised rules of global trade.

These define most of the important responsibilities of buyers and sellers in international sales contracts.

This small meaningful set of international rules which are called Incoterms, however, need to be used cautiously, failing which they might land both buyers and sellers in serious legal complications. As trade becomes more important for the Indian economy, importers and exporters need to familiarise themselves with the content and meaning of Incoterms.

Says K R Nath, CEO of 'En trust', a consortium of exporters that provides end-to-end solution to industries engaged in foreign trade, "Since the process of international sales of goods involves multiple parties, apart from sellers and buyers, this often creates a lot of confusion. Keeping this in view, the International Chamber of Commerce, Paris in 1953 had promulgated a set of international trade terms which are understood all around the globe in the same way without any confusion."

Nath was addressing exporters and industry experts at a seminar on 'Incoterms and Risk Management', organised by the Federation of Karnataka Chambers of Commerce & Industry (FKCCI) on Tuesday, said the basic function of Incoterms was to explain how the functions, costs and risks should be divided between buyer and seller. So it is necessary to understand clearly when the goods are deemed to have been delivered by the seller to the buyer under the respective terms in use, he added.

He, however, said that though the basic utility of the terms had been clearly established through their wide acceptance and use over a period of almost seven decades, with the development of new modes of transport and new forms of documentation, there was a growing need for more precise definitions.

"It is important to know, how a given term can apply in a contract of sale and the consequences of the use of term must be fully understood."