INCOTERM – THE CORNERSTONE IN INTERNATIONAL PURCHASE AND SALE.

WHERE DO INCOTERMS COME FROM?

In 1936, on the verge of starting the Second World War, the representatives of the International Chamber of Commerce decided to standardize trade practices and publish six trade terms called INCOTERMS, with the main purpose of helping the parties in the regulation of certain aspects related to the sale and purchase of merchandise.
Although these rules dependent on the autonomy of the will of the contractual actors were born with the purpose of harmonizing and helping, at the same time they also required training and cultural homogenization from the bases of each society and professionals in the commerce sector.
Already in 2024, we can say that we have a catalog of eleven terms, after having undergone multiple updates (the last in the 2020 pandemic), inclusions and deletions.
Practically speaking, the crux of the issue in this article is that in many cases the Incoterm appears to be treated as a decorative element of the sales contract and not as a cornerstone of it.

SOME ERRORS IN THE CHOICE OF INCOTERM

To illustrate, many contracting parties still decide to submit to the term EX WORKS “EXW”, an ambiguous and obsolete term, “forcing” the buyer to load at the designated point and carrying out customs clearance in the country of origin. This implies subjecting the buyer to a real “challenge”.
It may seem at first glance, however, it does not make much sense for the purchaser himself to load at the seller’s factory; Since the manufacturing company must follow a strict occupational risk prevention policy, it would be more convenient for the latter to load the merchandise, respecting internal procedures subject to audits.
On the other hand, in customs terms, it should be added that it is more appropriate for the exporter that appears in the SHIPPER/EXPORTER box of the DUA to be the one who carries out the customs clearance.
Another recurring error is the use of maritime INCOTERMS for multimodal transport, since we remember that normally when we carry merchandise with a container, it already has an inherent land phase and another maritime phase, a land phase can even be added at the destination if we agree on a delivery. at a point other than the destination port, well, in that case we should use the CFR and CIP incoterms, instead of CPT or CIP.
In relation to the contracting of policies from the insurance market, it also gives rise to incorrect assessments, since the 2020 update, the term CIP requires the seller to contract an ICC “A” policy; So it is clear that not just any insurance is suitable.
Despite the above, it seems that many companies continue without giving the greatest importance to contracting insurance, without realizing their contractual responsibility.
Another aspect to take into account is that regardless of the term that we have agreed in the contract, a CIF value will always be used to calculate the customs debt, so our capacity when negotiating freight will be important, since the amount of the freight will be included in the arithmetic operation.
Finally, it is noteworthy that when agreeing on the INCOTERM, a series of vital points were left out, such as the price of the sale, the form, means of payment, quality, quantity, technical characteristics, its approval and industrial or intellectual property rights.
For all of the above, we believe that, when approaching a sale of goods, whether international or national, it is vitally important to establish an INCOTERM that provides a WIN-WIN to the contracting parties in order to expedite negotiations and balance the risks inherent to the activity.

JORDI GÜELL PASERO
Lawyer specialized in International Trade

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