International trade

29 Ionides v. Pender (1874) LR 9QB 531

A Marine Insurance Policy: What Does It Cover?

Most modern insurance policies are based on the Lloyd's Marine Policy. This document is simply a schedule that lists: the policy number; the names of the assured (insured) and the ship; the voyage and/or period of insurance; the goods insured (and possibly their value); the sum insured; the premium; special conditions and warranties; and a list of clauses to be attached. It is this attached list of clauses that specifies the cover provided. Of greatest importance among the "clauses attached" is the Cargo Clause. It has three versions: A, B, and C. Cargo Clause A works reductively. It starts with a 100% cover—"all risks"—but steadily reduces this cover by means of various exclusions. Cargo Clauses B and C, on the other hand, work cumulatively. They start with little or no cover and specifically add risks that are covered. Whichever version is chosen, the so-called General Exclusion Clause excludes a number of risks, in particular: Willful misconduct of the assured. The results of any wrong act deliberately carried out by the assured are not covered. Ordinary leakage, loss of weight or normal wear and tear. If a volatile oil normally loses 10% of its volume in a month, this loss—and any similar, normally anticipated loss—is not covered.

Improper packaging. Damage resulting from improper packing or preparation is not covered. To discover what is improper, the courts usually refer to what is customary in a particular trade. Inherent vice in the goods. Some goods are inherently dangerous. A cargo of hay, for example, may catch fire because of spontaneous combustion. That is an "inherent vice" and the loss of the hay is not covered. Delay. In general, losses caused by delay are not covered. Insolvency of the owners (etc.) of the vessel. If a journey ends prematurely because the shipping line goes bankrupt, extra costs (further shipment for example) are not covered. Use of Nuclear Weapons. If cargo is damaged through the use of nuclear weapons, the insured will probably be worrying about more than his cargo. Even so, this risk to the goods is not covered. In addition, all three Cargo Clauses contain the Unseaworthiness and Unfitness Exclusion Clause. This clause says that goods shipped in an unseaworthy vessel are not insured. Since few laymen can know if a ship is seaworthy or not, the clause is softened: cover is withdrawn only if the insured knew about the unseaworthiness. Losses resulting from war, from strikes or from terrorism are also excluded, but here the difference between a reductive and a cumulative approach is important. If the War Exclusion Clause (or the Strike Exclusion) clause is deleted from Cargo Clause A, then these risks are

covered. For Cargo Clauses B or C it is necessary to add the so-called Institute War Clauses or Institute Strikes Clauses to the policy if these risks are to be covered. We should now look at Cargo Clauses B and C to see what exactly they cover: Cargo Clause B covers: 1.1 Loss of or damage to the subject-matter insured attributable to: 1.1.1 fire or explosion, 1.1.2 vessel or craft being stranded, ground, sunk or capsized, 1.1.3 overturning or derailment of land conveyance, 1.1.4 collision or contact of vessel craft or conveyance with any external object other than water, 1.1.5 discharge of cargo at a port of distress, 1.1.6 earthquake, volcanic eruption or lightning. 1.2 Loss of or damage to the subject-matter insured caused by: 1.2.1 general average sacrifice,30 1.2.2 jettison or washing overboard.

----------------------------------------------------------------------------------------------------- 30 General average sacrifice refers to a situation in which a ship must make a "sacrifice" (e.g., throwing part of the cargo in the sea) in order to preserve the ship and the rest of the cargo. The cost of such a sacrifice is shared by all the parties involved. (See Schmillhoff, p. 520+.) 1.2.3 entry of sea-, lake-, or river-water into vessel, craft, hold, conveyance, container, liftvan or place of storage.

1.3 Total loss of any package lost overboard or dropped whilst loading on to, or unloading from, a vessel or craft.

Cargo Clause C covers: 1.1 Loss of or damage to the subject-matter insured attributable to:

1.1.1 fire or explosion, 1.1.2 vessel or craft being stranded, grounded, sunk or capsized, 1.1.3 overturning or derailment of land conveyance, 1.1.4 collision or contact of vessel craft or conveyance with any external object other than water, 1.1.5 discharge of cargo at a port of distress, 1.2 Loss of or damage to the subject-matter insured caused by:

1.2.1 general average sacrifice, 1.2.2 jettison.

Below paying a claim for loss, insurers study the circumstances fully. They examine the insurance document to check that the lost or damaged goods were correctly described. If the description and the goods are materially different, the insurer may refuse to pay. In one famous case, an exporter bought leather flying jackets from the British government. The jackets were twenty years old, but they had never been used. The exporter described the goods as "new men's clothing in bales." When the goods were stolen, the insurer refused to pay because of material misdescription. The court agreed: the description was inaccurate.31 In general, the insured must disclose any fact "which would influence the judgment of a prudent insurer in fixing the premium or accepting the risk."32

Some policies allow for innocent misdescription with a "held covered" clause: under given conditions, the goods are held (= considered) to be covered. An example: an exporter bought second-hand machinery in order to export it. On the insurance document the goods were described simply as "machinery." When the goods were lost, the insurer refused to pay, pleading material misdescription. The policy contained, however, a "held covered" clause: "held covered at premium to be arranged”. The court ordered the insurance company to pay, but allowed it an extra premium.33 In summary, always remember the cardinal principal of insurance:

A contract of marine insurance is a contract based upon the utmost good faith, and, if the utmost good faith be not observed by either party, the contract may be avoided by the other party.34

------------------------------------------------------------------------------------- 31 Anglo-African Merchants v. Bay ley (1970) 1 QB 311, 319-320. 32 Schmiuhoff, p. 503. 33 Greenock SS. Co. v. Maritime Insurance Co. (1903) 1 KB. 367. 34 Marine Insurance Act. (UK) 1907, § 17.

CASE STUDY TAKE OVER

□Open cover □Floating policy

□Unvalued policy

Pacific Exports is a new company founded in Verbena to export textiles. The company anticipates sales of about $500,000 during its first year of operations, with most orders between $1,000 and $30,000. Since Verbena is an island, consignments of goods always travel by ship. The company wants advice on the best kind of insurance for its CIF contracts. What would you recommend among the choices below? In each case be ready to give your reasons. 1. □Tailor-made policies ...Because there is no need for a full insurance policy to be negotiated for each order. 2. □Valued policy ...Because this allows claims for the loss of expected profit if the goods are destroyed or damaged. 3. □Voyage policy □Time policy □Time and voyage policy ...Because this policy maintains insurance cover on the goods even if there is a delay. 4. □Cargo Clause A (All risks) □Cargo Clause B □Cargo Clause C Debatable. Because for the exporter, Cargo Clause C is cheapest. Furthermore, nothing more is required under CIF contracts. However, the buyer may be very unhappy if the texttiles are lost and the insurance arranged by the exporter fails to offer the expected compensation. The exporter and the buyer should discuss this issue. 5. Institute War Clauses □YES □NO □depends on __ Depends on route and political situation. 6. Institute Strikes Clauses □YES □NO □depends on __ Depends on social and political situation. Normally cover against strikes is recommended.

6. TERMS OF TRADE: INCOTERMS

THE PROBLEM ụ ủ Ấ Ề ặ ể ề i, nhi u doanh ươ ề ạ t nh ng đi u kho n này có nghĩa ẩ ng m i trên toàn th gi ế ớ ề ữ ả ề Although the purpose of ICC Incoterms is to standardize terms of trade worldwide, many business people do not know what these terms mean or the nature of their rights and duties under an Incoterm contract. CÁC V N Đ M c dù m c đích c a ICC ả Incoterms là đ tiêu chu n hóa các đi u kho n th nhân không bi ế là tính ch t c a các quy n và nghĩa v c a ụ ủ ấ ủ mình theo m t h p đ ng Incoterm. ồ ộ ợ

THE PRINCIPLE Ắ ấ ấ ụ ủ ườ ế ồ NGUYÊN T C n ph m ICC, Incoterms 1990, ẩ cung c p thông tin đ y đ và rõ ràng v quy n ề ề ầ ủ i mua và xu t kh u trong và nghĩa v c a ng ẩ ấ h p đ ng Incoterm. Không bi ả t các đi u kho n ề ợ này có th t n kém. ể ố The ICC publication, Incoterms 1990, gives full and clear information about the rights and duties of buyer and exporter in Incoterm contracts. Ignorance of these terms can be expensive.

ụ ươ

và các bi n pháp đ ệ ằ

ắ ấ ứ ề IN MORE DEPTH World trade depends to an increasing extent of standardization: international weights and measures are metric: many contracts are priced in U.S. dollars; letter of credit follow standard rules. Misunderstandings can be expensive: anything that makes them likely less likely is welcome. ượ Sâu h n v ơ ề ứ i ph thu c vào m t m c Th ng m i th gi ộ ộ ạ ế ớ ượ ng đ ngày càng tăng c a tiêu chu n: tr ng l ọ ẩ ủ ộ c s li u: nhi u qu c t ề ượ ố ệ ố ế h p đ ng có giá b ng đô la M , th tín d ng ụ ư ỹ ồ ợ theo quy t c tiêu chu n. S hi u l m có th t n ể ố ự ể ầ ẩ kém: b t c đi u gì mà làm cho h có th ít có ọ kh năng đ M t ngu n tin gây nh m l n qu c t ồ ể c chào đón. Incoterms M i ba ườ ề là đi u ố ế ả ộ ầ ẫ

ậ ấ ề ư ế ả i pháp a thích ư ươ ng

ọ

ậ ư ậ ng m i đã thay đ i tăng s ạ ổ ươ ệ ớ ệ ể

ầ ả ề ộ ố ki n giao hàng. Chúng tôi đã xem xét m t s ệ v n đ và nhìn th y nh th nào lu t pháp ấ qu c gia khác nhau trong các gi ố c a h . Đ làm rõ tình hình, Phòng Th ủ ọ ể (ICC) ban hành s m nh t là 1936 m i qu c t ấ ớ ố ế ạ v tiêu chu n hóa cái g i là th ố ng m i qu c ẩ ề ạ ươ đi u kho n này ho c Incoterms. Trong t ặ ả ế ề nh ng năm qua, ICC đã c p nh t Incoterms nh ữ ử b n ch t c a th ấ ủ ả ứ i thi u các thùng ch a, d ng tàu bay, vi c gi ệ ụ và vv. T t c đ u chuy n giao tài li u đi n t ấ ả ề ệ ử c s a đ i, b sung các có yêu c u m i ho c đ ổ ớ ặ ượ ử ổ đi u kho n. Các v n đ m i nh t c a ấ ủ ề ớ ấ Incpterms là b n s a đ i 2010. ả ử ổ The Thirteen Incoterms One source of international confusion are delivery conditions. We have already looked at a number of problems and seen how national laws vary in their preferred solutions. To clarify the situation, the International Chamber of Commerce (ICC) issued as early as 1936 standardized terms- the so-called International Commercial Terms or Incoterms. Over the years, the ICC has updated the Incoterms as the nature of commerce has changed- increased use of aircraft, the introduction of containers, electronic document transfer and so on.- all have required new or revised terms. The latest issue of Incpterms is the 2010 revision.

ế ổ ế ế ế ậ ụ ữ ệ ệ ườ ữ ậ In establishing the 13 Incoterms, the ICC has looked at the most common variations in an arrangement for delivery and established for each variation the exact duties of the exporter and the buyer. In setting up the 13 terms, the ICC has taken into account three variables: - Where along the transportation route delivery takes place; c nhóm l ạ ạ ể i thành b n ố ệ ề - What means of transport is used; and - What costs the exporter might pay after ề ề ị the point of delivery.

ấ ố ố ữ ẩ ẩ ớ ấ ẩ ệ ề ấ ộ ả ẩ ấ ộ i thích EXW, CFR, Ỏ ả ề ả t t ẩ ươ phí khi xu t kh u thông báo cho ng ẩ ấ ạ ơ ở The 13 terms are grouped in four categories: E-terms, F-terms, C-terms and D-terms. The E-term deals with deliveries at the exporter’s factory. The F-terms all concern delivery within the exporter’s country. The C-terms involve delivery in the exporter’s country, with extra costs for the exporter after delivery. D-terms take care of delivery outside the exporter’s country. A table gives us an overview: ủ ặ ấ ẩ ặ ấ ậ Thành l p 13 Incoterms, ICC đã xem xét các ậ ế bi n th ph bi n nh t trong m t s s p x p ấ ể ộ ự ắ t l p cho m i bi n th các giao hàng và thi ỗ ể nhi m v chính xác nh ng n c xu t kh u và ẩ ấ ướ i mua. Trong vi c thi t l p trong 13 thu t ng ậ ế ậ ng , ICC đã đ a vào tài kho n ba bi n: - d c ọ ả ư ế ng v n chuy n giao hàng di n ra theo tuy n đ ế ễ ể ườ c s d ng; và chi phí ng ti n v n t - ph i đ ậ ả ượ ử ụ ệ ươ xu t kh u có th tr ti n sau khi các đi m giao ể ả ề ẩ ấ hàng. 13 thu t ng đ ữ ượ ậ lo i: các đi u ki n đi n t , các đi u ki n nhóm ệ ử ệ ề F, C đi u ki n và đi u ki n D. Các giao d ch E- ệ ệ i nhà máy xu t kh u. dài v i vi c giao hàng t ẩ ệ ạ ớ t c các m i quan tâm phân ph i trong F-v t ề ấ ả ế c xu t kh u. C-thu t ng liên quan đ n n ậ ấ ướ phân ph i trong n c xu t kh u, v i chi phí ướ ố thêm cho các nhà xu t kh u sau khi giao hàng. ấ ướ D đi u ki n chăm sóc cung c p bên ngoài n c xu t kh u. M t b ng cho chúng ta m t cái nhìn t ng quan: CÂU H I: Gi ổ DDU EXW là m t trong các đi u kho n E trong ộ t c a Ex công vi c, m t Incoterms. Nó là vi ộ ệ ế ắ ủ ng pháp giao hàng, xu t kh u là mi n phí ph ễ ấ t i mua ườ ừ i c s xu t kh u (nhà s n có c a hàng hoá t ẩ ấ ẵ máy ho c kho). Sau đó, xu t kh u không ch u ị trách nhi m v n chuy n, ho c b t kỳ các chi ể ệ phí khác.

ả ề

t c a Chi phí v n t ng pháp giao hàng, xu t kh u đ ấ ượ ố ớ ấ CFR là m t trong nh ng C-đi u kho n trong ữ ộ i, Incoterms. Nó là vi ậ ả t t ế ắ ủ m t ph ẩ ượ c ươ ộ t qua lan can tàu. Sau mi n phí khi hàng hóa v ễ đó, xu t kh u ch u trách nhi m đ i v i tàu v n ậ ệ ẩ ị i và v n chuy n hàng hóa. t ể ả ậ QUESTION: Explain EXW, CFR, DDU EXW is one of the E-terms in the Incoterms. It stands for Ex-work, a method of delivery, where the exporter is free from charge when exporter notifies buyer of availability of goods at exporter’s premises (factory or warehouse). Then the exporter is not responsible for transport or any other costs.

CFR is one of the C-terms in the Incoterms. It stands for Cost and Freight, a method of delivery, where the exporter is free from charge when the goods pass the ship’s rail. Then the exporter is responsible for ship transport and freight.

THE PROBLEM

Although the purpose of ICC Incoterms is to standardize terms of trade worldwide, many business people do not know what these terms mean or the nature of their rights and duties under an Incoterm contract.

THE PRINCIPLE

The ICC publication, Incoterms 1990, gives full and clear information about the rights and duties of buyer and exporter in Incoterm contracts. Ignorance of these terms can be expensive.

IN MORE DEPTH

World trade depends to an increasing extent of standardization: international weights and measures are metric: many contracts are priced in U.S. dollars; letter of credit follow standard rules. Misunderstandings can be expensive: anything that makes them likely less likely is welcome.

The Thirteen Incoterms One source of international confusion are delivery conditions. We have already looked at a number of problems and seen how national laws vary in their preferred solutions. To clarify the situation, the International Chamber of Commerce (ICC) issued as early as 1936 standardized terms- the so-called International Commercial Terms or Incoterms. Over the years, the ICC has updated the Incoterms as the nature of commerce has changed- increased use of aircraft, the introduction of containers, electronic document transfer and so on.- all have required new or revised terms. The latest issue of Incpterms is the 2010 revision.

In establishing the 13 Incoterms, the ICC has looked at the most common variations in an arrangement for delivery and established for each variation the exact duties of the exporter and the buyer. In setting up the 13 terms, the ICC has taken into account three variables: - Where along the transportation route delivery takes place; - What means of transport is used; and - What costs the exporter might pay after the point of delivery. The 13 terms are grouped in four categories: E-terms, F-terms, C-terms and D-terms. The E-term deals with deliveries at the exporter’s factory. The F-terms all concern delivery within the exporter’s country. The C-terms involve delivery in the exporter’s country, with extra costs for the exporter after delivery. D-terms take care of delivery outside the exporter’s country. A table gives us an overview:

QUESTION: Explain EXW, CFR, DDU EXW is one of the E-terms in the Incoterms. It stands for Ex-work, a method of delivery, where the exporter is free from charge when exporter notifies buyer of availability of goods at exporter’s premises (factory or warehouse). Then the exporter is not responsible for transport or any other costs.

CFR is one of the C-terms in the Incoterms. It stands for Cost and Freight, a method of delivery, where the exporter is free from charge when the goods pass the ship’s rail. Then the exporter is responsible for ship transport and freight.

POINT OF DELIVERY TRANSPO RT TERM TYPE SHORT FORM FULL FORM

None COST AFTER DELIVERY None EXW Ex-work E- TERMS

F-TERMS FCA When exporter notifies buyer of availability of goods at exporter’s premises, he is free from responsibility Free Carrier When goods are handed over to Any None

FAS Ship None the carrier When goods are alongside the ship, ready for loading

FOB Ship None

CFR Ship C- TERMS CIF Ship When the goods pass the ship’s rail at the port of loading When the goods pass the ship’s rail at the destination When the goods pass the ship’s rail

CPT Any Free Alongsi-de Ship Free On Board Cost and Freight Cost, Insurance and Freight Carriage Paid To When the goods are handed over to the carrier Freight to destination Freight and Insurance to destination Freight to destination

CIP Any When the goods are handed over to the carrier Freight and insurance to destination

DAF Any None D- TERMS DES Ship None Carriage and Insurance Paid Delivered At Frontier Delivered Ex-Ship

DEQ Ship None Delivered Ex-Quay

DDU Any None

DDP Any None Delivered Duty Unpaid Delivered Duty Paid When the goods are cleared for export at a named frontier When the ship carrying the goods arrives at the port of destination When the goods are on the quay at the port of destination, and cleared for import When the goods are available to the buyer at a named destination, duty unpaid When the goods are available to the buyer at a named destination, duty paid

t ki m r t nhi u công ấ ệ ề ạ ả ế ồ ướ c li c giao ề t b đ ế ị ượ i đây: Các ượ ụ ụ ợ ả t kê trong Ph l c 1 đ ố ớ c li ệ ụ ụ ệ ự ỉ i mua t ạ ả ồ

i các trang thi Incoterms rõ ràng là ti vi c so n th o h p đ ng. So sánh hai phiên b n ả ệ c a các đi u kho n giao hàng d ủ thi ệ FOB (Beira) (Incoterms 1990). Đ i v i các thi ế t t kê trong Ph l c 1, giá giao hàng b đ ị ượ mi n phí trên tàu th c hi n theo ch đ nh c a ủ ị ễ i c ng Beira bao g m c chi phí ng ả ườ đóng gói, cũng nh chi phí phát sinh tr c khi ướ ư t b trên tàu th c hi n. t ệ ế ị ả ự

Incoterms obviously save a great deal of work in contract drafting. Compare the two versions of the delivery clause below: The equipment listed in Annex 1 shall be delivered FOB (Beira) (Incoterms 1990). For the equipment listed in Annex 1 the price is for delivery free on board the carrying vessel designated by the Buyer at the port of Beira including the cost of packing, as well as expenses incurred before loading the equipment on board the carrying vessel. The first wording—using an Incoterrrt—is more than simple shorthand: it incorporates six pages of the ICC booklet Incoterms 1990 specifying numerous duties of both buyer and exporter. The exporter, for example, must "Deliver the goods on board the vessel named by the buyer..." and 'pay all costs relating to the goods until such time as they have passed the ship's rail."36 A word of caution on Incoterms: the 1990 Incoterms are radically new. Some old terms have disappeared: FOT and FOR (Free On Truck and Free on Rail) have been replaced by FCA; C&F has been renamed CFR. Further, some traditional terms now have very restricted meanings: FOB, for example, applies only to transport by ship; for other means of transport, the correct "FOB equivalent" is now FCA. Also remember that Incoterms apply only to international trade; for trade within a country, Incoterms are not appropriate. Two questions often arise about Incoterms: first, is it necessary to state in the contract that FOB, CIF, and so on are Incoterms? And secondly, what happens if the "small print" of Incoterms 1990 conflicts with a provision of the contract? Let's look at these issues.

Incoterms obviously save a great deal of work in contract drafting. Compare the two versions of the delivery clause below: The equipment listed in Annex 1 shall be delivered FOB (Beira) (Incoterms 1990).

For the equipment listed in Annex 1 the price is for delivery free on board the carrying vessel designated by the Buyer at the port of Beira including the cost of packing, as well as expenses incurred before loading the equipment on board the carrying vessel. The first wording—using an Incoterrrt—is more than simple shorthand: it incorporates six pages of the ICC booklet Incoterms 1990 specifying numerous duties of both buyer and exporter. The exporter, for example, must "Deliver the goods on board the vessel named by the buyer..." and 'pay all costs relating to the goods until such time as they have passed the ship's rail."36 A word of caution on Incoterms: the 1990 Incoterms are radically new. Some old terms have disappeared: FOT and FOR (Free On Truck and Free on Rail) have been replaced by FCA; C&F has been renamed CFR. Further, some traditional terms now have very restricted meanings: FOB, for example, applies only to transport by ship; for other means of transport, the correct "FOB equivalent" is now FCA. Also remember that Incoterms apply only to international trade; for trade within a country, Incoterms are not appropriate. Two questions often arise about Incoterms: first, is it necessary to state in the contract that FOB, CIF, and so on are Incoterms? And secondly, what happens if the "small print" of Incoterms 1990 conflicts with a provision of the contract? Let's look at these issues. Specifying Incoterms Is the specification, "Incoterms 1990," really needed? In fact, it is necessary because FOB and CIF are also common terms in many countries with different commercial traditions, for example in the United States.37 Unfortunately, American and ICC usage of the terms do not agree: for example in the U.S.: The term FOB or "free on board," may be used with reference to the seller's city, the buyer's city, or an intermediate city. It may also be used with reference to a named carrier, vessel, car or other vehicle.38 ------------------------------------------------------------------------------------- 36 Incoterms pp. 138-140. 37 See UCC §2-320 to 322. The UCC is the Uniform Commercial Code of the United Slates. It will be referred to many times in the following pages. For more information on the Code, see Chapter 4. Section 2. 38 Anderson, p. 349.

FURTHER READING INCOTERMS 2010 INCOTERMS 2010

ngày 1 -1- ệ ự ừ The new INCOTERMS® 2010 became effective January 1, 2011. t t ng m i qu c t vi ộ ừ ế ắ ớ ố ế ề t v i các đi u ề - là m t lo t các đi u ạ ộ

Incoterms--which is an abbreviation for International Commercial terms--are a series of sales terms. ạ ươ ng c công b b i Phòng Th c s d ng r ng rãi ộ INCOTERMS 2010 có hi u l c t 2011. Incoterms - đó là m t t ki n th ạ ươ ệ kho n bán hàng. ả Incoterms đ m i qu c t ố ế trong các giao d ch th ượ (ICC) và đ ươ ố ở ượ ử ụ ng m i. ạ ị

They are published by the International Chamber of Commerce (ICC) and are widely used in commercial transactions. ấ ệ ộ ộ ệ ề ườ

In addition to providing a set of rules for the interpretation of commonly used trade terms, INCOTERMS® 2010 accomplish the following: ớ i b ng D h p lý h n so v i ạ ả ề ợ ơ i ắ ể ả Ngoài vi c cung c p m t b quy t c đ gi c s thích các đi u ki n giao hàng th ượ ử ng đ d ng, INCOTERMS ® 2010 hoàn thành sau ụ đây: (a) đi u ch nh l ỉ INCOTERMS ® 2000, (a) significantly revises Group D listed in INCOTERMS® 2000; b n nhóm còn hai nhóm, ươ (b) gi m Incoterms t ừ ố ả ậ ng m i các các nhà xu t nh p cho phép th ạ ấ kh u đ l a ch n các quy t c thích h p nh t ắ ọ ể ự ấ ợ ẩ (b) reduce Incoterms from four groups to two groups, allowing trade experts to choose the most

ế suitable rule related to the mode of transport; and ả ừ 13 i; và ng th c v n t liên quan đ n ph ứ ậ ả ươ (c) làm gi m s l ng c a Incoterms t ủ ố ượ xu ng còn 11 đi u kho n. ề ả ố

(c) reduce the absolute number of Incoterms from 13 to 11. ổ ẽ ỗ ợ ườ ọ ề ắ Moreover, INCOTERMS® 2010 offer additional guidance which assists users in selecting the most appropriate Incoterm for each transaction. ủ ụ ế ế

ng m i trong n ấ ờ c. ấ H n n a, INCOTERMS ® 2010 cung c p ơ ữ i dùng h ng d n b sung này s h tr ng ướ ẫ ợ trong vi c l a ch n các Incoterm thích h p ệ ự nh t cho m i giao d ch. Các đi u kho n s a ả ử ị ấ ỗ i thích rõ ràng các quy t c liên đ i cũng gi ả ổ quan đ n vi c s d ng các th t c đi n t ệ ử , ệ ử ụ ế t liên quan đ n an ninh thông thông tin chi ti i khuyên quan cho các lô hàng và cung c p l đ i v i th ố ớ ướ ươ ạ

The revised terms also spell out rules regarding the use of electronic procedures; detail information on security-related clearances for shipments; and offer advice with respect to domestic trade.

ố ế ề ặ ề là m t lo t các đi u ạ ọ ượ ng m i qu c t ươ ả ươ (ICC) và đ ươ

ộ c công b b i Phòng ố ở c s d ng ượ ử ụ ng m i qu c ố ạ ị ộ . M c đích c a Incoterms là cung c p m t ấ i thích ệ ắ ươ ụ ợ ề ẽ

c ban hành vào năm ấ ở

ươ ư What are Incoterms? Incoterms or International Commercial terms are a series of sales terms. They are published by the International Chamber of Commerce (ICC) and are widely used in international commercial transactions. The purpose of Incoterms is to provide a set of international rules for the interpretation of commonly used trade terms in international transactions. They closely correspond to the U.N. Convention on Contracts for the International Sale of Goods. The first Incoterms were issued in 1936. The most recent Incoterms were updated in 2010 and became effective January 1, 2011. Who needs to understand Incoterms?

ậ ẩ ấ ươ ợ ậ ả i i h i quan, giao nh n v n t ạ ớ ả ậ ả ố ế ể ố ả Incoterms là gì? Incoterms ho c các đi u kho n ả th ng m i qu c t ạ kho n bán hàng. H đ Th ố ế ạ r ng rãi trong các giao d ch th ộ t ủ ế cho vi c gi t p h p các quy t c qu c t ả ệ ố ế ậ ng đ các đi u ki n th ượ ử c s ng m i th ườ ạ . H ch t ch d ng trong các giao d ch qu c t ị ố ế ọ ặ ụ ố ề c Liên h p qu c v t ng ng c a Công ươ ứ ợ ướ ủ Hàng hoá. H p đ ng Mua bán Qu c t ố ế ồ ợ Incoterms đ u tiên đã đ ượ ầ c c p 1936. Incoterms g n đây nh t đã đ ượ ậ ầ ệ ự nh t trong năm 2010 và tr thành có hi u l c ậ ể ngày 01 tháng 1 năm 2011. Ai c n hi u t ầ ừ ạ Incoterms? Chính ph quan ch c th ng m i ứ ủ nhân nên hi u cũng nh nhi u bên khu v c t ể ề ự ư Incoterms. Nh v y bên khu v c t nhân bao ư ậ ự ư g m: xu t kh u, nh p kh u, các chuyên gia tài ẩ ồ ấ ng m i, các chuyên gia phù h p xu t chính th kh u, môi gi ẩ hàng hóa, công ty b o hi m, các chuyên gia tín d ng qu c t , và doanh s bán hàng và qu n lý ụ thu mua.

ể ỗ ợ i thích các ạ ả ố ế ượ ử ụ c s d ng

ộ ố ế ng m i trong vi c gi ệ ng m i qu c t đ ươ ử ụ ị ắ

ữ ả ệ ấ ạ ữ ươ ươ ả ấ ớ ạ ụ ố ế ủ ệ ồ ụ ọ ể ậ ả ợ ồ Government trade officials as well as many private sector parties should understand Incoterms. Such private sector parties include: exporters, importers, trade finance professionals, export compliance specialists, customs brokers, freight forwarders, insurers, international credit professionals, and sales and purchasing managers. What are Incoterms used for? Incoterms assist trade practitioners in interpreting the most commonly used international trade terms. Using correct Incoterms in an international transaction reduces considerably uncertainties arising from the different interpretation of such terms in different countries. They apportion international trade transaction costs and responsibilities between buyers (importers) and sellers (exporters) and reflect modern-day transportation practices. Incoterms assist in significantly reducing misunderstandings among traders and thereby minimizing trade disputes and litigation. However, their scope is limited to matters related to the international rights and obligations of the parties involved in the contract of sale with respect to the delivery of the goods Incoterms dùng đ làm gì? Incoterms h tr h c viên th ọ ươ đi u kho n th ề ạ ả ph bi n nh t. S d ng Incoterms chính xác ấ ổ ế trong m t giao d ch qu c t ể làm gi m đáng k ả i thích vi c gi s không ch c ch n phát sinh t ắ ừ ệ ự ả c khác các n ng nh v y khác nhau t ướ ừ ữ ư ậ ở nhau. Phân b chi phí giao d ch th ạ ng m i ươ ị ổ và trách nhi m gi a ng ậ i mua (nh p qu c t ệ ườ ố ế kh u) và ng i bán (xu t kh u) và ph n ánh ườ ẩ ẩ i hi n đ i. Incoterms giúp gi m t p quán v n t ả ậ ả ậ đáng k s hi u l m gi a các th ng nhân và ể ự ể ầ do đó gi m thi u tranh ch p th ng m i và ấ ạ ể c ủ ọ ượ tranh ch p. Tuy nhiên, ph m vi c a h đ ạ i h n trong các v n đ liên quan đ n quy n gi ề ấ ế ề và nghĩa v qu c t c a các bên tham gia vào h p đ ng mua bán đ i v i vi c cung c p các ấ ố ớ ợ ố ớ hàng hoá đã bán. Vì v y, h áp d ng đ i v i ậ các h p đ ng v n chuy n, không ph i là h p ợ đ ng mua bán. ồ

ạ ả ậ

ượ

ướ

ế ớ ể ệ ạ ị ng m i th gi ạ ậ ể ồ ộ ổ ế ng m i th ng nh t vào năm 2004 d n đ n ạ ấ ố

ỹ ng m i trong giao ướ ả ớ sold. Thus, they apply to the contract of carriage, not the contract of sale. Why were the INCOTERMS® 2000 revised? INCOTERMS® 2010 are the updated version of INCOTERMS® 2000. INCOTERMS® 2010 have been developed as a result of an extensive review of current shipping practices and trends in an effort to keep up with the rapid expansion of world trade. The key drivers for this update include: a need for improved cargo security, changes to the Uniform Commercial Code in 2004 that resulted in a deletion of U.S. shipment and delivery terms, and new trends in global transportation. T i sao các INCOTERMS ® 2000 s a đ i? ử ổ INCOTERMS ® 2010 là phiên b n c p nh t ậ c a INCOTERMS ® 2000. INCOTERMS ® ủ ả ủ c phát tri n nh là k t qu c a 2010 đã đ ế ư ể ậ m t s xem xét m r ng ho t đ ng v n ộ ự ạ ộ ở ộ i và xu h chuy n hi n t ộ ỗ ự ng trong m t n l c ể đ theo k p v i s m r ng nhanh chóng c a ủ ớ ự ở ộ ể i. Các trình đi u khi n cho th ề ươ b n c p nh t này bao g m: m t nhu c u đ ầ ả ậ c i thi n an ninh hàng hóa, thay đ i lu t ậ ả ệ th ẫ ươ ề vi c xóa m t lô hàng c a M và các đi u ủ ộ ệ kho n giao hàng, và xu h thông v n t i toàn c u. ậ ả ầ

ể

ợ ắ ươ ng m i th ạ ể c li t kê trong i b ng D đ ệ ạ ả

ả ệ ạ ớ i c li ượ ề

ạ ạ ơ ố ượ ả

ạ ể ự ợ ắ ng th c v n t ươ ế ứ ậ ả ố i. ạ

ư ậ ở ả ậ ủ

ứ ậ ả ư ầ ệ ả ơ

ạ ể ầ ủ Làm th nào đ INCOTERMS ® 2010 khác ế ệ INCOTERMS ® 2000? Ngoài vi c nhau t ừ ệ cung c p m t t p h p các quy t c cho vi c ộ ậ ấ gi i thích các đi u ki n th ườ ng ệ ề ả c s d ng, INCOTERMS ® 2010 đáng k đ ượ ử ụ xem xét l ượ INCOTERMS ® 2000. Năm INCOTERMS ® 2000 đ t kê trong b ng D bao g m ồ i biên gi nh ng đi u sau đây: DAF Giao t ữ DES Delivered Ex Ship DEQ Delivered Ex Quay DDU Delivered Duty DDP ch a trư ả INCOTERMS Delivered Duty Paid ® 2010 bao g m các lo i sau: DAT Giao T i ga DAP Giao ồ ơ ữ T i N i DDP Delivered Duty Paid H n n a, ạ INCOTERMS ® 2010 gi m s l ng các nhóm ngươ Incoterm 4-2, cho phép các chuyên gia th m i đ l a ch n các quy t c thích h p nh t ấ ọ liên quan đ n ph ế ế 13 INCOTERMS ® 2000 có b n lo i thi t y u c a Incoterms. Đó là: T p đoàn E - F T p đoàn ậ ậ ủ kh i hành - v n chuy n ch a thanh toán chính ể t. Hai nhóm C - v n chuy n tr Nhóm D - L ượ ể c t lo i chính c a INCOTERMS ® 2010 đ ượ ổ ạ ượ ử ch c theo các ph ng th c v n t i. Đ c s ươ ứ cũng nh trong h p đ ng d ng trong qu c t ồ ợ ố ế ụ ằ c, các nhóm m i nh m l n đ u tiên trong n ớ ướ ầ m c đích đ n gi n hóa vi c so n th o h p ợ ả ụ đ ng và giúp tránh nh ng hi u l m b ng cách ằ ữ ồ quy đ nh rõ nghĩa v nh t đ nh c a ng i mua ườ ụ ấ ị và ng i bán. ị ườ

ấ ụ ng th c v n t ươ ậ ể ứ ậ ả ấ ả ậ ể ề ặ ạ ể ạ

ố ớ ỉ ể ễ

ng Incoterms ể t kê ở ố ượ

ụ ề

ị , thông tin chi ti ủ ệ ử ế ế ấ ờ i Nhóm 1. Incoterms mà áp d ng cho b t kỳ i là: EXW Ex Works FCA ph ả CPT nhà cung c p mi n phí v n chuy n tr ễ ti n v n chuy n CIP và b o hi m tr ti n ả ề DAT Giao T i DAP ga Giao T i Đ t DDP Delivered Duty Paid Nhóm 2. Incoterms có áp i đ ng thu n i d ng đ i v i bi n và v n t ỷ ộ ậ ả ườ ụ đ a ch : FAS mi n phí Cùng v i tàu FOB Free ớ ị On Ban CFR Chi phí và v n t i chi phí CIF, ậ ả ượ c i H n n a, hai nhóm đ b o hi m, và v n t ậ ả ả ơ ữ li trên l u ý gi m s l ả ư ệ 13-11 . Cu i cùng, INCOTERMS ® 2010 cung ố ng d n h u ích và làm rõ nghĩa c p thêm h ẫ ữ ướ ấ v . Ví d , các đi u kho n s a đ i cũng gi ả i ả ử ổ ụ thích rõ ràng quy đ nh v vi c s d ng các th ề ệ ử ụ t liên quan đ n an t c đi n t ụ ninh thông quan cho các lô hàng và cung c p l khuyên đ i v i th ng m i trong n c. ố ớ ươ ướ ạ How do INCOTERMS® 2010 differ from INCOTERMS® 2000? In addition to providing a set of rules for the interpretation of commonly used trade terms, INCOTERMS® 2010 significantly revise Group D listed in INCOTERMS® 2000. The five INCOTERMS® 2000 listed in Group D included the following: DAF Delivered At Frontier DES Delivered Ex Ship DEQ Delivered Ex Quay DDU Delivered Duty Unpaid DDP Delivered Duty Paid INCOTERMS® 2010 contain the following categories: DAT Delivered At Terminal DAP Delivered At Place DDP Delivered Duty Paid Moreover, INCOTERMS® 2010 reduce the number of Incoterm groupings from four to two, allowing trade experts to choose the most suitable rule related to the mode of transport. The 13 INCOTERMS® 2000 contained four essential categories of Incoterms. They were: Group E – Departure Group F – Main carriage unpaid Group C – Main carriage paid Group D – Arrival. The two main categories of INCOTERMS® 2010 are now organized by modes of transport. Used in international as well as in domestic contracts for the first time, the new groups aim to simplify the drafting of contracts and help avoid misunderstandings by clearly stipulating certain obligations of buyers and sellers. Group 1. Incoterms that apply to any mode of transport are: EXW Ex Works FCA Free Carrier CPT Carriage Paid To CIP Carriage And Insurance Paid To DAT Delivered At Terminal DAP Delivered At Place

ể ẫ ử ụ t c các , t ố ế ấ ả

ặ ả ế

ợ ệ ử ụ

ị ả ủ ọ ọ ả ự

c đó. Tôi có th có đ ướ ặ ấ ượ ạ ớ ủ ủ

ả ộ ự ả ớ ộ

ụ ạ ấ ẩ ậ ủ ạ ự ệ Tôi có th v n s d ng INCOTERMS ® 2000? ng m i qu c t Theo Phòng Th ươ ạ c th c hi n theo INCOTERMS ® h p đ ng đ ệ ự ượ ồ ợ 2000 v n có hi u l c ngay c sau năm 2011. ệ ự ẫ Ngoài ra, m c dù ICC khuy n cáo s d ng ử ụ INCOTERMS ® năm 2010 sau khi năm 2011, ố ớ các bên tham gia h p đ ng bán hàng đ i v i ồ vi c giao hàng có th đ ng ý s d ng b t kỳ ấ ể ồ phiên b n c a Incoterms sau năm 2011. Đi u ề quan tr ng là, tuy nhiên, quy đ nh rõ INCOTERMS phiên b n l a ch n ® 2010, INCOTERMS ® 2000, ho c b t kì phiên b n ả nào tr c m t b n sao ộ ả ể ể c a INCOTERMS m i ® 2010? B n có th ớ ủ mua m t b n sao c a INCOTERMS m i ® ộ ả 2010 t trang web c a ICC. Tôi có th tìm hi u ể ể ừ thêm v Incoterms m i? Có m t s c a khu ộ ố ủ ớ ề ch c chính ph cung c p nhân và các t v c t ấ ổ ứ ủ ự ư h i th o, h i th o, h i th o liên quan đ n ế ả ộ ả ộ Incoterms m i. Đ i v i các h i th o và các s ố ớ ki n khác liên quan đ n Incoterms và nhi u ề ế ệ c ch đ khác tradecraft giáo d c đang đ ượ ủ ề cung c p b i th ố ng m i Hoa Kỳ và các đ i ở ấ ươ ố ế xu t kh u qu c tác trong h tr c a Sáng ki n ỗ ợ ủ gia c a T ng th ng, b n có th truy c p vào ố ể ạ ổ c s d li u th ế ng m i S ki n Tìm ki m ươ ơ ở ữ ệ c a chúng tôi. ủ

ấ ẩ ệ c g i là "Incoterms", đ ậ ấ ả ẩ ẩ ở ạ ị ể ặ ồ ộ

ệ

ổ ẽ ở ị ạ ươ ng INCOTERMS VÀ CÁC hi n xu t kh u th c ượ , đ m i qu c t ạ ố ế ượ ọ ch p nh n các đi u kho n xác đ nh qu c t ị ề ố ế ấ ậ trách nhi m c a các nhà xu t kh u và nh p ệ ủ ể kh u trong vi c b trí các lô hàng và chuy n ệ ố các giai đo n khác giao trách nhi m tham gia ệ nhau c a giao d ch. Incoterms không bao g m ồ ủ ề ở ữ quy n s h u ho c chuy n giao quy n s h u ề ở ữ hàng hoá. Đi u quan tr ng là đ ng ý trên ọ ề Incoterm m t s kh i đ u c a m t cu c ộ ộ ự ở ầ ủ th ng l ẽ ả ng / báo giá bán, vì nó s nh ượ ươ ng đ n chi phí và trách nhi m tham gia b o h ả ế ưở hi m, v n chuy n và thu quan. Các Incoterms ể ế ậ ể c s a đ i, b sung do Phòng 2010 quy đ nh đ ượ ử ổ Th ệ và s tr thành có hi u ố ế ươ l c t ự ừ ng m i qu c t ệ ngày 1 tháng 1 năm 2011. B n đi u ki n ề ố DDP Delivered Duty Paid Group 2. Incoterms that apply to sea and inland waterway transport only: FAS Free Alongside Ship FOB Free On Board CFR Cost And Freight CIF Cost, Insurance, and Freight Further, the two new groupings listed above note a reduction of the number of Incoterms from 13 to 11. Finally, INCOTERMS® 2010 provide additional helpful guidance and clarify obligations. For instance, the revised terms also spell out rules regarding the use of electronic procedures; detail information on security-related clearances for shipments; and offer advice with respect to domestic trade. Can I still use the INCOTERMS® 2000? According to the International Chamber of Commerce, all contracts made under INCOTERMS® 2000 remain valid even after 2011. In addition, although the ICC recommends using INCOTERMS® 2010 after 2011, parties to a contract for the sale with respect of the delivery of goods can agree to use any version of Incoterms after 2011. It is important, however, to clearly specify the chosen version INCOTERMS® 2010, INCOTERMS® 2000, or any earlier version. Where can I obtain a copy of the new INCOTERMS® 2010? You can purchase a copy of the new INCOTERMS® 2010 from the ICC website. Where can I learn more about the new Incoterms? There are a number of private sector and government organizations that offer workshops, webinars, and seminars related to the new Incoterms. For webinars and other events related to Incoterms and many other topics of tradecraft education that are being offered by the U.S. Commercial Service and its partners in support of the President’s National Export Initiative, you may visit our Trade Events Search Database. INCOTERMS AND THE EXPORTER International Commercial Terms, known as “Incoterms”, are internationally accepted terms defining the responsibilities of exporters and importers in the arrangement of shipments and the transfer of liability involved at various stages of the transaction. Incoterms do not cover ownership or the transfer of title of goods. It is crucial to agree on an Incoterm at the start of a negotiation/quotation of a sale, as it will affect the costs and responsibilities involved in shipping, insurance and tariffs. The new

ạ ỏ

ượ ượ ạ ể i bán và ng ẻ ả ươ ớ ể ừ ệ c lo i b (DAF, DEQ, DES, DDU) và đã đ i Place (DAP) và c thêm vào: Giao t hai đ ạ ổ ả i Terminal (DAT). Các thay đ i nh Giao t ng đ n nghĩa v , chuy n giao r i ro, và h ủ ế ụ ưở chia s chi phí cho ng i mua, ườ ườ k t qu là làm rõ và ng d ng (11) Incoterms ụ ứ ế ng m i toàn m i m t, và phù h p v i th ợ ộ ườ ạ c u là th c s th c hi n k t ậ khi c p nh t ầ ậ ự ự ự cu i cùng trong năm 2000. ố

ấ ị i bán và ng ườ ề ồ ế ồ ệ ố ọ ề ữ ẩ ư ượ ườ ả ủ ượ ọ ủ ọ Incoterms 2010 rules were revised by the International Chamber of Commerce and will become effective January 1, 2011. Four terms were eliminated (DAF, DEQ, DES, DDU) and two were added: Delivered at Place (DAP) and Delivered at Terminal (DAT). The modifications affect obligations, risk transfer, and cost sharing for the seller and buyer, resulting in better clarification and application of the eleven (11) Incoterms, and consistent with the way global trade is actually conducted since the last update in 2000. ẫ ầ ẩ ề ứ ệ ữ ể ở ấ ố ử ụ ậ ọ ệ i dock t ạ ấ ế ặ ẩ ồ ậ ầ ả ẩ ấ ấ ệ ộ ẩ ơ ấ ứ ẩ i hàng hóa) s s p x p và ỹ ậ ậ ả ậ ạ ậ ề ể ả ể ự ẩ ế ấ ẩ ể ể ợ ỉ ư ườ ẩ ậ Trong b t kỳ giao d ch bán hàng, đi u quan i mua đ ng ý v các tr ng là ng ề đi u kho n c a bán hàng và bi t chính xác ấ c bao g m trong giá bán. Xu t nh ng gì đ t nh t cho kh u nên ch n Incoterm làm vi c t ấ c chu n b đ ị ể công ty c a h , nh ng cũng đ ẩ trích d n các đi u kho n khác. Xem VEDP ả ế FastFacts-Đáp ng Yêu c u xu t kh u thi u kinh nghi m có th mu n s d ng "Ex Works" Incoterm (EXW), b i vì thu t ng này mang gánh n ng cho h . Theo EXW, trách nhi m c a ủ ả ơ ở ủ ọ i c s c a h , xu t kh u k t thúc t trong đó bao g m hàng hoá có s n đ nh n và ể ẵ t cung c p b t kỳ thông tin s n ph m c n thi ế cho vi c n p đ n Thông tin xu t kh u đi n t ệ ử (EEI). Các đ i lý nh p kh u (t c là ch đ nh ỉ ị M giao nh n v n t ẽ ắ ế chi tr cho ti n v n chuy n, b o hi m, v n ậ ả ể c a xu t chuy n và các chi phí b sung t ấ ừ ử ổ kh u. Bán d a trên Incoterm "CIF", m t khác, ặ ả ề đòi h i nhà xu t kh u đ s p x p và tr ti n ể ắ ỏ ả cho vi c v n chuy n ti n, v n chuy n và b o ề ệ ậ ể ậ hi m cho c ng. Trong tr ng h p này, giá bán ườ ả hàng (hoá đ n) bao g m không ch là ost (C) ồ ơ c a hàng hoá, nh ng cũng có (I) nsurance và (F) ủ i mua nh p kh u tr ti n reight chi phí mà ng ả ề i bán xu t kh u. cho ng ẩ ấ ườ

ỉ ươ ườ ố ở ạ ẳ ư ỉ ố ơ là t ể ọ ụ i g i hàng ph i thông báo ả ẵ ụ ậ ấ ấ ườ ử ẩ ượ

In any sales transaction, it is important for the seller and buyer to agree on the terms of sale and know precisely what is included in the sale price. Exporters should choose the Incoterm that works best for their company, but also be prepared to quote on other terms. See VEDP FastFacts- Responding to Inquiries Inexperienced exporters may want to use the Incoterm “Ex Works” (EXW), because this term carries the least burden for them. Under EXW, an exporter’s responsibility ends at their facility’s loading dock, which includes making the goods available for pick up and providing any product information needed for filing the Electronic Export Information (EEI). The importer’s agent (i.e. their designated U.S. freight forwarder) will arrange and pay for the pre-carriage, shipping, insurance and any additional costs from the exporter’s door. A sale based on the Incoterm “CIF”, on the other hand, requires the exporter to arrange and pay for the pre-carriage, shipping, and insurance to a named port. In this case, the sale price (invoice) includes not only the (C)ost of goods, but also (I)nsurance and (F)reight costs that the importing buyer pays the exporting seller. i xu t kh u th ậ ẩ ậ ủ ở ẩ ườ ấ ấ ề ể ấ ặ ố ể

ề ặ ỹ ẩ ủ ế ề ệ ặ

ủ ậ ỏ ườ ị

i h i quan). ấ ạ ớ ả ớ ẩ ả ị ọ ủ ệ ậ ả When designating the Incoterm on a commercial invoice or a quotation to the buyer, the term should be followed by the city or port of load/discharge, such as “EXW Factory, Richmond, VA” or “CIF Rotterdam”. Using the actual address is better to avoid any confusion or misinterpretation. Communication throughout the entire process is crucial. For example, under Ex Works, the shipper should notify the importer when the goods are ready and after they have been picked up by the importer’s selected carrier. The exporter’s freight Khi ch đ nh Incoterm trên hoá đ n th ạ ng m i ơ ị ả ho c báo giá cho ng i mua, th i h n ph i ờ ạ ặ đ ạ c theo sau b i thành ph ho c c ng n p / ặ ả ượ x , ch ng h n nh "Nhà máy EXW, Richmond, ả VA" hay "CIF Rotterdam". S d ng đ a ch ử ụ ị t h n đ tránh b t kỳ s nh m l n th c t ẫ ự ầ ấ ể ự ế ho c hi u sai. Thông tin liên l c trong su t toàn ố ạ ặ b quá trình là r t quan tr ng. Ví d , trong tác ộ ph m Ví d , ng ẩ cho nhà nh p kh u khi hàng hoá đã s n sàng và sau khi h đã đ c ch n b i nhà cung c p d ch ị ọ ọ ậ v l a ch n c a nh p kh u. Giao nh n v n ụ ự ọ ủ ườ chuy n hàng hóa c a ng ng ể ặ xuyên cung c p tàu và ngày đi thuy n, ho c ử ụ d ch v v n chuy n hàng hóa không s d ng, ụ ậ ị và hóa đ n b t kỳ đ i d ơ ng c a v n đ n ủ ậ ạ ươ ơ ng hàng không đ các bên ho c s hóa đ n đ ơ ườ thông báo các th a thu n và tình tr ng lô hàng ạ ậ ỏ (m c dù v m t k thu t theo Ex Works các ậ ặ ạ n i c xu t kh u c a trách nhi m k t thúc t ấ ướ b n tàu b c x p,). Incoterm n ng n nh t đ i ấ ố ố ế ế v i xu t kh u là Delivered Duty Paid (DDP), ẩ ấ ớ t c các th a thu n và chi phí c a nhà b i vì t ấ ả ở ng là v i s h tr c a xu t kh u ch u, th ớ ự ỗ ợ ủ ẩ ấ các đ i lý (chuy n hàng hóa và các nhà môi ể gi V i DDP, xu t kh u ph i ch u m i r i ro và chi phí v n chuy n, bao g m c nhi m v và ụ ườ i thu quan, cho đ n khi nh n hàng thì ng ồ ậ ể ế ế

ẩ ậ

i nhà máy ho c kho ệ khi DDP đ i di n ặ ạ i bán, nó ườ

nh p kh u, th ng là t ạ ườ c a nhà nh p kh u. K t ể ừ ẩ ậ ủ cho các nghĩa v t i đa cho ng ụ ố không đ ế ượ đ xu t kh ấ ể c khuy n cáo cho các công ty m i ớ ẩ

forwarder often provides the vessel and sail date, or air cargo service used, and any ocean bill of lading or airway bill number to keep the parties informed of the arrangements and status of the shipment (even though technically under Ex Works the exporter’s responsibility ends at their loading dock). The most burdensome Incoterm for the exporter is Delivered Duty Paid (DDP), because all arrangements and costs are borne by the exporter, usually with the assistance of agents (freight forwarders and customs house brokers). With DDP, the exporter bears all risks and costs of transportation, including duties and tariffs, until the goods are received by the importer, usually at the importer’s factory or warehouse. Since DDP represents the maximum obligation to the seller, it is not recommended for companies that are new- to-export.

Case Study TERMS OF TRADE

YES YES NO NO NO YES Which of the following terms are correctly used according to Incocerms 19907 If your answer is "No," give your reasons. (Note: .There may be more than one correct answer in each section. 1. A contract requiring the exporter to send the conntact goods by road from Kenva to Zambia with freight paid by the exporter. a. C&F Lusaka b. CFR Lusaka c. CPTLusaka YES d. CFR Nairobi e. FOT Nairobi YES NO NO

YES NO YES NO

2. A contract requiring an exporter in Mozambique to deliver the contract goods in Beira. Mozambique, for shipment by sea to Dares Salaam, Tanzania. a. FAS Beira b. FOB Beira c. FCA Beira d. FOB Dares Salaam YES YES NO NO

3. A contract requiring an exporter in Ethiopia to send the contract goods by air for delivery in Windhoek, Namibia a. CIF Windhoek b. CIP Windhoek c. DDU Windhoek d. DES Windhoek YES YES YES YES NO NO NO NO

c. Yes 1. a. No. Not a 1990 Incoterm b. No. Ship term only d. No. CFR is not to Nairobi e. No. Not an Incoterm c. Yes 2. a. Yes b. Yes 3. a. No. Shipment only term b. Yes d. No. Shipment is in Beira c. Yes d. No. Ship only term

Delivery where?

Translate into Vietnamese Sample 2. CONTRACT FOR LUBRICANTS. CONTRACT No 01292

Singapore December 29th, 19.. This contract is made between Vietnam National Petroleum Export Import Corporation (PETROLIMEX) 1, Kham Thien, Hanoi (Socialist Republic of Vietnam) Cable address: "Petrolimex Hanoi" (hereinafter reference to as BUYER) and AGIP PETROLI S. p. A. – Singapore Branch (reference to as SELLER) whereby it is agreed as follows:

1. Object of the Contract SELLER undertakes to deliver lo BUYER in Vietnam .on CFR basis the following lubricants:

Item 01 02 Lubricants GRMU3 CRMU3 Quantity 858 DRUMS x 180 KG (154.44 MT) 858 DRUMS x 180 KG (154.44 MT) CFR HCM 850 USD/MT CFR HP 870USD/MT

The above prices are expressed in US dollars per metric ton net CFR port of Vietnam, deliveries as per Art. 6 below, and remain fixed during the term of this contract and provided that an Irrevocable L/C in respect thereof has been notified to Seller by Singapore Indosuez Bank prior to 31/10/19 .. 2. Specification of Lubricants The specification of lubricants in drums supplied under this Contract shall conform to the specifications set out in Appendix 1 attached to hereto, which is an integral part of this Contract; Origin of products will be Italy, Holland or Singapore at SELLER'S option.

3. Packaging Packaged products will be delivered in AGIP standard new steel drums, of about 1.2/1.0 mm thickness. The drums will be filled at 180 kg not weight. 4. Payment 4.1. SELLER will be paid by .Irrevocable L/C opened by Vietcombank'Hanoi and advised to Seller through Indosuez Bank in Singapore payable at sight against first presentation of full set of shipping documents 4.2 SELLER shall effect first shipment within 30 days from date SELLER receives notification of irrevocable L/C 4.3. All costs of L/C in Singapore shall be for SELLER'S account 4.4. All L/C amendment's cost (if any) caused by the failure of the Buyer to follow the terms and conditions of payment will be for BUYER'S account 4.5. The under mentioned documents will be forwarded to BUYER'S Bank immediately after loading date a) Signed commercial invoice in 3 originals b) Clean "Shipped on Board" Ocean Bill of Lading in complete set of at least 3 original 3 non- negotiable copies signed made out to order of "Vietcombank" Hanoi c) Quality/Quantity certificate issued by the Chamber of Commerce in triplicate d) Packing List in triplicate e) Confirmation of cable advise for shipment in triplicate f) Receipt of shipmaster acknowledging due receipt of all documents in triplicate non - negotiable copies of each document, for handing same over to PETROLIMEX Haiphong or PETROLIMEX Hochiminh City 5. Penalties In case of delay in payment (if any), BUYER shall remit to SELLER interest calculated from the date of presentation of documents to the bank in Singapore to the date of effective receipt of due amount. The interest will be calculated at LIBOR RATE (6 months) plus 1.5 per cent 6. Deliveries Products will be delivered in partial shipments to be agreed upon. In case of, transshipment SELLER shall give to BUYER all necessary detail and information 7. Insurance Insurance shall be effected by BUYER. 8. Delivery Terms CFR Vietnamese ports as per Art. 1. Goods to be delivered in partial shipments accordance with Art. 6 9. Claims In case of non - conformity of the quality of the products actually delivered by SELLER with the Contract specifications, any claim concerning the quality of the goods must be presented to SELLER within three months from the date of delivery. No claims shall be accepted by SELLER party after expiry of the above period 20. Contingencies Should any circumstances arise which prevent the complete or partial fulfillment by any of the parties of their respective obligations under this contract, namely: fire, ice conditions or any other acts of the elements, war, military operations of any character, blockade, prohibition of export or import or any other circumstances beyond the control of the parties, the time stipulated for the fulfillment of the obligations shall be extended for a period equal to that during which such circumstances last. If the such circumstances last for more than 20 days, any delivery or deliveries which are to be performed under this contract within that period may be cancelled on the declaration of either party, and if the above circumstances last for more than. 40 days, neither party shall have the right to make a demand upon the other Party for compensation for any possible damage. A party unable to meet its obligations under this Contract shall immediately advise the other party the time of commencement and the termination of the circumstances preventing the fulfillment of its obligations. Certificates issued by the respective Chamber of Commerce of SELLER'S or BUYER'S country shall be sufficient proof of such circumstances and their duration. 11. Arbitration

All disputes and differences which may arise out of the present contract or in connection with it shall be settled, if possible, in an amicable way. In the event that it is not possible to settle them in an amicable way, the parties shall refer the matter to Arbitration in the International Chamber of Commerce in Paris 12. Other Conditions 12.1 Neither Party is entitled to transfer is right and obligations under the present Contract to a third party without the other Party's previous written consent 12.2 After the signing of the present Contract, all previous negotiations and correspondence between the Parties in connection with it shall be considered null and void 12.3 All amendments and additions to the present Contract are valid only if they are made out in writing and signed by both Parties 12.4 All taxes, customs and other duties levied in Vietnam on the contracted Products shall be for BUYER'S account. SELLER: AGIP PETROLI S.p.A (Signed) Patrick FOK Lubricants Manager BUYER: PETROLIMEX (Signed) Nguyen Manh Vice General Director

APPENDIX 1 Agip Gr Mu3 Product: NLGI consistency: 3 Worked penetration: 230 dmm ASTM dropping point: 195 C degrees.

CHAPTER 2: NEGOTIATING PRICE & PAYMENT

2.1. Export Pricing Strategies

Trong

THE PROBLEM In many negotiations, as soon as the exporter states a price, the buyer begins to demand concessions about delivery time, method of payment, and so on. Concessions that can quickly make the deal unprofitable. How can the exporter avoid the "price trap"?

Nhà

THE PRINCIPLE The exporter must perceive and preserve the interdependence of every aspect of an export negotiation. A price quotation is based on a set of assumptions about delivery, payment and warranty terms. The contract price must reflect any change in. or renegotiation of, these assumptions.

IN MORE DEPTH

Exporting is not difficult; the problem is making money at it. Sometimes first-time exporters fail to understand how the many terms of a contract relate to each other: a longer warranty period, fur example, creates higher costs—the contract price should reflect these costs. An extension of the payment period creates higher costs— again the contract price should reflect the extension. In fact. virtually every problem that the two sides normally negotiate has a bearing on price. Mostly the buyer's suggestions tend to raise the price, but a lowering of the price is possible too. Let's use an example to study this relationship between price and other contract terms in more detail.

Scenario: Verbena Electric hopes to export its best-selling product: small domestic electric fans, from Verbena to Esperanza. A market study in Esperanza shows that fifteen brands of fan

are available in Esperanza, none of them made in Esperanza itself. Models range from expensive, electronically controlled fans imported from Europe to cheap plastic products imported from Nonamia. In every case, the price strikes the export manager of Verbena Electric, John Royalstone as high: his own fans will be competitive. Royalstone begins discussions with the purchasing manager or Esperanza Electrical Importing, Alice Smart. Smart is particularly interested in one of Royalstone's products, a three-speed, 180 o revolving tan with a graceful, modem design. Negotiation begins. Early on, Smart introduces the question of price: “What’s the price of a fan like that?” Royalstone is an old hand at negotiation: he knows that when he states a price, it must be for precisely denned goods delivered under precisely defined circumstances. He offers a unit price of $22 and makes it clear that this price is based on the following assumptions: • The size of the order is 3.000 items: • The specification of the fan is identical—except for color: 1.000 will be delivered in sold. 1.000 in black. 1.000 in red. .. • No additional packaging or safely warnings are required beyond what is normal in Verbena; • Delivery is FOB (Port Verbena): • Payment is by irrevocable, confirmed, at-sight letter of credit; • Delivery takes place three weeks from the dale that Royalstone receives advice that the letter of credit has been opened; • The warranty period on the fans is three months from the date of delivery. Smart sees that she is dealing with an experienced exporter. She begins to discuss the items on Royalstone's list.

Order Size Smart is not sure she can handle 3,000 fans: she would prefer to order fewer, test the market, and order more later if things go well. Royalstone makes two points: first Smart's transport costs will increase on a smaller.order, because 3,000 units is one container load; second, the unit price will increase on a smaller order. An order of 1.000 fans for example would cost $25 each—not $22.

Specifications Smart likes the color range, but she wonders if the price would be lower if she ordered only one color. Royalstone is ready to cut his price by 50c per fan if the whole order is the same color. Packaging Unfortunately, Esperanza has strict rules about packaging and safety: labeling of electrical products. Smart shows Royalstone the regulations. After a few phone calls, Royalstone calculates that meeting Esperanzan standards will add at least 40c to the cost of each fan.

Incoterm Smart says that she would prefer CIF delivery, Esperanza City. Royalstone tells her that the cost of insurance and freight between Pon Verbena and Esperanza City is $520 on an order of 3,000 items: somewhat less on an order of 1,000. Smart also wonders what the effect would be of collecting the fans ex works; The EXW price, loaded in a coniainer is $21.75—a small saving,

Terms of Payment Smart says that she dislikes letters of credit and prefers to trade on open account—30 days net, with a 2% discount for payment within ten days. Royalsione explains to her how trading on open account will increase his costs: he will need export credit insurance, and he will have to wait for Smart's check to clear. Based on experience, clearance will lake 45 days. His price will rise to $26 per fan on an order for 3,000, FOB Port Verbena. Smart is unhappy both about the cost of the letter of credit and about Royalstone's additional price if she refuses to open one. She suggests that she pays 25% of the price with order, and the remaining 75% on open account. Royalstone has no ready answer to that proposal. He quickly recalculates his price: it would be below $26, probably by $1.10.

Date of Delivery When Smart questions delivery three weeks after the opening of the letter of credit—Royalstone again replies with figures: if she wants the goods sooner, he can arrange it—but only by working an exrra shift with extra costs involved. His price would have to be somewhat higher.

Warranty Period Royalstone is not worried about the quality of his fans, but he knows from experience thai a three- month warranty on an FOB delivery produces very few claims for defects—about two claims per thousand fans. A six-month warranty, however, is more costly—about ten claims per thousand fans. His normal policy is to mail a replacement fan in the event of a claim—which costs him about $40 for the fan, the packing and the postage. If Smart asks for a six-month warranty, it will add 30c per fan to Royalstone’s costs.

In this lengthy example, all negotiating decisions bear directly on the price of the product. Naturally other points are open to negotiation; this is just a sampling. But the general point is clear: a manager like Royalstone who knows his product and who has thoroughly analyzed his costs is unlikely to lose money on an export deal—unless, of course, he decides to do so. If Royalstone is eager to win Smart as a regular customer, he may be ready to sell to her at a loss first time around. Or his factory may be so short of work that he is prepared to accept any job—even a loss-maker. Or the Verbenan government may make exporting so attractive with export incentives that Royalstone can trade at a loss but still show a profit at the end of the day. The general point is this: a good manager knows that almost every decision made during a negotiation influences price—an excellent manager can put a dollars--and-cents figure on this influence.

(E) MINIMAL DECREASE (F) APPRECIABLE DECREASE (G) LARGE DECREASE

CASE STUDY In a Jam Gorm Trading exports canned foods from Verbena. Gorm is negotiating of 600 cases of apricot jam by road to a neighboring country. Gorm’s price per case is $20. The price is based on delivery FCA with no special packaging or labeling. The jam has a six-month expiry date stamped on the label. Payment will be by irrevocable, confirmed, at-sight letter of credit. Delivery date is two days after the opening of the credit. Decide what influence each change listed below will have on the price per case. (A) NO CHANGE (B) MINIMAL INCREASE (C) APPRECIABLE INCREASE (D) LARGE INCREASE 1. Reduction of the order from 600 cases to 300 cases. 2. Delivery EXW (Exporter must have the goods ready for collection in his warehouse.) 3. Replacement of single flavor (apricot jam( by a range of 10 flavors, some of which are “exotic.” 4. Change of labeling to show exact nutritional values and ingredients (not normally specified by Gorm). 5. Change of payment from letter of credit to open account payment due 45 days from date of invoice. 6. Replacement of a single delivery with delivery in ten installments of 60 cases over a period of one year. 7. Increase of the expiry period from six months from date of manufacture to two years.

1. C. 2. E 3. B-C 4. C 5. C 6. C 7. C

REFERENCE NO.

Translate into Vietnamese FORM 3: ABC’S CONTRACT ABC CORPORATION, as SELLER, confirms having sold to BUYER the following goods by contract made on the date below and on the terms and conditions SET FORTH HEREUNDER AND ON THE REVERSE SIDE HEREOF. BUYER DATE CONTRACT NO BUYER'S GOODS QUANTITY UNIT PRICE TOTAL AMOUNT

SHIPMENT: Time of Shipment Transshipments permitted/not permitted Port of Loading Partial shipments permitted/not permitted Port of Destination PACKING: MARKING: PAYMENT: The letter of credit shall bear this Contract's number as reference INSURANCE To be covered by Buyer/Seller Insured Amount Condition

INSPECTION: OTHER TERMS & CONDITIONS: ACCEPTED ON ....................20...

BY: .............................................(BUYER)...;.......................(SELLER) Please sign and return one copy. SEE TERMS AND CONDITIONS ON REVERSE SIDE

1.October ABC'S CONTRACT GENERAL TERMS AND CONDITIONS

ể ượ ị ồ ợ ợ ồ ọ ủ ệ ờ ạ ỡ ệ

ệ ệ ế ợ ồ ả t các chi ti ờ ả ả ỗ ố i khác, đ ng th i ph i báo cho bên bán bi ả ườ ợ ế ậ ồ c khi chuy n hàng, trong đó bao g m tên, l ch chi ti ướ ế ủ ủ ờ ế ồ ể ả ị

ế ừ ể ợ ờ ạ ỗ ượ ể ặ ậ ị ề ể ạ ắ ồ ợ 1) Shipment or delivery Giao hàng The obligations of Seller to ship or deliver the goods specified on the face of this Contract ("Goods") by the time or within the period specified on the face of this Contract shall be subject to the c ghi availability of the vessel or the vessel's space. Trách nhi m c a bên Bán chuy n giao hàng đ trong H p đ ng (g i là “hàng hóa”) đúng hay trong th i h n quy đ nh trong h p đ ng tùy thu c ộ vào tình hình thuê tàu hay di n tích ch hàng trên tàu. If, under the terms of this Contract, Buyer is to secure or arrange for the vessel or vessel's space, Buyer shall secure or arrange for the necessary vessel or vessel's space on berth terms basis and give Seller shipping instructions within a reasonable time prior to shipment, including but not limited to the name and detailed schedule of the vessel. Theo đi u ki n h p đ ng, n u bên Mua lo vi c thuê ề ch đ hàng sát thành tàu và không chen v i tàu hay mua ch tr ng trên tàu, thì ph i b o đ m gi ớ ữ ỗ ể t v n chuy n trong hàng hóa c a ng ể kho ng th i gian h p lý tr ể t c a tàu bi n, vv… If Buyer fails to give such instructions within a reasonable time prior to shipment, Seller may, at its sole discretion and at Buyer's risk and account, arrange for the vessel or the vessel's space and make shipment of the Goods, without prejudice and in addition to any other rights and remedies Seller may have under this Contract or at law or in equity or otherwise. N u bên mua không thông báo các thông tin v a nói trong th i h n h p lý, bên bán có th tùy nghi, và Bên mua s ch u m i ọ ị ẽ ạ c khi u n i rũi ro, chi phí, thuê tàu hay đ t ch trên tàu và v n chuy n hàng, mà bên kia không đ ế ậ và đòi thêm quy n h n khác đ bù đ p mà theo h p đ ng này hay theo lu t đ nh hay theo t p ậ quán, vv…. bên bán có th có.ể

ợ ể ừ ễ ả ấ ứ ườ ợ ng h p tr ợ ượ n i hay không giao m t ộ ề c suy ra là bên mua có quy n ấ ầ ầ ồ ị ch i ch p nh n toàn b nh ng l n giao hàng khác. ộ ữ ừ ố

ể ủ ệ ằ ả ượ ng t i th h ế ợ ố ế ườ ạ ệ ự i 1 ngân hàng h ng nh t có ti ng trên qu c t ấ ề ị ế ầ ủ ở ự ư ạ ụ i đây, bên bán có th yêu c u bên mua, trong th i h n h p lý, cung c p s ờ ạ ể ợ ầ ủ ể ế ả ự ầ ệ ư ả

ả ng h p t ng t ợ ươ ượ ườ ữ ự ể ả ụ ể mà bên mua có th c s c tr giá đ thoái thác, hay nh ng tr ề ữ ể c khi ký k t h p đ ng mà thôi. ế ợ ồ

ng h p chuy n giao hàng t ng ph n, b t c tr Trong tr ườ ph n thì s không b xem là vi ph m h p đ ng này và không đ ạ ẽ ầ h y h p đ ng hay t ậ ồ ủ ợ In case of shipment or delivery installments, any delay or failure in shipment of one installment shall not be deemed a breach of this Contract giving rise to a right of Buyer to cancel this Contract or refuse to accept performance with respect to other installments. 2) Payment If payment for the Goods shall be made by a letter of credit, Buyer shall establish, in favor of Seller, an irrevocable letter of credit through a prime bank of good international repute immediately after the conclusion of this Contract in a form and upon terms satisfactory to Seller. If Buyer fails to make any due payment, to establish a letter of credit or otherwise to perform its obligations hereunder, Seller may demand that Buyer provide, within a reasonable time, adequate assurance satisfactory to Seller of the due performance of this Contract and may delay delivery until such assurance is given. c th c hi n b ng L/C, bên mua ph i m L/C không th h y ngang mà bên bán N u thanh toán đ ở ế ồ ngay sau khi ký k t h p đ ng là ng ạ ụ ưở này theo hình th c và đi u ki n đúng theo yêu c u c a bên bán. ứ N u bên mua không ch u thanh toán đúng h n, m tín d ng th , hay nói cách khác, th c hi n ệ ế ấ ự nh ng nghĩa v d ầ ụ ướ ữ b o đ m đ y đ theo yêu c u c a bên bán và bên bán có th hoãn giao hàng cho đ n khi nào bên ủ ả mua th c hi n b o đ m thanh toán nh đã nói. ả Buyer shall pay the price specified on the face of this Contract without set-off counterclaim, recoupment or other similar rights which Buyer may have against Seller and which shall be exercised in separate proceedings between Buyer and Seller. Bên mua ph i thanh toán giá ghi c th trên h p ợ đ ng này không đ ể ồ th c hi n đ gây khó khăn cho bên bán, và nh ng quy n này bên bán và bên mua ch đ ỉ ượ ử ệ ự d ng tr ướ ụ Any new, additional or increased freight rates, surcharges (bunker, currency, congestion or other surcharges), taxes, customs duties, export or import surcharges or other governmental charges, or

ả ậ ế ụ ụ ể ụ ữ , t c đ ạ ệ ắ ườ c v n chuy n, ph thu ( ể ụ ế ả ả ả c bên mua hoàn l ị ồ ạ ế ể ra bên mua ph i ch u và ph i đ ả ượ ả

ợ ả ườ ượ ạ ị ồ ể ấ ấ ấ ứ i mua cho phép, tính k t ế ệ ạ ế ơ ở ợ ạ ấ ậ ơ ủ ướ ể ừ ườ ứ t s ngày th c t ạ ợ ả i đa mà lu t pháp c a n ự ự ấ c ng ị ể ế ố ế ạ

insurance premiums, which may be incurred by Seller with respect to the Goods after the conclusion of this Contract shall be for the account of Buyer and shall be reimbursed to Seller by ổ đ hàng, đ i Buyer on demand. N u có thêm kho ng tăng giá c ướ ng hay nh ng ph phí khác), thu , thu quan, ph thu XNK hay các lo i l ngo i t phí ạ ệ ế đóng cho chính ph , hay mua b o hi m liên quan đ n hàng hóa, mà bên bán ph i tr sau khi có ủ h p đ ng này, mà l i cho bên bán theo yêu ẻ ợ c u. ầ If Buyer fails to pay for the Goods in accordance with this Contract, Buyer shall pay to Seller as liquidated damages and not as a penalty overdue interest at the rate of the lower of eighteen percent (18%) per annum or the maximum interest rate permitted by the laws of Buyer's country, calculated from the date for such payment until the actual date of payment calculated on the 360 day-a-year ồ basis for the actual number of days elapsed. N u bên mua không thanh toán theo đúng h p đ ng này, bên mua ph i ch u b i th c ph t có tính ch t răn đe hay ng trên c s h p lý và không đ theo ki u n đ nh m c ph t th p h n lãi su t 18% năm tính trên lãi su t thanh toán ph t chi u l ị ngày n quá h n hay m c lãi su t t ấ ố ự ế ph i thanh toán cho đ n ngày th c s thanh toán theo năm l ch 360 ngày đ bi quá h n thanh toán. 3) Force Majeure If the performance by Seller of its obligations hereunder is directly or indirectly affected or prevented by force majeure, including but not limited to Acts of God, flood, typhoon, earthquake, tidal wave, landslide, fire, plague, epidemic, quarantine restriction, perils of the sea, war declared or not or threat of the same civil commotion, blockade, arrest or restraint of government, rulers or other labor dispute, explosion, accident or breakdown in whole or in part of machinery, plant, transportation or loading facility, governmental request, guidance, order or regulation, unavailability of transportation or loading facility, bankruptcy or insolvency of the manufacturer or supplier of the Goods, or any other causes or circumstances whatsoever beyond the reasonable control of Seller or manufacturer or supplier of the Goods, then Seller shall not be liable for loss or damage, or failure of or delay in performing its obligations under this Contract and may, at its option, extend the time of shipment or delivery of the Goods or terminate unconditionally and without liability the unfulfilled portion of this Contract to the extent so affected or prevented. 4) Default

Because S + V … Because of Noun phrase Because the consignment was delayed, the seller had to be liable for compensation. Because of the delayed consignment, the seller had to be liable for compensation.

In case that the consignment was delayed, the seller would be liable for compensation. In case of the delayed consignment, the seller had to be liable for compensation.

In case of (i) Buyer's failure to perform any provision of this Contract; (ii) Buyer's inability to pay its debts generally as they become due; (iii) Buyer's bankruptcy or insolvency or (iv) appointment of a trustee, receiver or liquidator of Buyer of any material part of Buyer's assets or properties ("Events of Default"), Seller may, at its sole discretion, (i) terminate this Contract or any part thereof; (ii) declare all obligations of Buyer immediately due and payable; (iii) resell the Goods; (iv) hold the Goods for Buyer's account and risk; (v) pospone the shipment of Goods; or (vi) stop the Goods in transit, and Buyer shall reimburse Seller for all losses, damages arising directly or indirectly from such Events of Default. The rights and remedies of Seller hereunder are cumulative and in addition to Seller's rights, powers and remedies existing at law or in equity or otherwise. 5) Intellectual property rights Nothing herein contained shall be construed as transferring any patent, trademark, utility model, design, copyright, mask word or any other intellectual property rights in the Goods, as such rights being expressly reserved to the true and lawful owners thereof. Seller shall be neither responsible nor liable for any infringement or unauthorized use with regard to any patent, trademark, utility model, design, copyright, mask work or any other intellectual property rights. 6) Warranty, claim

Unless expressly stipulated on the face of this contract, seller makes no warranty or condition, expressly or impliedly, 'as to the fitness or suitability of the goods for any particular purpose or use or the merchantability thereof. If any warranty exists. Seller's liability shall be limited to replacement or repair of the defective Goods. Any claim by Buyer of whatever nature arising under or in relation to this Contract shall be made by registered airmail within thirty (30) days after the arrival of the Goods at the port of destination, or solely in respect to a claim alleging the existence of a latent defect in the Goods, within six (6) months after the arrival of the Goods at the port of destination, and any such claim shall contain full particulars with evidence certified by an authorized surveyor. 7) Limitation Seller shall not be responsible, whether in contract or warranty, tort or on any other basis, to Buyer for any special, incidental, consequential, indirect or exemplary damages, and in no event shall Seller's total liability on any or all claims from Buyer exceed the price of the Goods. 8) General (1) All disputes, controversies or differences arising out of or in relation to this Contract or the breach thereof which cannot be settled by mutual accord without undue delay shall be settled by arbitration in Tokyo, Japan, in accordance with the rules of procedure of the Japan Commercial Arbitration Association; the award of arbitration shall be final and binding upon both parties, and judgment on sucli award may be entered in any court or tribunal having jurisdiction thereof; this Contract shall be, in all respects, governed by and construed in accordance with the laws of Japan; the trade terms herein used, such as FOB, CFR and CIF, shall be interpreted in accordance with "INCOTERMS 2000". (2) The failure of Seller at any time to require full performance by Buyer of the terms hereof -shall not affect the right of Seller to enforce the same; the waiver by Seller of any breach of any provision of this Contract shall not be construed as a waiver of any succeeding breach of such provision or waiver of the provision itself. (3) This Contract constitutes the entire agreement between the parties hereto and supersedes all prior or contemporaneous communications, agreements or undertakings with regard to the subject matter hereof; this Contract may not be modified or terminated except by a written agreement of Seller and Buyer. (4) Buyer shall not transfer or assign this Contract or any part thereof without Seller's prior written consent.

2.2 THE FIVE STEPS IN NEGOTIATING PAYMENT

ả ế ầ

ề ả ầ ế ờ

THE PROBLEM For the exporter, the great fear is non-payment. Most developed countries offer export-insurance, to cover this and other risks, but such insurance is rare in developing countries. How can the exporter create payment terms that ensure payment? THE PRINCIPLE Payment is a more orderly process than delivery. Every successful payment provision stipulates the flow: When and Where of payment. In addition it specifies what delay in payment, if any, is excusable, and the consequences of unexcusabie delay. ả ượ ườ ữ ễ Thanh toán c n ph i ti n hành theo đúng trình h n giao hàng. t ự ơ T t c các quy đ nh v thanh toán c n ph i nêu ị ấ ả t: Th i gian và đi m thanh toán. Ngoài rõ chi ti ể ra cũng c n ph i ghi c th kh năng thanh ụ ể ả ầ toán tr , nh ng tr ừ ng h p nào đ ợ trách nhi m, và không mi n tr trách nhi m. ễ ệ c mi n tr ễ ệ ừ

IN MORE DEPTH In negotiating payment, the sxporter should keep five Steps in mind, five issues that the export agreement must adequately cover.

STEP 1 MODE OF PAYMENT STEP 2 TIMING What is the date of STEP 3 PLACE OF PAYMENT Where must the money be before STEP 4 DELAY What delay in payment is excusable? STEP 5 RESULT OF DELAY What are the results of non- excusable delay in payment

payment? How will payment be made payment is considered complete?

Step 1. Mode of Payment

Most international trade is conducted on a cash basis—goods against cash. Sometimes, however, goods are traded against goods (barter trade), and sometimes the exporter gives the buyer a credit—the buyer can pay by installments over a period of time. Barter and credit transactions are a subject in themselves. Here we shall look only at cash transactions.

Trade within a country is based on a mixture of trust and the close proximity of courts of law. International business is not so blessed: trust is rare, and courts are far away and unpredictable. Payment is. therefore, tightly controlled. Four approaches to payment are common:

♦ Payment on open account with no security; ♦ Payment on open account secured by export credit insurance; ♦ Payment on open account secured by a payment guarantee; and ♦ Payment by letter of credit. In private life, small purchases (in a supermarket, for example) are sold cash on delivery. If you buy household furniture, you will usually receive the invoice with a certain amount of time to pay it—cash against invoice. Cash against invoice is the typical open account transaction. If, however, the furniture store distrusts you, it will ask for a 100% prepayment as security—cash with order: that way they are completely safe.

All these transactions have exact equivalents in export trade. Obviously, however, the word "cash" in the international context does not usually mean coins and notes. (Occasionally, perhaps, a buyer pays for goods by giving the exporter a briefcase full of money, but such payments generally reflect a wish to escape scrutiny by the central bank or other authorities.) To the exporter cash normally means checks (cheques) or bank transfers.

Exporters who are paid on open account are seriously at risk. The problem is obvious: if anything goes wrong—if the check is not honored by the bank for example, or if the buyer files for bankruptcy or simply disappears—the exporter is in a poor position to claim payment. One solution is to ask for 100% prepayment—as in the furniture store example above. The buyer, however, is unlikely to agree to this arrangement.

There are two common approaches to providing the exporter with an acceptable level of security: one approach is to persuade a third party to pay the epxorter if the buyer fails to do so. A typical third party is a bank which may issue a bank guarantee, paid for by the buyer. An alternative third party is an insurance that issues an export credit insurance policy covering the risk of non-payment: in this case, the exporter pays the costs. The second approach is to position the money the money with a bank in the country of the xporter by means of letter of credit, and to allow the exporter collect the money when the goods are

delivered. The letter of guarantee, export credit insurance, and the letter of credit – each of these approaches is complex enough to require a section in its own right.

Step 2. Timing

In negotiating any cash-against-invoice payment- whether secured or not- it is important to consider the time/payment structure. Payment against invoice is rarely made immediately. Most buyers wait a while before paying: the delay gives them use of what is, in fact, the exporter’s money. The exporter, of course, suffers from delay: he must borrow money, perhaps at a high rate of interest, until he is paid. To speed up payment, most exporters offer a discount for early payment, for example 1% discount if payment is made within 30 days of the date of invoice. This discount is often attractive for both buyer and exporter: the buyer saves on the invoice price, while the exporter substantially, improves his cash flow. If the parties say nothing at all, then payment is due, in most jurisdictions on delivery. The date of payment for a single sale is simply regualated. In an ongoing contract- delivery involving partial shipments, periodic shipments, or a spare parts supply contract, for example- the aprties must negotiate a chain of dates. These are calendar dates (for example, 30th June) or interval times (for example, within 30 days of the date of invoice).

Step 3. Place of Payment

When Tony Mino instructs his bank in F.speranza to pay Double-A Ltd. in Verbena, he begins a chain of events that often takes months to complete. Perhaps the National Bank of Esperanza has no funds to make foreign transfers; perhaps inefficiency delays payment. To avoid the dangers of slow payment, exporters try to protect themselves with a clause like this:

Payment shall be deemed to have been made only when the contract is paid into the seller’s bank account and is at the seller’s full disposal.

In fact, this is not unreasonable: under the Vienna Sales Convention, for example, payment is normally deemed to be made onl\ when the cash is available at "the seller's place of business" (Article 57) Negotiators must work this out carefully -the conflicts of interest are clear:

When the buyer’s bank transfers funds? When funds reach the seller’s bank account? POINT AT WHICH MONEY IS DEEMED TO BE PAID When the buyer instructs the bank to pay? When the buyer pays the money into his bank ?

BUYER PREFERS SELLER PREFERS

The decision is important because late payment is subject to payment of interest: the cost of any delay along the payment route properly belongs to the buyer.

Step 4. Delay

As with delivery, delay in payment might be excused during a grace period, though this is unusual. More commonly, a force majeure event excuses delay. In fact, the force majeure excuse for delay seldom makes sense in the context of payment; most exporters try to resist it. In principle, any payment made after the agreed date of payment is in delay.

Step 5. Results of Delay.

What happens when payment is late? It is generally agreed in most legal systems that the exporter has a right to be compensated for losses due to late payment. What happens in practice depends on the payment agreement negotiated by the parties. Let's start with the worst case: payment on open account, with no security and with no agreement on late payment. In this case, the exporter tries to exert pressure on the buyer— but this is difficult. The exporter writes letters, makes telephone calls, waits and hopes. Every day that payment is late costs money—losses that the exporter can, in practice, do little about—without

beginning legal action. Considerably better is the situation of the exporter whose contract with the buyer regulates late payment. A typical contract clause: Delayed Payment If payment of any sum payable is delayed, the Buyer shall be entitled to receive interest on the amount unpaid during the period of delay. The interest shall be at an annual rate three percentage points above the discount rate of the central bank in the Seller's count ry. When the exporter is finally paid, the interest payable is simply added to the outstanding sum. For force majeure, sec Chapter 1, Section 2. The force majeure clause suggested by the International Chamber of Commerce, for example, states that payment of interest on overdue sums payable to the seller is not excused by force majeure.

Even better for the exporter is an agreement with the buyer to strengthen the payment provisions with a payment guarantee. This guarantee, as you will see in Section 3 below, obliges a bank to pay if the buyer is more than a given time, say two months, in delay.

The best solution, of course, is to create a payment regulation which makes late payment impossible—the confirmed, irrevocable, at-sight letter of credit. Nothing is better for the exporter.

What You Should Know 1. Payment should be negotiated so that the exporter secures prompt, correct payment. 2. Payment on open account is often timed so that early payment secures a discount for the buyer; this benefits the exporter by improving cash flow. 3. The exporter prefers the place of payment to be his own bank account; payment is not deemed to be made until the money is at his disposal. 4. In most contracts nothing, not even force majeure, excuses late payment. 5. Late payment causes harm to the exporter—the bank interest he must pay while waiting For his money. This interest should be compensated to him by the buyer under the terms of the contract.

CASE STUDY Missing Terms Study the price and payment clause below. It is taken from an export contract that lost the exporter a great deal of money. What is missing? The price payable for the Contract Goods as specdified in Annex A is $400,000.

YES NO YES NO 1. Does the clause specify how payment will be made? 2. Does the clause specify when payment is due? 3. Does the clause say where the money must be before the buyer is deemed to have paid? YES NO

YES NO YES NO 4. Does the clause define delay in payment? 5. Does the clause mention the consequences of delay? 6. What is payment due if the parties say nothing in their agreement?

The answer to questions 1-5 is “No.” A contract like this relies heavily on the applicable law to fill in the gaps: the exporter often finds himself very unhappy with the decisions that the law makes. Question 6: If the parties say nothing, payment is usually due on delivery.

CONCEPT REVIEW

Below is the first part of a payment guarantee issued in standard bank form. Study it, and then answer the questions. Payment Guarantee No. 76542/92

Reference is made to the order No. WEX 344 K placed with you as suppliers by Multi- Import for the supply of integrated circuits. According to the conditions of this order, the Buyer has to furnish a payment guarantee in the amount of USD 500,000. By order of the Buyer, we, Big Bank of Euroland, hereby establish this guarantee and undertake irrevocably to pay to you without request or inspection any outstanding amount not exceeding USD 600,00. We say United States Dollar six hundred thousand only upon your first written demand stating that the Buyer has failed to effect the outstanding payment at maturity. Our liability under this guarantee will expire as soon as this document is returned to us,

latest however, by 31st December 2006.

ố Ả Ả c phát hành căn c vào đ n đ t hàng s WEX 344 K đã g i cho ố ặ ả ả ử ượ Ấ ấ ơ ạ ả ả ặ ả ấ ệ ủ ơ ủ ủ ấ ủ ề ị ệ ả ệ ả ề ả ạ c th c m c hay tìm c trì hoãn. ắ ắ ả ả ả ả ầ ệ này đ ừ ự ứ ượ ậ

ẽ ế ấ i cho chúng tôi ch m nh t là ngày 31/12/2006. ấ BANK BANK BANK c tr l ả ạ SELLER SELLER SELLER BUYER BUYER BUYER

GI Y B O Đ M THANH TOÁN S 76542/ 92 Gi y b o đ m này đ ứ quý Ngài, mà Multi-Import là nhà cung c p vi m ch cho thân ch c a chúng tôi. ấ Theo các đi u ki n c a đ n đ t hàng này, bên mua ph i cung c p gi y b o đ m thanh ủ toán có giá tr 500,000 USD. Theo l nh c a bên mua, ngân hàng Big Bank of Euroland c a c thoái thác vi c thanh chúng tôi nay phát hành gi y b o đ m này và đ m trách không đ ấ ượ ả t quá 600 USD mà không toán cho quý ngài đ i v i b t c kho n ti n đáo h n không v ượ ố ớ ấ ứ đ ớ ượ C th văn b n yêu c u đ u tiên thanh toán s ti n sáu trăm ngàn USD ph i nêu rõ bên ố ề ầ ụ ể ệ mua đã không th c hi n thanh toán khi đáo h n. Tuy nhiên gi y b o đ m này s h t hi u ạ l c ngay khi ch ng t ự 1. Who is the principal? 2. Who is the guarantor? 3. Who is the beneficiary? 4. Is this a “demand” guarantee? 5. If the buyer fails to pay, is payment secure? YES YES NO NO

1. The buyer (Multi-import) 3. The exporter (unnamed) 2. The bank (Big Bank of Euroland) 5. Yes 4. Yes

Translate into Vietnamese A Example 4.

H P Đ NG GIA CÔNG MAY M C Ợ Ồ Ặ CONTRACT FOR GARMENT PROCESSING GENERAL TERMS

AND CONDITIONS

ON BASIS OF C.M.P.

No: 08/GEN-ELLEN/19 .. Party A: VIETNAM NATIONAL GENERAL EXPORT- IMPORT CORPORATION (GENERALEXIM)

46, Ngo Quyen Street Hanoi, S.R of Vietnam Hereinafter called

"Party A"

Party B: ELLEN CO. LTD

1508 - 1510 Star House, Salisbury Road, Kowloon, Hongkong Hereinafter called

"Party B" A. The Contract A. H p đ ng ợ ồ

1. Bên A ch u trách nhi m s n xu t hàng may ệ ấ ả ị

m c đ ặ ượ c ghi rõ trong 1 h p đ ng riêng hay ợ ồ

ph l c c a h p đ ng do 2 bên ký k t theo ụ ụ ủ ợ ế ồ

đúng các đi u kho n và đi u ki n chung, trong ề ệ ề ả

đó có n đ nh th i gian giao hàng. ờ ấ ị 1. Party A undertakes to manufacture the garments specified in the separate contract or appendix of the contract (to be) signed by both the parties in accordance with the present general terms and conditions also for the delivery time stated in the above mentioned contract or its appendix.

2. Party A shall be responsible for the delivery time provided that all materials and accessories to be supplied by party B arrive at Haiphong port in reasonable time prior to starting production of a new style 3. Any factories to be used for production of orders by Party A shall be approved/accepted by Technicians from Steilmann.

B. Material supply 1. Party B and Steilmann will be responsible for supplying all the fabric materials (shell / lining / Acrylic Boa / pocketing lining) and accessories in due time for starting production together with the following extra items:

2%

- Fabric materials - Zipper, shoulder pad and special label - Fusing 1.0% 2% 3.0% - Buttons, eyelet, stopper and padding 5.0% - Size label, Hangtags, thread - Others items not mentioned above and the wastage will be confirmed later.

All the above-mentioned fabric material's and accessories' wastage are only for replacement of any defective items. After the factory fulfils all the orders and quantity, these wastage percentages can be retained by the factory. 2. Party B shall be responsible for sending the import documents 3 days before vessel carrying the goods referred to in A3 hereof ETA; as soon as the materials/accessories have arrived in the port, part A shall be responsible for applying for the import-license the tax-free permit, and take the goods out of Customs to the factory within 10 days 3. After the arrival of the materials in Party A's factories, the factories should inform Party B and then both parties shall jointly check the contents of each carton and bale within one week and shall prepare the Checking Report - which should be signed by both parties and passed to Party B immediately. 4. Party A shall be responsible for the fabrics and accessories from the date of receipt until the date of shipment and shall compensate party B the full invoice value for any loss or damage (Force majeure excepted)

C. Sewing instruction and inspection 1. Party B will supply the original samples, sketches, sewing instructions and paper patterns to party A's factories from 5 to 7 days before Party A starts production of each style/order enabling the factories to make a sample. 2. Party A's factories should make 3 counter samples based on supply instruction and paper pattern and send for Party B's technician to evaluate. 3. Party A's factories should show Party B's technician the marker for each style and must have the said technician's approval before cutting. 4. In case of more or less consumption of shell material or lining, accessories, the technician's consent in writing is required before cutting is made; otherwise party B will charge back all the value in the absence of the technician's consent aforesaid 5. Any problem against paper pattern and sewing should be advised to B's technician immediately before production proceeds. 6. An authorized representative from party B will come to inspect the goods during production and before shipment.

7. Party A's factories shall inform party B and their technician that they may make the final inspection 2 days before Shipping; if after inspection is made garments have been rejected, factories still have time to repair and maintain the delivery date. 8. After finished garments delivery, Party A's- factories should send 2 samples (small size) of each style to Party B as shipment samples 9. In the event Party A produce an unacceptable quality standard, or damage the fabric which has been delivered by Steilmann, it is herewith agreed that party A should pay for the fabric and accessories cost against the full invoice value; the quality standards are based on the approved; sample confirmed by Party B or the Steilmann technician (in this case technician shall give technical guidance) D. Shipment 1. Delivery time of each style shall be within 30- 45 days (depending on the quality of each style/order to be processed) after Party A's factories receive fabric materials/accessories in complete sets. 2. Party A shall inform Party B of the estimated time the finished products will be ready for loading 7 days prior to such estimated time. 3. For appointed Air Forwarder : Schenker All the original shipping documents including original Air Way bill, original certificate of origin; original invoice and packing-list should be sent to Schenker at the time when goods depart. 4. For appointed sea forwarder: Eac-Saigon Shipping Service Ltd.; All the shipping documents included inspection certificate issued by Steilmann technicians. E. Payment All the payments shall be made by irrevocable Letter of Credit at sight. The Letter of Credit must be established 30 days before shipment. F. Arbitration 1. The two parties shall amicably settle all the disputes arising during the performance of the contract. Should no settlement of disputes or such difference of opinion be made amicably, then the disputes and difference of opinion shall be settled in accordance with the Arbitration Regulations of the Foreign Trade Arbitration Organization of a third country mutually agreed by the parties. 2. The decision of the said arbitration shall be final and binding upon both parties. This General terms and conditions of basis of C.M.P is made in English in six copies. Each party keeps three copies of equal validity with effect from the signing date; party A should send one copy to its factories for reference. Made in Hanoi, on the 5th, August, 19 .. FOR/AND ON BEHALF OF SIDE A FOR/AND ON BEHALF OF SIDE B

Ellen Co. LTD Generalexim

(Signed) (Signed/sealed)

D. Ellen Thanh Tung

General Manager Dep-General Director

Annex no: 01 TO THE GENERAL TERMS

AND CONDITIONS ON BASIS OF C.M.P

No: 08/Gen-ELLEN/19 .. Party A: VIETNAM NATIONAL. GENERAL EXPORT-IMPORT

CORPORATION (GENERALEXIM) 46, Ngo Quyen street. Hanoi, S.R. of Vietnam (Hereinafter called "Party A") Party B: ELLEN CO.LTD

1508-1510 Star House,

Salisbury Road, Kowloon, Hongkong (Hereinafter called "Party B")

Today 5th, Aug., 19 ..., the two Parties have agreed to sign this Annex to the above-mentioned Contract on the following terms concerning the materials and accessories for the processing of the commodity:

Article I: MATERIALS.AND ACCESSORIES FOR THE PROCESSING OP THE COMMODITY Side B shall supply all the materials and accessories to side A as following calculation (Based on

CIF HAIPHONG or C1F NOIBAI)

- Fabric: 100,000 Metres - Accessories: worth 100,000.00 USD

Article II: TIME OF DELIVERY All the materials and accessories supplied by Side B must be delivered at Haiphong Port 10 days prior to starting production for each style, from the end of September, 19 .. to the end of November 19 .. and to address:

- Consignee and Notify party: VIETNAM NATIONAL GENERAL EXPORT IMPORT CORPORATION, 46, NGO QUYEN STREET, HANOI. S.R. OF VIETNAM

Other conditions not mentioned in this annex are to be performed as those in the contract No: 08/GEN-ELLEN/19 .. FOR/AND ON BEHALF OF SIDE A FOR/AND ON BEHALF OF SIDE B

Annex no: 02 TO GENERAL TERMS

AND CONDITIONS ON BASICS OF C.M.P

No: 08/Gen - Ellen/19...

Party A: . Vietnam National General Export

Import corporation 46, Ngo Quyen Street, Hanoi-Vietnam (Hereinafter called "Side A")

Party B: Ellen Co.LTD

1508-1510 Star House

Salisbury Road, Kowloon, Hongkong (Hereinafter called "Side B")

Amount Quantity 3%

C.M.P price (USD/FOB Haiphong or Noibai) 2,40 2,40 2,10 USD 3,270 3,357 2,758 9,385 Pieces 7,848.00 8,056.80 5,791.80 21,696.60

Today 5th. August, 19..., the two Parties have agreed to sign this annex to the above mentioned contract on the following terms and conditions concerning the commodity and quantity, price and time of delivery 1. Article I: Commodity Jacket Style No: 54011-2 54011-5 54423 Total (CMP price side A undertakes for packing such as: outer carton, plastic bands and or/PE bag/ctn sticky tape only) 2. Article II: Time of delivery

Shipment time of finished products from November 19 ... to end of December 19 ....

3. Article III: Country of destination: Germany Other conditions not mentioned in this annex are to Be performed as those in the Contract No:

08/GEN - ellen/19 ... FOR/AND ON BEHALF OF SIDE A FOR/AND ON BEHALF OF SIDE B

Translate into English Ộ Ộ Ủ Ệ ộ ậ ự ạ Ợ Ồ Ặ C NG HÒA XÃ H I CH NGHĨA VI T NAM Đ c l p – T do – H nh phúc H P Đ NG GIA CÔNG Đ T HÀNG S : /HĐGC ố

c. - Căn c Pháp l nh HĐKT ngày 25-9-1989 c a H i đ ng Nhà n - Căn c Ngh đ nh s 17 ngày 16-1-1990 c a H i đ ng b tr ộ ưở ộ ồ ộ ồ ủ ủ ứ ứ ướ ng quy đ nh chi ti ị ố ị ế t vi c thi ệ ệ ị hành Pháp l nh HĐKT. ệ c a ngành ti u, th công nghi p). ệ ể ứ ủ ế ộ ể ệ ủ

ị ạ ế ể

ặ ệ ặ ơ ỉ ị ệ i ngân hàng: ................................................... ở ạ ứ ụ ề ố ứ ụ ế ấ ả ặ ơ ệ ỉ ị ệ

ứ ụ - Căn c ............. (ch đ , th l Hôm nay, ngày........ tháng........ năm ........ T i.......................................... (Đ a đi m ký k t). Chúng tôi g m có: ồ Bên A (Bên đ t hàng): - Tên doanh nghi p (ho c c quan): ........................................................................................ - Đ a ch : ...................................................................................................................... - Đi n tho i: ................................................................................................................ ạ - Tài kho n s :........................................ M t ả ố - Đ i di n là Ông (bà):............................................ Ch c v : .................................... ạ ệ - Gi y y quy n s :...................................................................................................... (n u có). ề ấ ủ Vi t ngày...................... Do............................. ch c v ............................................... ký. Bên B (bên s n xu t gia công):................................................................................................. - Tên doanh nghi p (ho c c quan): ...................................................................................... - Đ a ch : .................................................................................................................... - Đi n tho i: .............................................................................................................. - Tài kho n s :................................... M t i ngân hàng: ...................................................... ở ạ - Đ i di n là Ông (bà):....................................... Ch c v : ...................................................... - Gi y y quy n s :.................................................................................................. (n u có). ạ ả ố ệ ạ ấ ủ ề ố ề Vi ế ư ậ ậ ớ ộ ứ ụ ồ ợ ồ ề ỏ ấ ng h p đ ng: ợ ả ấ ầ ả ố ố ượ ẩ ấ ẩ

ề

ậ ệ ng: .....................ch t l ng; .................................... ồ ấ ượ ừ ờ t ngày.......................... Do................ ch c v ........................................ký. Hai bên th ng nh t th a thu n l p h p đ ng v i n i dung nh sau: Đi u 1: Đ i t 1. Tên s n ph m hàng hóa c n s n xu t: ..................................................... 2. Quy cách ph m ch t: - .............................................................................................. - ............................................................................................. -............................................................................................. Đi u 2: Nguyên v t li u chính và ph : ậ ệ ụ 1. Bên A có trách nhi m cung ng nguyên v t li u chính g m ứ ệ a- Tên t ng lo i:................ S l ố ượ ạ b- Th i gian giao:.................. T i đ a đi m: .................................(Kho bên B) ạ ị c- Trách nhi m b o qu n: bên B ch u m i trách nhi m v s l ng, ch t l ng các nguyên ề ố ượ ể ọ ệ ả ệ ị li u do bên A cung ng và ph i s d ng đúng lo i nguyên li u đã giao vào s n xu t s n ph m. ứ ệ ấ ả ệ ẩ ấ ượ ả ạ ụ ệ ệ ng:.............. đ n giá(ho c quy đ nh ch t l ng theo hàm ể ả ơ ấ ượ ị ừ ng, theo tiêu chu n). ả ả ử ụ 2. Bên B có trách nhi m cung ng các ph li u đ s n xu t: ứ ấ a- Tên t ng lo i:............... s l ặ ố ượ ạ ẩ l ượ b- Bên A cung c đ mua ph ứ ướ ể ụ là: ng ti n tr ề li u trên. T ng chi phí ổ ệ .................................................

Đi u 3: Th i gian s n xu t và giao s n ph m: ề ờ ả ẩ ngày ............................ ấ ừ ấ ể s n ph m đã th a thu n b t đ u t ỏ ả ả ế ầ ề ư ầ ả ệ ấ ấ ngày đ a nguyên li u vào s n xu t (n u c n). ẩ ắ ầ ừ ậ ả ờ ế

ấ ả 1. Bên B b t đ u s n xu t t ắ ầ ả Trong quá trình s n xu t bên A có quy n ki m tra và yêu c u bên B s n xu t theo đúng m u ẫ ả ậ ẩ 2. Th i gian giao nh n s n ph m: N u giao theo đ t thì: ợ a- Đ t 1: ngày........................... Đ a đi m: ............................ b- Đ t 1: ngày.......................... Đ a đi m: ............................. c- Đ t 1: ngày........................... Đ a đi m: ............................ ể ể ể ợ ợ ợ ị ị ị

N u bên A không nh n đúng th i gian s ế ậ ờ ẽ ng các chi b ph t l u kho là: ị ư ạ ph i b i th ẽ ườ ả ồ ế ể ờ ị

N u bên B không giao hàng đúng th i gian, đ a đi m s phí:.............................. ệ ế ầ ả ả ợ ồ

ề ề ỏ ậ ộ ặ ằ ề ạ ng: (làm l ữ ườ ng: nguyên v t li u không h h ng ph i b i th Đi u 4: Các bi n pháp b o đ m h p đ ng (n u c n) Đi u 5: Thanh toán: Th a thu n thanh toán toàn b hay t ng đ t sau khi nh n hàng. ợ ậ Thanh toán b ng ti n m t hay chuy n kho n: ..................................................... ả Đi u 6: Trách nhi m do vi ph m h p đ ng: ồ 1. Vi ph m v ch t l ả ạ 2. Vi ph m s l ạ ừ ể ợ i, gi m giá, s a ch a, b i th ồ ử ả ồ ư ỏ ề ệ ề ấ ượ ố ượ ạ ậ ệ ng nguyên v t li u v.v…). ậ ệ ng nguyên li u theo giá ệ ườ hi n th i ệ ờ i 12% giá tr h p đ ng. ồ ự ồ lãi su t ngân hàng v.v… ị ợ ấ l ỷ ệ ề ế ủ ụ ầ ệ ồ ế i quy t trên c s ờ ủ ộ ế ả ạ t ti n đ th c hi n h p đ ng, n u có v n ấ ế ế ợ ộ ự ơ ở t và ch đ ng bàn b c gi i (có l p biên b n). 3. Ký h p đ ng mà không th c hi n: b ph t t ị ệ ạ ớ ợ ng theo t 4. Vi ph m nghĩa v thanh toán: b i th ườ ồ ụ ạ Đi u 7: Th t c gi i quy t tranh ch p h p đ ng ả ồ ợ ấ 1. Hai bên c n ch đ ng thông báo cho nhau bi ủ ộ i phát sinh các bên k p th i báo cho nhau bi ế ị ượ ả ả ậ ả ợ

đ b t l ề ấ ợ ng l ng đ m b o hai bên cùng có l th ươ Article 7: Procedure for dispute settlement 1. The two sides should inform each other of progresses achieved while executing the contract. If there is any trouble arising, either side should be notified and discuss with the other side about the resolution on the basis of mutual benefit (the minutes should be transcribed). ấ ấ ố 2. Tr ợ ườ ể ụ ệ ế ng h p có v n đ tranh ch p không t ơ ượ i quy t nh ng v tranh ch p này. ụ c, hai bên th ng nh t ấ ượ ữ th ự ươ ề ng đ ế ng l ả ủ ẩ ấ

phí tr ng tài do bên có l i ch u. ị Expenses for ệ ỗ ọ ề In chuy n v vi c đ n tòa án là c quan có đ th m quy n gi case that there is any dispute that cannot be settled, it is agreed that the case will call for the court’s authority. 3. Các chi phí v ki m tra, xác minh và l ề ể verification and arbitration shall be at the faulty side’s account. ậ ế ầ ệ ự ủ ợ ề ề ợ Đi u 8: Các th a thu n khác (n u c n) ỏ Đi u 9: Hi u l c c a h p đ ng: H p đ ng này có hi u l c t ồ Hai bên s t ch c h p và l p biên b n thanh lý h p đ ng sau đó.................. ngày. Bên A có ả ồ ể ị c làm thành b n có giá tr nh nhau, m i bên gi ......... b n. ồ ngày.................... đ n ngày ....................... ế ệ ự ừ ẽ ổ ứ ọ ợ ậ ch c vào th i gian, đ a đi m thích h p. ợ ờ ị ư ệ ợ ượ ữ ả ỗ ả trách nhi m t ổ ứ H p đ ng này đ ồ Ạ Ạ

Đ I DI N BÊN B Ệ Ch c v : ứ ụ Ký tên (Đóng d u)ấ Đ I DI N BÊN A Ệ Ch c v : ứ ụ Ký tên (Đóng d u)ấ

3. Third-Party Security for Payment THE PROBLEM Accepting a personal check or trading on open account—both are dangerous for the exporter. What kind of third-party security reduces the exporter's risk?

THE PRINCIPLE Third-party security takes two forms: export credit insurance allows the exporter to recover the major part of the contract price if the buyer fails to pay after, say, six months. The buyer may also approach a bank and ask for a bank guarantee—the bank will pay the contract price if the buyer fails to do so.

IN MORE DEPTH Risk and cost—they rise and fall together. Some risks are simply too high to be acceptable. For example, let's say Red Bean Exports has an export order for 2,000 tons of red beans. If this represents 0.1% of annual turnover and the buyer fails to pay, Red Bean will not go bankrupt. If, however, 2,000 tons is 40% of turnover, failure of the buyer to pay could destroy the company.

Where risks are significant, the exporter seeks ways to minimize them—even though costs will rise. A classic strategy for reducing risk is to spread it by means of a third party—an insurance company, for example. Export credit insurance is one route to security; the bank guarantee is another. Export Credit Insurance International trade is fiercely competitive. Exporters compete not only on quality, price and delivery terms; they also compete in the area of credit: "If you buy from me, I will allow you 180 days to pay." Such an offer can make or break a deal. However, extending credit in this way is risky. The buyer may go bankrupt, or he may sell the goods he receives and disappear. Political difficulties too can block payment: civil war, famine, lack of foreign exchange, and so on—the list is a long one. To stimulate exports and protect the exporter against major risks, some countries set up a special type of insurance: it does not insure goods, but it insures the exporter against the risk of non- payment. Most traditional exporting nations—the European countries, for example—offer such in- surance. Zimbabwe is an example of a developing country that helps its exporters in this way. (It is worth stressing that export credit insurance is not a charity but a commercially viable proposition; export credit insurance companies commonly report up to 15% profit on their business.) To buy such insurance, the exporter explains the details of the business to an insurance company and receives a quotation. Sometimes the insurer refuses to quote. This may mean that the insurer has used its network to run some checks on the buyer and found the buyer uncreditworthy. This is a sign to the exporter that the business is risky. (It might also mean that the insurer has checked on the exporter and found some problems: a criminal record, perhaps, or a history of unpaid insurance premiums.) Export insurance premiums vary according to the type of goods exported, the creditworthiness of the buyer, the political stability of the buyer's country, and so on. Figures mentioned to the author by the Zimbabwe Credit Insurance Corporation are attractive, however—a typical policy costs between 0.5% and 1% of the invoice price. Attractive as it is, export credit insurance has certain clear limitations: there is always a long wait between the time when the buyer fails to pay and the time when insurance company compensates the exporter—six months is typical. And when compensation is paid, it is unlikely to cover 100% of the original invoice price. However, with export credit insurance, the exporter is covered against the worst. If your country offers export credit insurance, you should certainly consider using it for trade with customers you know only slightly and for single transactions that represent a high proportion of your turnover. Further, many buyers are reluctant to spend money on a payment guarantee or to tie up money in a letter of credit—in a buyer's market, export credit insurance may give the exporter a competitive edge.

Payment Guarantee What is a "guarantee"? Let's say I promise to pay you S 1,000. You are not sure that I have the money, so you tell me to find a friend, a guarantor (in the export trade normally a bank), to make a second promise: the guarantor will pay the beneficiary (you) if the principal (me) fails to keep the original promise. If you do not get the SI,IKK) from me, you will get it from the hank. The relationship is a triangle.

The terminology of guarantees is confused. A guarantee (in the present sense) is sometimes called a bond or a surety. There are technical differences among the three terms, but you can normally ignore them. Another problem is that the word guarantee is commonly used to mean warranty or defects

liability—when you buy a watch it may come with a so-called "guarantee." In general, try to avoid this confusion by using the word guarantee only within the triangular relationship shown above. Guarantees are commonly used in four business situations; in each case one party is particularly at risk—he has performed but the other side has not yet responded. Of particular interest here is the payment guarantee, but you will often meet the other guarantees in export business.

Risk 1: Non-payment—Payment Guarantee For the exporter there is one major risk: not being paid. A payment guarantee simply commits the bank to pay if the buyer defaults. The payment guarantee is usually for 100% of the contract price.

Risk 2: Revocation—Tender Guarantee Procurement contracts, especially at government level, are put up for tender or bid. An exporter may well bid on a contract to supply goods or materials to a government department or agency. Invariably this department asks for a tender guarantee (or bid bond). If the would-be exporter withdraws his tender, then the tender guarantee is forfeit. This guards the department against the risk of a project falling behind because a tender is withdrawn.44 A normal figure for a tender guarantee is between 1.5% and 5% of the contract price. Risk 3: Non-Performance—Performance Guarantee If you are selling goods on an FOB basis, you are unlikely to meet the performance guarantee. If, however, you offer services as well as goods, the performance guarantee can be important. It simply says that if you work badly or not at all, then the guarantor will pay, within stated limits, the costs of your failure to perform. A normal figure for a performance guarantee is between 5% and 10% of the contract price. Risk 4: Losing Prepayment—Prepayment Guarantee Manufacturers often ask for an advance payment, especially if items are custom-made for the buyer. Making this prepayment is a risk for the buyer until the items arrive in working order. The advance payment guarantee promises the buyer that the bank will return advance payments if the exporter fails to deliver. The guarantee is normally for 100% of the prepayment, decreasing as deliveries are made. In most guarantees, the bank agrees to pay "on first demand" and "without demur or objection" (or a similar wording). This promise can be taken literally: the moment that the beneficiary demands payment under the guarantee, the bank will pay. (Naturally the bank will immediately withdraw the money it has paid from the account of the principal.) Such guarantees are called "demand guarantees": there are no serious, objective conditions the beneficiary must meet before claiming payment of the guarantee. This can quickly lead to abuse, and many court cases arise from demand guarantees. Let's take a typical scenario. 44 Under the laws of many countries that derive their legal thinking from England, an offer can be withdrawn at any time before acceptance. See Chapter 4, Section 3 for more information.

Scenario: Esperanza Trading, the buyer, asks Big Bank to issue a payment guarantee in favor of Office Enterprises, the exporter. The bank complies. Two days after the agreed payment date, Esperanza Trading has not yet paid. Office Enterprises accordingly asks the bank to pay the money. The bank first notifies Esperanza Trading that it is about to pay. Esperanza says that the goods were defective and tells the bank to withhold payment. The bank looks again at the text of the guarantee: "We undertake to pay you on your first written demand without cavil or demur...." The bank says it will pay, regardless of the quality of the goods. Angrily, Verbena Trading asks a judge for an injunction (= an order forbidding something) to forbid the bank from , making payment. Judges normally refuse to grant such injunctions. A I demand guarantee is exactly that—a guarantee paid on demand. The problem of a beneficiary falsely or improperly demanding payment is also a serious one. If the bank has agreed to pay, it will pay unless there is evidence of blatant fraud. If demand guarantees are so risky, perhaps a conditional guarantee would be preferable. A conditional guarantee contains serious, objective conditions that must be met before payment by the bank is possible. These conditions cannot refer to the condition of delivered goods—the bank has no way of evaluating such things. The ICC tried in two pamphlets. Uniform Rules for Contract Guarantees (1978) and Model Forms for Issuing Contract Guarantees (1982) to set up objective conditions that a bank might find workable. It suggested three. The bank would pay if the claim were supported by: ♦ A decision of the court of first instance (a decision by a judge);

♦ An arbitral award (a decision by a court of arbitration); ♦ The approval of the Principal in writing to the claim. It is not likely that any beneficiary would agree to objective conditions as harsh as this—and so most bank guarantees are of the "demand" kind. In fact, because guarantees run into trouble so often, and because they are expensive to set up, few exporters ask for them as security for payment: the letter of credit is much preferred.45 The most recent thinking on demand guarantees suggests a "counter-guarantee" that works like this. If I, as exporter, demand payment of a guarantee issued by the buyer's bank for, let's say SIOO.OOO, I must at the same time post a countcrguarantee, also for SIOO.OOO in favor of the buyer. The buyer can collect this money if it can be proved that I collected the original guarantee improperly. For details, see ICC Publication No. 458, Uniform Rules for Demand Guarantees.

CASE STUDY Stand and Deliver

Below is the first part of a payment guarantee issued in standard bank form. Study it, and then answer the questions. Payment Guarantee No. 76542/92 Reference is made to the order No. WEX 344 K placed with you as suppliers by Multi-Import for the supply of integrated circuits. According to the conditions of this order, the Buyer has to furnish a payment guarantee in the amount of USD 600,000. By order of the Buyer, we, Big Bank of Euroland, hereby establish this guarantee and undertake irrevocably to pay to you without demur or objection any outstanding amount not exceeding USD 600,000 say United States Dollar six hundred thousand only upon your first written demand stating that the Buyer has failed to effect the outstanding payment at maturity. Our liability under this guarantee will expire as soon as this document is returned to us, latest however, by 31st December 1996. 1. Who is the principal? □ SELLER □ BUYER □ BANK 2. Who is the guarantor? □ SELLER □ BUYER □BANK 3. Who is the beneficiary? □ SELLER □ BUYER 3BANK 4. Is this a "demand" guarantee? □ YES □ NO 5. If the buyer fails to pay, is payment secure? □ YES □ NO

What You Should Know 1. Export credit insurance covers the risk of non-payment. 2. Guarantees are designed to reduce contractual risks. 3. The payment guarantee reduces the risk of non-payment. The tender guarantee reduces the risk of the revocation of an offer; the performance guarantee reduces the risk of non-performance or inadequate performance by the exporter; the advance payment guarantee reduces the risk of losing prepayments. 4. If a bank issues a "demand guarantee," it must pay the guarantee sum on first demand without question. Since most payment guarantees are of this type, they are dangerous for the principal (the buyer) and are seldom used; the letter of credit is far more common.

2.4. LETTER OF CREDIT (p.87)

PROBLEM Letters of credit are issued in many forms for many purposes. Some offer first class security for the exporter: some are little belter than a personal check. What letter of credit terms should the exporter try to negotiate?

ầ ạ ế

ườ ấ ẩ

PRINCIPLE Most Lellers of credit are irrevocable—they cannot be withdrawn. Exporters prefer the letter of credit to be confirmed (i.e., payable by a local bank on first presentation of correct shipping documents) and payable at sight (i.e., payable immediately). ậ ẩ ấ H u h t L/C thu c lo i không h y ủ ộ ngang – nghĩa là bên mua không th thay ể ng đ ngh L/C đ i. Nhà xu t kh u th ị ề ổ xác nh n (nghĩa là ngân hàng ở ướ c n xu t kh u ch u trách nhi m thanh toán ị ừ ợ ệ h p l ngay khi xu t trình b ch ng t ệ ộ ứ ấ

l n đ u) và có th tr ngay. ầ ể ả ầ

ứ ươ ng th c thanh toán lý t ưở ủ ả ẩ

ế ợ ồ ậ ử ụ ườ i IN MORE DEPTH The ideal type of payment from the epxorter’s point of view is the irrevocable confirmed, at-sight letter of credit. The first attempt to standardize them was made in 1933 when the International Chamber of Commerce issued the Uniform Customs and Practice for Documentary Credits (UCP). Parties to a contract can agree to use the UCP rules, and many do. Typically a contract stipulates ể ng đ i Ph ố v i nhà XK là L/C không h y ngang, ớ xác nh n và tr ngay. Vào năm 1933 ậ ICC l n đ u tiên đã tiêu chu n hóa ầ ầ b ng UCP. ằ ể ỏ Các bên ký k t h p đ ng có th th a thu n s d ng UCP, và có nhi u ng ề đã làm nh th . Tiêu bi u m t h p ộ ợ ư ế đ ng có th quy đ nh: ị ể ồ

ậ ượ ặ ể ướ ể ủ

ấ The Buyer, on receipt of the Confirmation of Order from the Seller, shall at least 20 days prior to the date of delivery open a confirmed, irrevocable letter of credit. This credit shall be subject to Uniform Customs and Practice for Documentary Credits, 2006 Revision, ICC Publication No. 600. c th ch p Bên mua, ngay khi nh n đ ấ ư ờ nh n đ n đ t hàng c a bên bán, trong th i ủ ậ ơ i thi u 20 ngày tr h n t c ngày giao hàng, ạ ố ph i m L/C không th h y ngang, xác ở ả nh n.ậ L/C này theo đúng UCP 600, n hành năm 2006.

ế ơ 20% of the credit shall be available against the Seller’s draft accompanied by invoice; the remaining 80% shall be available against the Seller’s draft accompanied by the shipping documents. c thanh toán ngay khi bên bán 20% s đ ẽ ượ xu t trình h i phi u kèm v i hóa đ n; 80% ố ớ ấ c thanh toán ngay khi bên i s đ còn l ạ ẽ ượ . Bán xu t h i phi u kèm theo b ch ng t ừ ế ấ ố ộ ứ

A letter of credit is a binding agreement by a bank to pay a certain sum of money when the exporter presents the necesiary documents to the bank. In a supermarket purchase, goods are exchanged for money; in a letter of credit situation documents are exchanged for money— that is why letters of credit are formally called documentary credits. The letter of credit is issued by an issuing bank at the request of the buyer. The issuing bank is in the country of the buyer, so it normnlly instructs a bank in the country of the exporter- the advising bank- to advise the exporter that the letter of credit has been opened. The advising bank will also handle all the necessary paperwork when the exporter tries to collect payment.

The process of issuing a letter of credit takes place as follows - Exporter and buyer sign a contract - The buyer asks a local bank to open a letter of credit - The issuing bank asks a bank in the exporter’s country to advise the exporter that the letter of credit has been opened - The advising bank advises the exporter that the letter of credit has been opened. - In the next step, the exporter ships the goods. When the exporter passes the goods to the carrier, he receives shipping documents. - He presents these documents to the bank as evidence that the goods have been shipped. - The advising bank checks the correctness of the documents and sets the payment procedure in motion. The payment procedure depends on the type of credit: sometimes the advising bank merely sends the documents to the issuing bank and acts as a channel for payment; in other cases, the advising (or confirming) bank pays immediately “over the counter.” - The advising bank notifies the issuing bank that the credit has been presented and forwards the shipping documents - The issuing bank transfers necessary funds to the advising bank. Two principles serve tomake the letter of credit safer:: (autonomy, and (b) strict compliance.

Autonomy (p.90) The letter of credit is an agreement by a bank to pay money against documents: it is a separate agreement from the sales contract and is unconnected with it. The ICC Uniform Custom and Practice for Documentary Credits (UCP) makes this clear: Credits, by their nature, are separate transactions from the sales or other contract(s) on which they may be based and banks are in no way concerned with or bound by such contract(s) even if any reference whatsoever to such contract(s) is included in the credit … In credit operations all parties concerned deal in documents, and not in goods, services and/or other performances to which the documents may relate. This means that the bank is obliged to pay—whatever the disputes between the buyer and the exporter. For example, in one leading case, Discount Records bought phonograph records from an exporter. Payment was by letter of credit issued by Barclays Bank. The exporter delivered a mix of

cassettes, eight-track cartridges and other non-contractual goods. Discount Records tried to get an injunction to stop Barclays from paying under the letter of credit. The court refused. A Ietter of credit is like a bill of exchange given for the price of goods. It ranks as cash and must be honored. No set off or counterclaim is allowed to detract from it. The exporter will be paid— although later action in the courts may oblige him to make good any damage he has caused the buyer.

Strict Compliance The buyer also has a safeguard: the bank will pay only if the shipping documents are exactly in line with the buyer's instructions. For example, let's say an FOB sales contract agrees that the exporter can deposit the goods in a warehouse if the ship arrives late and that this counts as delivery. This agreement has no direct bearing on the letter of credit: if the letter of credit requires a bill of lading and makes no mention of a warehouse receipt, then the bank simply cannot pay against a warehouse receipt. Banks must follow their instructions strictly, as is shown in another landmark case. Dawson bought vanilla beans from Indonesia. Dawson instructed an American bank to open a letter of credit. One of the required shipping documents was a certificate of quality issued “by experts." The bank paid the exporter. The beans, when they arrived, were rubbish. The certificate of quality was signed, however, by only one "expert." Thus, because the bank had not strictly followed the instructions from Dawson, it could not collect from Dawson the money it had paid to the exporter—an expensive mistake for the bank. How often do banks refuse payment? According to Bradgate, "over 50% of documents presented to banks under documentary credit transactions are rejected on first presentation". Figures quoted to the author by banks in some African countries go much higher: some banks report rejecting 90% of first applications for payment under letter of credit. What happens when a bank refuses to pay under a letter of credit? First the bank will cite a "discrepancy," some aspect of the documentation that is not in line with the terms of the credit. A checklist of commonly cited discrepancies makes depressing reading. Once the bank has indicated the discrepancies, the exporter can proceed in one of three ways: - Provide the missing paperwork or correct errors; - Ask the buyer to instruct the bank to change the terms of the Ietter of credit- i.e., to issue an amendrnent; - Ask the bank to process the letter of credit with the discrepancies but to pay only when (and if) the issuing bank permits payment. If, as often happens, the letter of credit is near its expiry date. There may be no time for the exporter to provide the missing prices. In this case, the exporter (or the advising bank) must contact the buyer asking the buyer to instruct the issuing bank to extend the date of the credit. Whenever an amendment is necessary, the purpose of the letter of credit is largely defeated-—the buyer is now firmly in control of payment. Extra bank costs are a further burden on the exporter. In general, the exporter is advised to exercise scrupulous care in providing the documentation called for by the letter of credit.

Discrepancies Reported by Banks (p.92)

Problems with the Letter of Credit * Documents required by the credit are missing. * Documents required to be signed are not signed. * The credit amount is exceeded. * The credit has expired. - * Documents are not presented within the required time. * Shipment was short. * Shipment was late. Problems with the Bill of Lading * The bill of lading is "unclean"—it has comments on it relating to damage to or other deficiencies in the goods. * A marine bill or lading is required, but the bill does not state that the goods were "shipped on board" a named vessel. * The bill of lading shows shipment between ports other than those specified in the credit. * The bill of lading shows that the goods were shipped on deck. This is normally forbidden unless the credit expressly allows ii. * The bill of ladding offers no evidence that freight was paid by the exporter (if this was required). * There is no endorsement (if endorsement is necessary). Problems with Insurance

* The insurance document is not of the type specified in the credit (e.g., a certificate of insurance is produced while the credit calls for a policy). * The insurance risks are not those specified in the credit. This is forbidden unless the credit expressly allows it. * The sum insured is below the figure required. * Insurance cover does not begin on or before the date of the transport document. Inconsistencies among the Documents * Discription of the goods on the invoice and in the credit are differrent. * Weights differ beetween two documents. * Marks and numbers differ between two documents.

THE LETTER OF CREDIT: Confirmed and Unconfirmed

The mechanism of the simplest letter of credit is this: - Buyer instructs an Issuing Bank to issue a Letter of Credit in favor of the SELLER.

Because the advising bank is normally in the buyer’s country, the exporter likes the issuing bank to instruct the advising bank in the exporter’s own country to make actual payments under the letter of credit. - Buyer instructs an Issuing Bank to instruct an Advising Bank to pay under a Ltter of Credit in favor of the SELLER.

If the advising bank knows the exporter well, it may pay all of the value of the credit “over the counter.” But such payments are always made with recourse. With recourse? Let’s say that the issuing bank finds a problem with the documents and refuses to send funds to the advising bank to cover payment; in that case, the advising bank has recourse to the exporter. In plain words: the advising bank gets its money back from the exporter. A confirming bank is in a different position. It is asked to confirm the credit. - Buyer instructs an Issuing Bank to instruct a Confirming Bank to pay under a Letter of Credit in favor of the SELLER.

Under this arrangement, the bank in the exporter’s country confirms the credit. A confirming bank has an absolute obligation to pay the exporter according to the terms of the credit. If the credit is payable at sight, the bank pays must pay at sight without recourse. What happens, though, if the bank pays the exporter, and the issuing bank finds something wrong with the documents? Then the confirming bank- not the exporter- has a problem: it has paid the money to the exporter and has no way of recovering it. Exporters prefer this arrangement for obvious reasons; among the traditional trading nations of the world, it is the norm. Unfortunately, problems can arise when very small banks or banks in countries with severe foreign currency shortages try to instruct a bank in the exporter’s country to confirm a letter of credit. Let’s say the Frudge and Gurgle Bank in Nonamia asks Superbank International in New York to confirm a letter of credit in favor of an American exporter of computers. If Superbank advises the exporter that the letter of credit has been opened, and confirms the credit, then Superbank must pay the exporter as soon as the computers leave New York bound for Nonamia. What happens when Superbank forwards the documents to Fudge and Gurgle and asks for funds to cover the payment? Perhaps nothing at all. Or perhaps there is a delay of months or even years before the funds arrive. For this reason, banks are sometimes reluctant to confirm letters of credit, especially those from obscure banks. Or they may ask for “reconfirmation”: in our example, Fudge and Gurgle must find a well-known bank to confirm to Superbank that funds will be transferred- if not by Fudge and Gurgle, then by the “reconfirming bank.” The costs of such reconfirmation can be high.

How can the exporter be sure that the letter of credit is confirmed by the bank in his own country? When the text of the letter of credit arrives, it comes with a covering letter. The stand-by letter of credit should also be mentioned at this stage. This originated in the U.S. because banking law in some states forbids banks to issue payment guarantees. Under a payment guarantee a bank agrees to pay if the buyer fails to do so. The stand-by letter of credit is set up in exactly the same way: the buyer agrees to pay in the normal way- if the payment is not made, the exporter can be apid under the stand-by letter of credit.

THE AT-SIGHT LETTER OF CREDIT AND THE ALTERNATIVES When a letter of credit is issued, the terms under which it can be paid are stated. UCP offers four choices, the first of which is clearly preferable for the exporter.

SETTLEMENT BY SIGHT PAYMENT In this variation, the exporter presents the necessary documents to the paying bank (normally a confirming bank); the bank checks the documents. If they are in order, the bank pays the full face ấ value of the letter of credit. This is usually what the exporter wants. Theo th lo i này, nhà XK xu t ể ạ

t cho ngân hàng thanh toán (th ườ ậ và đúng các chi ti s p x p đúng th t ứ ế ế ng là ngân hàng xác nh n); ngân hàng t, ngân hàng ợ ế . N u các ch ng t ừ ế ị c n thi ừ ầ ứ ộ ừ ắ ư ứ ự ạ ụ trình các ch ng t ứ này s ki m tra ch ng t ẽ ể s thanh toán toàn b giá tr ghi trên tín d ng th . Đây chính là lo i mà nhà XK mong đ i. ẽ

ươ Ậ ứ ả ạ ằ ẳ ộ ố ấ ả ư ờ ẫ ượ ả ờ ợ ượ ể ộ ị ộ ế ả ầ ụ ủ ư ộ ố ế ả ả ầ ơ ớ SETTLEMENT BY DEFERRED PAYMENT In settlement by deferred payment, the letter of credit is not payable until a number of days (180 days perhaps) after delivery. Payment is safe, but it delayed. The letter of credit cannot be paid, but it has an obvious value: if the exporter needs ready money, he can realize some part of this value- probably most of it. The exact figure he can discuss with any bank. On the face of it, this arrangement is less advantageous for the exporter than settlement by payment, but circumstances may make such a deal ng th c tr ch m là lo i LC ph i necessary. THANH TOÁN TR CH M. Thanh toán b ng ph ả ậ Ả ư ch đ n m t s ngày (180 ngày) sau khi giao hàng ch ng h n. Thanh toán nh th an toàn nh ng ờ ế ư ế ạ ầ th ng ph i m t th i gian ch đ i. LC ch a thanh toán nh ng nó v n có giá tr : n u nhà XK c n ị ế ư ườ c c toàn b . Con s chính xác là ti n ngay, anh ta có th có đ c m t ph n giá tr - có khi đ ố ề ợ bao nhiêu còn tùy vào kh năng thuy t ph c c a anh ta. Nhìn thoáng qua, cách thu x p này ít có l i ế t ph i thanh toán cho nhà XK h n so v i thanh toán ngay, nh ng có m t s hoàn c nh c n thi ch m.ậ

SETTLEMENT BY ACCEPTANCE

The procedure takes place as follows: - The seller presents to the accepting bank the documents and a bill of exchange (time draft) drawn usually on the buyer. - The accepting bank agrees to pay the bill when it matures. - If the seller needs money immediately, he can exchange the letter of credit for cash (at a discount) with any agreeable bank. So far the bank has paid cash to the exporter against the documents. Another approach is to use a bill of exchange. A bill of exchange is like a check (cheque); it allows the beneficiary (the exporter) to make a draft for a given sum of money on me buyer. In international trade, this bill of exchange is usually a time draft — it can be collected only after a certain date. That is obviously a danger for the exporter. Accordingly the accepting bank will “accept” the bill of exchange and agree to pay it at full face value when it falls due. A bill of exchange that is accepted can be “negotiated,” i.e., sols at a discount to any bank if the exporter needs ready money.

SETTLEMENT BY NEGOTIATION The seller presents to the negotiating bank the documents and a bill of exchange drawn usually on the buyer. The negotiating bank negotiates the bill (i.e., pays it at a discount) In this final method of settlement, the bank with whom the exporter deals is called the negotiating bank. In settlement by negotiation a bill of exchange again allows the exporter to make a draft on the buyer, but this bill must be negotiated- the advising (or other) bank has no authority to pay it at its full face value. This kind of settlement is the least satisfactory for the exporter, and in practice it is rarity.

The Letter of Credit and Its Associated Documentation

There are no rules as to what documents a letter of credit may or rnay not require. The bank must simply check that the documents specified in the letter of credit are in perfect order—it does not question the necessary or value of the documents—nor is it interested in the question of why the buyer wanted a particular document presented in a particular form. The bank is scrupulous, however, in checking that the documents are correct; this is the doctrine of strict compliance.' The letter of credit contains a list of the documents that the exporter must present. Each document should be carefully and correctly named— "Marine Bill of Lading" not simply "BL" or “Bill of Lading." The number of originals and the number of copies required should be stipulated. For example, "3/3 Marine Bill of Lading" means that the exponer must produce three originals and three copies of the marine bill of lading. Unless the letter of credit expressly states otherwise, the bank expects all documents to be originals. (It is "sometimes difficult with modern documentation to decide what is an Original and what is a copy. Any document which is authenticated and which states that it is an original is usually accepted.) The ICC suggests that documents are listed in a certain order:

• Commercial invoice • Transport document • Insurance document • Other documents such as: certificate of origin, certificate of analysis, packing list, weight list, phytosanitary cerrificate. etc.

Let us now look at each of these documents, in a little more detail to see what the banks are looking for.

Railway consignment note Road consignment note

Commercial Invoice A commercial invoice must be made out to the applicant for the letter of credit (normally the buyer), unless otherwise stated in the letter of credit. The description of the goods on the invoice must conform with the description in the letter of credit. To avoid conflicts in description, it is good practice to keep the description in the letter of credit as short as reasonably possible. The amount shown on the invoice should not be more than the amount permitted by the letter of credit: if it is, the bank may refuse to accept the invoice. Sometimes the buyer requires that an invoice must be certified or notarized; if so, the lener of credit should state exactly what is meant, for example, what. kind of certification made by whom. The following is an example of a commercial invoice using the SITPRO (United Kingdom Simplification of International Trade Procedures Board) standard form. Transport Document When the exporter passes over the goods to the carrier, the carrier issues a transport document appropriate for the particular means of transport involved. The main types are: • Sea transport: Marine bill of lading (or sea waybill's) • Air transport: Air waybill • Rail transport: • Road transport: • Combined transport: Combined transport bill of lading The letter of credit should state the type of document required. If alternative means of transport or partial shipments are allowed perhaps by different modes of transport, the letter of credit should have the words "or" (or "and/or") between the names of the transport documents. • e.g.: "Marine Bill of Lading and/or Road Consignment Note." Some special problems associated with particular transport documents can be briefly highlighted here.

Shipment by Sea: Some types of sea transport are not allowable unless the parties agree on them and letter of credit is worded accordingly. In particular, transport on the deck of a ship or in a pure sailing ship are not allowed. Thus, if the bank sees from a marine bill of lading that transport will take place on deck, and if the letter of credit does not allow this, the bank will reject the shipping document. Often a marine bill of lading—which is negotiable (sellable) document -is not necessary: usually the buyer does not plan to resell the goods during- shipment. In this case, the carrier often issues a sea waybill, which is similar to the familiar road or rail consignment note. Shipment by Air: The form of the air waybill (air consignment note) has been standardized by IATA. (International Air Transport Association). The air waybill is issued in three originals and nine copies. Only the second original goes to the consignee (the buyer). Sometimes a letter of credit calls for "a full set of original air waybills"; this is obviously a mistake— (he exporter cannot provide the complete set; The bank, however, will follow the wording of the letter of credit exactly and refuse an "incomplete set” of waybills. Another incorrect requirement is that the air waybill show the date of the flight: a correctly completed waybill cannot show this information —but again the bank must insist on strict compliance. Shipment by Rail: As with the air waybill, letters of credit calling for a rail consignrnent note occasionally make impossible demands. The "original consignment note" does not come into the possession or the exporter, so a letter of credit demanding the original is certain to cause delay in payment. The Insurance Document

If shipment is made on CIF or CIP terms, the letter of credit will call for an insurance policy or certificate. The exact risks to insured are also normally stated. (If shipment is under Incotcrms other man CIF or CIP, the buyer may still ask the exporter to arrange some aspects of the insurance for him. In such cases, the letter of credit calls for documents to prove that the exporter has taken the agreed steps.) Unless the letter of credit states otherwise, insurance coverase on a CIF or CIP shipment must be for 110% of the CIF (or CIP) value of the goods; if it is not, banks often refuse the insurance document. Other Documents Certificate of Origin: By-far the most common of the "Other documents" is the certificate of origin. This is required for imports into the buyer's country under a preferential tariff or other agreement. Procedures for obtaining certificates of origin vary from country to counntry. A Chamber of Commerce or carrier can advise you. Certificate of Inspection: Many countries, for example Indonesia, have found that the passage of imported goods through their own customs is easier il" the soods are inspected and valued in the country of the exporter. A number of international inspection companies, specialize in: such work." The Societe Generate de Surveillance (SGS) is one example. If SGS inspection is required, the parties should make a note of this effect in their conract and adjust in the delivery schedule to allow time for inspeciion. Obviously the details on the inspection certificate must correspond exactly with the details in the transport document and the commercial invoice. Discrepancies will almost certainly delay in payment. Special Requirements: Many countries require containers to be fumigated before shipment; others have special requirements about packaging material: for certain kinds of products — foodstuff in particular – a health inspection is necessary; some African countries place severe restrictions on the import or export of wildlife or wildlife products. These are only examples—the list is endless. In each case the exporter and the buyer should issue it. The details must appear in the letter of credit: vague requirements such as "appropriate wildlife certificates” are likely to cause delay in payment- the bank and the exporter may have different views on what is “appropriate”. Summary Prompt paymenr of the letter of credit depends on the exporter presenting correct documentation. Remember- up to 90% of the applications for payment are rejected because of discrepancies.

Negotiating the Terms of a Letter of Credit It is one of the buyer's main duties to provide the letter of credit. In fact, if an agreed letter of credit is not issued on time, the exporter often has the right to cancel the contract because of a fundamental breach by the buyer. Unfortunately, many exporters pay little attention to the exact terms of the letter of credit until it is too late. Usually exporters leave it to the buyer to apply to his house bank for a letter of credit: the buyer provides the bank with outline information about the deal, and leaves the bank to draft the letter of credit as it sees fit. This procedure meets the interests of the buyer and the bank, but it often leaves the exporter with serious headaches. How can the exporter best protect his interests? The first step is for exporter and buyer to agree exactly what documentation is required. Some items are discretionary, for instance the nature of the transport document or the terms of insurance. Other items are a matter of government regulation: the phytosanitary certificate or certificate of origin, for example. The two parties may have to talk to their Chambers of Commerce, to their banks or to the carrier to establish the complete list. The first step then is Agreement.

Once the list of documents has been agreed. Step 2 is incorporation of the list into the contract. There are many ways of doing this, one of which is particularly effective. The ICC has published a form that the buyer can use to apply for a letter of credit. In addition to the form, the ICC has offered detailed notes on how to complete it. The exporter and the buyer can complete this application form during their negotiations, and append a copy of the form to their contract. This form can then be passed to the bank as Specification of the required letter of credit. Thus, the credit, when issued, should be exactly as agreed by the parties with no nasty surprises for the exporter. We will discuss the form in detail when we have mentioned the remaining two steps. The verification step is an obvious precaution: as soon as the exporter receives advice that the letter of credit has been opened, he should check that it complies with the agreernent he negotiated with the buyer. The danger here is that when the bank drafts the letter of credit, it lists documents or makes requirements that the exporter either does not understand or has not agreed to. Immediate discussion with the advising/confirming bank is essential since amendments are always time consuming. If the problem is spotted early enough, however, payment should not be delayed. And finally Compliance. It cannot be said often enough that timely payment depends on exact compliance by the exporter with the terms of the credit.

STEPS IN NEGOTIATING A LETTER OF CREDIT AGREEMENT. The exporter and the buyer discuss and list all required documentation.

INCORPORATION. The list is corporated into the contract. SPECIFICATION. The buyer applies for the letter of credit specifying the agreed documentation. VERIFICATION. The exporter checks the credit to see that required documentation isas agreed. COMPLIANCE. The exporter rigorously checks documentation and submits it to the bank. Let us then turn to the form used to apply for a letter of credit. In practice, most banks have a form of their own, but it seldom differs widely from the ICC standard. Segment 1: Applicant The full name and address of the applicant (buyer), including normally the buyer’s account number with the issuing bank. Segment 2: Issuing bank The name of the issuing bank. This can be left blank. If you obtain an application form from a bank, the name is often preprinted.

Segment 3: Application Date/ Date of this application. The date on which the application form is submitted to the bank. In negotiationg your contract, you can leave this blank.

Segment 4: Date and Place of Expiry All credits stipulate an expiry date: i.e., the last date for presentation of documents to the bank. This should be carefully negotiated. The buyer will want an early date to save bank charges; the exporter will want enough time after delivery to present the documents and to correct any discrepancies that may be discovered by the bank. A “stale” (expired) letter of credit will not be paid without an amendment. This timing decision should obviously be coordinated with the other timing decisions on the credit: Segment 14, latest date for shipment, and Segment 18, the period allowed after shipment for presentation of documents to the bank. The place of expiry is often “At the counters of the confirming bank.

Segment 1: Beneficiary The full name and address of the beneficiary- the exporter in most cases. (The buyer is normally suspicious of anyone other than the exporter being named as beneficiary.) In addition to the postal address, telephone, telex and fax numbers are sometimes included, especially if Segment 6 requests teletransmission.

 Issue by teletransmission (which shall be the operative credit Segment 6: Method of Issue  Issue by (air)mail instrument)  With brief advice by teletransmission.

This segment deals with the method of issuing the letter of credit. In effect there are two choices: issue by mail and issue by teletransmission (normally telex). The choice depends on the time available to the parties: issue by mail is likely to be much slower than issue by telex. If the exporter wants the best of both worlds, he can cross two boxes: Issue by mail and Brief advice by teletransmission. The “brief advice” is a notification by telex that the credit has been issued and is on its way by mail. On this advice, the exporter might, perhaps, begin preparations for delivery.

Segment 7: Transfer of the Credit A transferable credit is one which allows the first beneficiary (the exporter) to request the confirming bank to pay a third party. The effect is that the buyer will not necessarily know who is the actual supplier of the goods- will it be ythe exporter of the as yet unknown third party. In principle a letter of credit is not “transferable,” but it can be made so by crossing the appropriate box.

Segment 8: Confirmation This is a crucial issue for the exporter. Will the bank in his country merely handle the paperwork, or will it make payment itself and recover the funds from the buyer’s bank? Exporters greatly prefer confirmation.

Segment 9: Amount The amount of the credit should be expressed both in figures and in words. The currency of the credit should be stated using the ISO (International Standards Organization) currency code, e.g., USD for United States dollars, GBP for pounds sterling, or DEM for deutsche mark.

It is sometimes difficult to know exactly what the final invoice figure will be. Accordingly, many credits use words such as "about" or “aporoximately." In this case actual payment can be 10% more or 10% less than the stated amount. (See UCP Article 39.) Another common phrase is "up to" or "not exceeding." This is useful when partial shipment (and therefore partial payment) is not allowed, but when the final invoice may be for considerably less than the stated amount of the credit.

It is sometimes the case that some part of the contract price is to be paid by letter of credit and the rest by some other means—prepayment perhaps, or perhaps the buyer will retain a part of the price until the warranty period is over. In this case, the application should state (in Segment 19) what percentage of the invoice price is covered by the credit.

Segment 10: Partial Shipment In principle, partiat shipments are allowed unless the “not allowed” box is crossed. You should distinguish carefully between partial shipments and shipment in installments. Shipment in installments means that an agreed schedule has been set up (e.g., three equai shipments in March. August and October 2007.) This schedule should be noted in ''Additional Instructions" (Segment 19). A partial shipment is simply an incomplete shipment with some part of the goods to follow later. Unless the buyer has some clear reason for wishing all the goods to arrive together, partial shipment should be "allowed."

Segment 11: Transshipment Transshipment means moving the goods from one conveyance to another. Container transport ("combined transport) obviously presumes transshipment. It is only when goods travel by sea under a sea. waybill or marine bill of lading that it makes sense to forbid transshipment- and even then there would have to be special reasons for the prohibition: extreme fragility of the goods would be one example. Normally transshipment is allowed.

 by acceptance  by negotiation

Segment 12: Availability Credit available wilh  by sight payment  by deferred payment against the documents detailed herein  and beneficiary's draft at … on ……

"Credit available with..."— this is sometimes followed by the name of the advising bank chosen by the exporter. More often it is left blank. In this case, the issuing bank is free to decide which bank will act for it in the exporter'scountry. The various types of payment are discussed above. For the exporter, "by sight payment" is most advantageous: as soon as the bank has "sight" of the documents, i.e.. as soon as the exporter presents them, it pays. Sometimes, though not often, the beneficiary (exporter) must make a draft on the bank to collect the money. In this case the box "and beneficiary’s draft is crossed, the word "at" is followed by "sight" (or possibly some number of days); the word "on" is followed by "nominated bank."

Segment 13: Insurance Covered by the Buyer  insurance will be covered by us

This box is "for infonnation only"—it simpiy clarifies that insurance is taken care of "by us," i.e., by the buyer. The box is normally checked when the delivery terrn is FOB, CFR or some other term where the exporter is not required to present an insurance document.

Segment 14: Transport Information Loading on board/ dispatch, taking in charge at/ from not later than for transportation to:

This segment includes the "dispatch from...for transportation to..." information and the latest date of shipment. In stating where the goods will travel from and where they will travel to, the parties should agree precise places—harbors, airports, and so on. Generalized references such as "US East Coast Port" are sometimes used. After "no later than," the parties should enter a final delivery date. If they do not , then the date of expiry of the credit is. taken to be the final delivery date. Sometimes the formula "nor later than" does noc adequately state the agreed delivery time. In that case, the words should be deleted and others substituted, such as "during May 2007" or "not before 20th May 2007 and not after 28th June 2007." This timing decision should be coordinated with the other timing decisions on the credit Segment 4; dare of expiry, and Segment 18, the period allowed after shipment for presentation of documents to the bank.

Segment 15: Description of the Goods Goods (brief description without excessive detail) .

The goods description should be kept as brief as possible. The more complicated the description, the more chance there is of a discrepancy with some other document—the inspection certificate or the commercial invoice, for example. . Quantities are sometimes stated in specific terms: "30 x 8-gallon drums," for example. In this case the bank checks the documents to ensure that the exact quantity has been shipped. If the terms are less specific (“50 tons of grade 3 sand," tor example), then the bank allows a tolerance or 5% either way unless the credit expressly excludes all tolerances. Even more vague, the credit may state the quantity as "about 50 tons” or “nearly 50 tons." In this case the bank allows a 10% tolerance before refusing payment. To date, use of the Standard International Trade Classification Code of the Harmonized System Code which allocate code numbers to specific products is rare in letters of credit.

Segment 16: Incoterm(s)  FOB  CFR  CIF  Other terms: …….

Three boxes here specify the most common terms or trade: FOB, CFR and CIF. In each case, the name of a place must be added in parenrtheses. If any Incoterm is used, it should be given in full. For details see Section 6 above.

Segment 17: Documents The application form leaves the space where documents are to be listed without a heading of any sort. (The reason tor this omission is not clear.) Documents should be listed in the recommended order. If there is not enough space, additional pages may be added. • Commercial Invoice • Transport Document • Insurance Document • Further documents

Segment 18: Presentation Period After the transport document is issued (i.e.. after the goods are shipped, the exporter needs sometime to collect the required documents, to prepare them and to present them to the bank. Most buyers fix a maximum time between shipment and presentation. If this box is left empty, the UCP (Article 43) automatically allows 21 days, and that may be taken a a normal figure. This timing decision should be coordinated with other timing decisions: Segment 4, date of delivery, and Segment 14, latest date for shipment.

Segment 19: Additional Instructions

Typical "additional instructions" include a statement of the percentage of the invoice price covered by the credit if this is less than 100% (addinonal to Segment 9), or the delivery schedule if delivery is in installments (additional to Segment 14).

Segment 20: Authorization to Debit We authorize you to debit our account

This segment is the buyer's responsibility alone. Normally nothing is added here. If, however, the buyer's account number is not mentioned under "applicant" in Segment 1, it may be stated after the word "account."

Segment 21: Signature Name, stamp and authorized signature(s) of the applicant

The buyer signs and stamps the form.

CASE STUDY: GETTING PAID

In each situation below, decide the most appropriate method of payment. (A) Confirmed L/C (B) No security open account (C) Bank guarantee open account (D) Export insurance open account 1. Sale of a bale (roll) of cloth costing $200 to a nearby tailor’s shop with whom you have done business for 20 years.

2. A new small customer in a Pacific island republic much given to political disturbances. The order is for $10,000 worth of assorted textiles. 3. A contract for supply of cloth worth $5,000 per month to the government of Oceanea- a prosperous country. Duration of the contract: two years, but renewable. Contract represents 25.5% of turnover. 4. The same deal as (3) except that the contract represents only 0.5% of your turnover.

1. Open account, no security 2. Confirmed L/C 3. If possible a bank guarantee. Otherwise export credit insurance. 4. Export credit insurance is advisable. Selling on open account with no security at all is also possible.

EXHIBIT 8.1. The export flow: decision chart (pp. 168-9)

FURTHER READING

INCOTERMS 2010

The new INCOTERMS 2010 became effective January 1, 2011. Incoterms--which is an abbreviation for International Commercial terms--are a series of sales terms. They are published by the International Chamber of Commerce (ICC) and are widely used in commercial transactions.

In addition to providing a set of rules for the interpretation of commonly used trade terms, INCOTERMS 2010 accomplish the following: (a) significantly revises Group D listed in INCOTERMS 2000; (b) reduce Incoterms from four groups to two groups, allowing trade experts to choose the most suitable rule related to the mode of transport; and (c) reduce the absolute number of Incoterms from 13 to 11.

Moreover, INCOTERMS 2010 offer additional guidance which assists users in selecting the most appropriate Incoterm for each transaction. The revised terms also spell out rules regarding the use of electronic procedures; detail information on security-related clearances for shipments; and offer advice with respect to domestic trade.

What are Incoterms? Incoterms or International Commercial terms are a series of sales terms. They are published by the International Chamber of Commerce (ICC) and are widely used in international commercial transactions. The purpose of Incoterms is to provide a set of international rules for the interpretation of commonly used trade terms in international transactions. They closely correspond to the U.N. Convention on Contracts for the International Sale of Goods. The first Incoterms were issued in 1936. The most recent Incoterms were updated in 2010 and became effective January 1, 2011. Who needs to understand Incoterms? Government trade officials as well as many private sector parties should understand Incoterms. Such private sector parties include: exporters, importers, trade finance professionals, export compliance specialists, customs brokers, freight forwarders, insurers, international credit professionals, and sales and purchasing managers. What are Incoterms used for? Incoterms assist trade practitioners in interpreting the most commonly used international trade terms. Using correct Incoterms in an international transaction reduces considerably uncertainties arising from the different interpretation of such terms in different countries. They apportion international trade transaction costs and responsibilities between buyers (importers) and sellers (exporters) and reflect modern-day transportation practices. Incoterms assist in significantly reducing misunderstandings among traders and thereby minimizing trade disputes and litigation. However, their scope is limited to matters related to the international rights and obligations of the parties involved in the contract of sale with respect to the delivery of the goods sold. Thus, they apply to the contract of carriage, not the contract of sale. Why were the INCOTERMS 2000 revised? INCOTERMS 2010 are the updated version of INCOTERMS 2000. INCOTERMS 2010 have been developed as a result of an extensive review of current shipping practices and trends in an effort to keep up with the rapid expansion of world trade. The key drivers for this update include: a need for improved cargo security, changes to the Uniform Commercial Code in 2004 that resulted in a deletion of U.S. shipment and delivery terms, and new trends in global transportation. How do INCOTERMS 2010 differ from INCOTERMS 2000? In addition to providing a set of rules for the interpretation of commonly used trade terms, INCOTERMS 2010 significantly revise Group D listed in INCOTERMS 2000. The five INCOTERMS 2000 listed in Group D included the following: DAF Delivered At Frontier DES Delivered Ex Ship DEQ Delivered Ex Quay DDU Delivered Duty Unpaid DDP Delivered Duty Paid INCOTERMS® 2010 contain the following categories: DAT Delivered At Terminal DAP Delivered At Place DDP Delivered Duty Paid Moreover, INCOTERMS® 2010 reduce the number of Incoterm groupings from four to two, allowing trade experts to choose the most suitable rule related to the mode of transport. The 13 INCOTERMS® 2000 contained four essential categories of Incoterms. They were: Group E – Departure Group F – Main carriage unpaid Group C – Main carriage paid Group D – Arrival. The two main categories of INCOTERMS® 2010 are now organized by modes of transport. Used in international as well as in domestic contracts for the first time, the new groups aim to simplify the drafting of contracts and help avoid misunderstandings by clearly stipulating certain obligations of buyers and sellers.

Group 1. Incoterms that apply to any mode of transport are: EXW Ex Works FCA Free Carrier CPT Carriage Paid To CIP Carriage And Insurance Paid To DAT Delivered At Terminal DAP Delivered At Place DDP Delivered Duty Paid Group 2. Incoterms that apply to sea and inland waterway transport only: FAS Free Alongside Ship FOB Free On Board CFR Cost And Freight CIF Cost, Insurance, and Freight Further, the two new groupings listed above note a reduction of the number of Incoterms from 13 to 11. Finally, INCOTERMS® 2010 provide additional helpful guidance and clarify obligations. For instance, the revised terms also spell out rules regarding the use of electronic procedures; detail information on security-related clearances for shipments; and offer advice with respect to domestic trade. Can I still use the INCOTERMS® 2000? According to the International Chamber of Commerce, all contracts made under INCOTERMS® 2000 remain valid even after 2011. In addition, although the ICC recommends using INCOTERMS® 2010 after 2011, parties to a contract for the sale with respect of the delivery of goods can agree to use any version of Incoterms after 2011. It is important, however, to clearly specify the chosen version INCOTERMS® 2010, INCOTERMS® 2000, or any earlier version. Where can I obtain a copy of the new INCOTERMS® 2010? You can purchase a copy of the new INCOTERMS® 2010 from the ICC website. Where can I learn more about the new Incoterms? There are a number of private sector and government organizations that offer workshops, webinars, and seminars related to the new Incoterms. For webinars and other events related to Incoterms and many other topics of tradecraft education that are being offered by the U.S. Commercial Service and its partners in support of the President’s National Export Initiative, you may visit our Trade Events Search Database. INCOTERMS AND THE EXPORTER International Commercial Terms, known as “Incoterms”, are internationally accepted terms defining the responsibilities of exporters and importers in the arrangement of shipments and the transfer of liability involved at various stages of the transaction. Incoterms do not cover ownership or the transfer of title of goods. It is crucial to agree on an Incoterm at the start of a negotiation/quotation of a sale, as it will affect the costs and responsibilities involved in shipping, insurance and tariffs. The new Incoterms 2010 rules were revised by the International Chamber of Commerce and will become effective January 1, 2011. Four terms were eliminated (DAF, DEQ, DES, DDU) and two were added: Delivered at Place (DAP) and Delivered at Terminal (DAT). The modifications affect obligations, risk transfer, and cost sharing for the seller and buyer, resulting in better clarification and application of the eleven (11) Incoterms, and consistent with the way global trade is actually conducted since the last update in 2000. In any sales transaction, it is important for the seller and buyer to agree on the terms of sale and know precisely what is included in the sale price. Exporters should choose the Incoterm that works best for their company, but also be prepared to quote on other terms. See VEDP FastFacts- Responding to Inquiries Inexperienced exporters may want to use the Incoterm “Ex Works” (EXW), because this term carries the least burden for them. Under EXW, an exporter’s responsibility ends at their facility’s loading dock, which includes making the goods available for pick up and providing any product information needed for filing the Electronic Export Information (EEI). The importer’s agent (i.e. their designated U.S. freight forwarder) will arrange and pay for the pre-carriage, shipping, insurance and any additional costs from the exporter’s door. A sale based on the Incoterm “CIF”, on the other hand, requires the exporter to arrange and

pay for the pre-carriage, shipping, and insurance to a named port. In this case, the sale price (invoice) includes not only the (C)ost of goods, but also (I)nsurance and (F)reight costs that the importing buyer pays the exporting seller. When designating the Incoterm on a commercial invoice or a quotation to the buyer, the term should be followed by the city or port of load/discharge, such as “EXW Factory, Richmond, VA” or “CIF Rotterdam”. Using the actual address is better to avoid any confusion or misinterpretation. Communication throughout the entire process is crucial. For example, under Ex Works, the shipper should notify the importer when the goods are ready and after they have been picked up by the importer’s selected carrier. The exporter’s freight forwarder often provides the vessel and sail date, or air cargo service used, and any ocean bill of lading or airway bill number to keep the parties informed of the arrangements and status of the shipment (even though technically under Ex Works the exporter’s responsibility ends at their loading dock). The most burdensome Incoterm for the exporter is Delivered Duty Paid (DDP), because all arrangements and costs are borne by the exporter, usually with the assistance of agents (freight forwarders and customs house brokers). With DDP, the exporter bears all risks and costs of transportation, including duties and tariffs, until the goods are received by the importer, usually at the importer’s factory or warehouse. Since DDP represents the maximum obligation to the seller, it is not recommended for companies that are new-to- export.

DDP Example: Four palletized drums of chemicals at US$ 40,000, DDP 123 Main St., Santiago, Chile. In the DDP example, for $40,000 total, the exporter arranges and pays for all transit costs, including delivery to a designated facility at 123 Main Street, Santiago, including any insurance coverage and duties/tariff charges. While these costs are added to the product’s price and are sometimes itemized on the commercial invoice, the exporter takes full responsibility for the added logistics costs and potential headaches, such as delays at customs, demurrage or detention, or changes in inland or ocean transportation costs. Shipping DDP should only be used by the most experienced exporters. Many details must be considered, such as trade barriers, duties, currency exchange, reputability of service providers, and delivery to the final destination. For example, if your product is a large, custom-made piece of machinery for a factory: Are there local out-of-gauge, heavy lift service providers? Does the road to the factory allow access by an oversized truck? What are the dimensions and capability of the buyer’s receiving dock? How will you repair any damage that may occur during transit?

INCOTERM DEFINITIONS/CHANGES The 11 Incoterms consist of two groups and are listed below in order of increasing risk/liability to the exporter. Under the revised terms, buyers and sellers are being urged to contract precisely where delivery is made and what charges are covered. This should avoid double-billing of terminal handling charges at the port of discharge. References to “ship’s rail” were taken out to clarify that delivery means “on-board” the vessel. Insurance, electronic documentation, and supply chain security are addressed in more detail, and gender-neutral language is now used. Rules for Sea and Inland Waterway Transport: FAS - Free Alongside Ship: Risk passes to buyer, including payment of all transportation and insurance costs, once delivered alongside the ship (realistically at named port terminal) by the seller. The export clearance obligation rests with the seller. FOB - Free On Board: Risk passes to buyer, including payment of all transportation and insurance costs, once delivered on board the ship by the seller. A step further than FAS. CFR - Cost and Freight: Seller delivers goods and risk passes to buyer when on board the vessel. Seller arranges and pays cost and freight to the named destination port. A step further than FOB. CIF - Cost, Insurance and Freight: Risk passes to buyer when delivered on board the ship. Seller arranges and pays cost, freight and insurance to destination port. Adds insurance costs to CFR. Rules for Any Mode or Modes of Transportation: EXW - Ex Works: Seller delivers (without loading) the goods at disposal of buyer at seller’s premises. Long held as the most preferable term for those new-to-export because it represents the minimum liability to the seller. On these routed transactions, the buyer has limited obligation to provide export information to the seller. FCA - Free Carrier: Seller delivers the goods to the carrier and may be responsible for clearing the goods for export (filing the EEI). More realistic than EXW because it includes loading at pick-up, which is commonly expected, and sellers are more concerned about export violations.

CPT - Carriage Paid To: Seller delivers goods to the carrier at an agreed place, shifting risk to the buyer, but seller must pay cost of carriage to the named place of destination. CIP - Carriage and Insurance Paid To: Seller delivers goods to the carrier at an agreed place, shifting risk to the buyer, but seller pays carriage and insurance to the named place of destination. DAT - Delivered at Terminal: Seller bears cost, risk and responsibility until goods are unloaded (delivered) at named quay, warehouse, yard, or terminal at destination. Demurrage or detention charges may apply to seller. Seller clears goods for export, not import. DAT replaces DEQ, DES. DAP - Delivered at Place: Seller bears cost, risk and responsibility for goods until made available to buyer at named place of destination. Seller clears goods for export, not import. DAP replaces DAF, DDU. DDP - Delivered Duty Paid: Seller bears cost, risk and responsibility for cleared goods at named place of destination at buyers disposal. Buyer is responsible for unloading. Seller is responsible for import clearance, duties and taxes so buyer is not “importer of record”. INCOTERMS DO NOT… Determine ownership or transfer title to the goods, nor evoke payment terms. Apply to service contracts, nor define contractual rights or obligations (except for delivery) or breach of contract remedies. Protect parties from their own risk or loss, nor cover the goods before or after delivery. Specify details of the transfer, transport, and delivery of the goods. Container loading is NOT considered packaging, and must be addressed in the sales contract. Remember, Incoterms are not law and there is NO default Incoterm! 3 VEDP International Trade · www.exportvirginia.org · clientservices@yesvirginia.org · (804) 545-5764

Translate into Vietnamese

c ký k t và có hi u l c k t ệ ự ể ừ ượ ợ ợ ồ ọ ộ ồ ệ ự ợ ạ ộ ể ậ ọ ạ ộ ậ ợ ể ọ SALES AGENCY AND SERVICES AGREEMENT BY AND BETWEEN SIEMENS MEDICAL SOLUTIONS USA, INC., CTI MOLECULAR IMAGING, INC., AND CTI PET SYSTEMS, INC. May 1, 2004 SALES AGENCY AND SERVICES AGREEMENT THIS AGREEMENT (this "AGREEMENT") is entered into and effective as of the 1st day of May, 2004 (the "EFFECTIVE DATE") by and between SIEMENS MEDICAL SOLUTIONS USA, INC., a corporation duly organized and existing under the laws of the State of Delaware (hereinafter "SIEMENS"), CTI MOLECULAR IMAGING, INC., a corporation duly organized and existing under the laws of the State of Delaware (hereinafter "CTI"), and CTI PET SYSTEMS, INC., a corporation organized and existing under the laws of the State of Tennessee (hereinafter "CPS"). H p đ ng này (g i là “H p đ ng”) đ ngày 1/5/2004 (g i là "Ngày ế ọ có hi u l c") gi a m t bên là SIEMENS MEDICAL SOLUTIONS USA, INC., T ng công ty có ổ ữ đăng ký h p pháp và ho t đ ng theo lu t pháp c a Ti u bang Delaware (g i là "SIEMENS"), t p ậ ủ đoàn CTI MOLECULAR IMAGING, INC., có đăng ký h p pháp và ho t đ ng theo lu t pháp c a ủ ợ Ti u bang Delaware (g i là "CTI"), và bên kia là CTI PET SYSTEMS, INC., có đăng ký h p pháp và ho t đ ng theo lu t pháp c a Ti u bang Tennessee (g i là "CPS"). ạ ộ ủ ể ậ ọ

ở ầ ầ

ổ ứ ầ ổ ồ PREAMBLE Ph n m đ u WHEREAS, CTI Group, Inc., CPS, Dr. Terry D. Douglass, Dr. Ronald Nutt, Michael C. Crabtree and J. Kelly Milam and Siemens entered into a stock purchase, reorganization and joint venture agreement (the "JOINT VENTURE AGREEMENT") dated as of December 9, 1987; Xét vì CTI Group, Inc., CPS, Ts. Terry D. Douglass, Ts. Ronald Nutt, Michael C. Crabtree và J. Kelly Milam cùng Siemens ký k t các h p đ ng mua c ph n, tái t ch c các công ty và ợ liên doanh (g i là "HĐ Liên doanh") k t ế ngày 9 / 12 / 1987; ể ừ ọ

WHEREAS, Siemens entered into an Amended Distribution Agreement with CPS effective March 1, 2002 pursuant to which Siemens has the right to distribute certain of the products manufactured by CPS (the "DISTRIBUTION AGREEMENT");

ủ ẩ ả ả ồ ị c bán ụ ượ c giao cho CTI và Siemens th c hi n tuân theo nh ng nguyên t c nêu ắ ệ ả ượ ố ớ ự ữ ợ ợ c đã có kèm theo đây, các bên đ ng ý ký k t h p đ ng này ế ợ ữ ồ ồ : WHEREAS, CTI entered into a Distribution Agreement with CPS effective March 1, 2002 pursuant to which CTI has the right to distribute certain of the products manufactured by CPS (the "CTI DISTRIBUTION AGREEMENT" and together with the Distribution Agreement, the "DISTRIBUTION AGREEMENTS"); WHEREAS, CPS is engaged in the development, manufacture, assembly, selling and licensing of hardware, software, systems and equipment, and parts and components thereof, used in the position emission tomography ("PET") business for human imaging; WHEREAS, CTI possesses the necessary expertise and marketing organization to promote sales of, and to solicit and obtain purchase orders for, such products and to provide other related services to Siemens in connection therewith; WHEREAS, Siemens is willing to appoint CTI, and CTI is willing to accept its appointment, as the non-exclusive sales representative of Siemens for the sale of those products manufactured by CPS in the United States upon the terms and conditions set out in this Agreement; and WHEREAS, the service and maintenance contracts with customers for CPS Products sold under this Agreement shall be assigned between CTI and Siemens in accordance with the principles set out in this Agreement; Xét vì các h p đ ng d ch v và b o trì cho khách hàng đ i v i các s n ph m c a CPS đ ợ theo h p đ ng này ph i đ ồ trong h p đ ng này; ồ Nay căn c vào nh ng th a ỏ ướ ứ theo nh ng đi u ki n và đi u kho n sau đây ả ữ ề ề ệ

ARTICLE 1 APPOINTMENT 1.1 Appointment. During the term of this Agreement and upon the terms and conditions set forth herein, Siemens appoints CTI as its non-exclusive sales representative to solicit purchase orders ("PURCHASE ORDERS") to be entered into by Siemens with customers for the sale of CPS Products (as defined in Section 1.3) throughout the United States (the "TERRITORY"), and CTI accepts such appointment and agrees to conduct such activities in accordance with the terms and provisions of this Agreement.

Have you ever written diaries in English? How many contracts have you collected? How many terms have you got in your list of glossaries? Do you have any evidence for them? 1.2 Authority. Hereunder: this/ these under; under this contract given that ……. (a) CTI's authority hereunder shall be to solicit Purchase Orders within the Territory, provided that all such Purchase Orders shall be subject to acceptance by Siemens as provided in Section 3.3 hereof. (b) Except as set forth in Section 3.1 and Section 7.1 hereof, CTI and its employees, agents or contractors shall have no authority, and each shall not represent that it has the authority to make, execute or enter into any agreement or to incur any indebtedness on behalf of Siemens. (c) Except as set forth herein, CTI and its employees, agents or contractors shall make no payment, rebate, offer of rebate, or other remuneration, directly or indirectly, to any customer or third party, including, without limitation, any buyers, brokers, or employees or agents thereof from any compensation or other consideration paid to or provided to CTI by or on behalf of Siemens. 1.3 CPS Products. Subject to the terms of this Agreement, CTI shall have the right to sell throughout the Territory the products manufactured by or offered for sale by CPS from time to time (the "CPS PRODUCTS"), including but not limited to any software embedded therein or otherwise described therewith, and spare and replacement parts and accessories for those CPS Products.

The parties agree that at all times CTI shall have the right to sell, on behalf of Siemens, all products that Siemens is permitted to distribute on behalf of CPS pursuant to the terms of the Distribution Agreement. Subject to Section 5.1 of this Agreement, all CPS Products shall be marketed under the Siemens brand.

1.4 Sales Force. As soon as reasonably practicable after the Effective Date, Siemens and CTI jointly shall appoint a Sales Management Committee (the "SALES MANAGEMENT COMMITTEE") which shall be composed of six members, with three representatives each from Siemens and CTI. The presence of two Siemens representatives and two CTI representatives shall constitute a quorum for meetings of the Sales Management Committee. Through the Sales Management Committee, the parties shall determine the appropriate composition, reporting structure and the assignment of regions into which their respective sales forces shall be combined.

ARTICLE 2 GENERAL OBLIGATIONS OF CTI, SIEMENS AND CPS 2.1 CTI Sales Activities. At all times during the term of this Agreement CTI, as Siemens's non-exclusive sales representative, shall: (a) diligently promote sales of the CPS Products in the Territory; (b) maintain in the Territory an adequately trained sales force knowledgeable of the CPS Products as is reasonably necessary to perform its obligations hereunder, and manage its sales force personnel as "product sales engineers" (as that term is understood by Siemens on the Effective Date) in support of Siemens's account executives; (c) participate, as is appropriate and in compliance with applicable legal requirements, in appropriate sales, promotion, marketing or merchandising programs in the Territory prepared or undertaken by or on behalf of Siemens; (d) participate in, and consult with Siemens and its designated agents, regarding trade shows and exhibitions in the Territory where such participation will promote the CPS Products; (e) as applicable, refer prospective customers to the designated Siemens representative to obtain financing for the purchase of CPS Products, subject to the provisions of Section 2.6 below. 2.2 Documentation and Reports. CTI shall prepare or cause to be prepared, keep, maintain and provide Siemens with the following documentation and reports in a form and format reasonably acceptable to Siemens: (a) periodic (though no less often than quarterly) reports of sales activities of CTI within the Territory identifying, among other things, actual purchasers of the CPS Products and active prospective purchasers, actual or pending orders, contact and other relevant lead information for each customer and active prospect, and any other information or data as mutually agreed upon from time to time by Siemens and CTI; (b) non-confidential business records customarily maintained by CTI with respect to CTI's solicitation of Purchase Orders; (c) information, in such reasonable detail as requested by Siemens, regarding market conditions and product performance; (d) a forecast for the number and type of units that will be sold the following fiscal year, by no later than May 15 of each year; and (e) such other matters as reasonably requested by Siemens. 2.3 License to Product Technology. Subject to the terms and conditions of this Agreement, CPS grants to CTI a non-exclusive license in the Territory to use the Product Technology (as defined below) to the extent reasonably necessary for CTI to promote and solicit Purchase Orders for the Products and to service and support the Products in order to allow CTI to fulfill its obligations under this Agreement. This license is royalty-free and non-transferable except as permitted by Section 14.3. "PRODUCT TECHNOLOGY" shall mean all computer software code (in object code format and including all associated tool sets) and other technology and know-how comprised within the Products as well as any service manuals and user documentation that is generally provided by CPS to its customers and similarly situated distributors. All rights in and to the Product Technology not expressly granted in this license shall be retained by CPS. 2.4 Obligations of Siemens. At all times during the term of this Agreement, Siemens shall support marketing of the CPS Products by: (a) Providing product managers to support the combined CTI-Siemens sales force (created pursuant to Section 1.4 of this Agreement) with regard to technical matters within their expertise;

(b) Providing product demonstrators to demonstrate CPS Products, including both software and hardware aspects of them; (c) Developing sales tools and sales aids, including, among other things, case studies, cost analyses, and competitive analyses; (d) Promoting the unique capabilities of CPS Products using LSO HI-REZ technologies and other pertinent technologies that may be developed (and, if necessary, approved by the FDA) for use in CPS Products during the term of this Agreement; (e) Promoting the use of CPS Products in relevant medical disciplines including, but not necessarily limited to, oncology, cardiology, and neurology (the "KEY DISCIPLINES"), and further development of each Key Discipline as a market for CPS Products and other CTI and Siemens products and services; (f) Placing advertisements in applicable journals and publications, emphasizing those journals and publications pertaining to the Key Disciplines; (g) Attending and participating in appropriate trade shows pertaining to the PET industry or any of the Key Disciplines; (h) Ensuring equal representation of CTI and Siemens personnel and shared presentation space at all trade shows attended, unless otherwise agreed by the parties; (i) Together with CPS, developing medical advisory boards for each of the three Key Disciplines; (j) Together with CPS, developing luminary and reference-site accounts for PET and PET/CT; (k) Participating in research projects with luminaries, including commitments to make research contributions to luminaries from time to time in connection with such research projects, subject to applicable legal requirements and Siemens internal policies governing the funding of research grants; and

(l) Supporting and promoting to Siemens customers and Siemens corporate accounts, in accordance with Article 9 of this Agreement, the products and services manufactured, distributed, and/or provided by CTI and its subsidiaries (including P.E.T.Net Pharmaceuticals, Inc., a Tennessee corporation ("PETNET")), including radiopharmaceuticals (as defined in Section 9.1 below), cyclotrons, sources, and REVEAL(TM) Marketing and Network Solutions worldwide. 2.5 Obligations of CPS. During the term of this Agreement, CPS shall use commercially reasonable efforts to support Siemens marketing of the CPS Products by: (a) Providing product managers to support Siemens' product managers or, in lieu of providing product managers, providing adequate access for Siemens product managers to CPS' engineering and research personnel; (b) Providing product demonstrators to demonstrate CPS Products, including both software and hardware aspects of them, to Siemens product managers and training personnel; (c) Providing sufficient technical information, operational details and technical analyses for Siemens to develop competitive arguments, sales tools and promotional materials for sales of CPS Products; (d) Continuing to develop competitive products or features to further advance the technology or address competitive pressures created by the technology or features developed by competitors; (e) Maintaining adequate product planning processes, soliciting comments or feedback on development needs from Siemens and, if determined appropriate by CPS after consultation with Siemens, responding to or implementing such comments or feedback; (f) Maintaining good quality standards and order completeness, including review of quality records with Siemens periodically; (g) Providing adequate training, tools and methods to facilitate deployment and installation of and applications training for the CPS Products by Siemens personnel; (h) Providing support for research projects with luminary and reference site accounts designated by CPS, including financial support in an amount and to the extent deemed necessary or appropriate to further the interests of CPS; and

(i) Evaluating requests from Siemens from time to time to provide support to facilitate development of e.soft(TM) applications and integration and connectivity of scanner data with other e.soft(TM) and e.soft@LEONARDO(TM) workstations or other Siemens products or applications;

provided, that any such support will be provided by CPS to Siemens only upon their mutual agreement (and in each party's respective exercise of its sole discretion) and subject to availability of resources and other matters relating to the feasibility of providing such support. 2.6 Product Financing. Siemens shall have the right of first refusal to provide financing arrangements to purchasers of the CPS Products from CTI pursuant to this Agreement; provided, that the financing terms and productoffering shall be no less favorable to the CTI sales team than Siemens provides to its own sales team. If Siemens is unwilling or unable to provide financing on a timely basis for a prospective purchaser, CTI will be permitted to refer such customer to alternative financing sources. 2.7 Initial Transfer Price Reductions. For all orders for CPS Products received by CPS after the Effective Date, the parties agree that (i) the component prices for which CTI supplies LSO and Siemens supplies CTs to CPS shall be reduced by the amounts set forth on Schedule 2.7 attached hereto, and (ii) such component price reductions shall be passed to Siemens in their entirety by reducing the Transfer Prices (as that term is defined in the Distribution Agreement) by the sum of such amounts, as also set forth on Schedule 2.7. The parties agree that Exhibit D to the Distribution Agreement shall be substituted with a revised Exhibit D in substantially the form of Schedule 2.7.1 reflecting the initial transfer price reductions. 2.8 Additional Transfer Price Reductions. Following the initial transfer price reductions contemplated in Section 2.7 above, CPS agrees to further reduce the transfer prices for the Siemens/CPS PET/CT products in its product line in the amount of $* per system as reflected on Schedule 2.8 attached hereto (the "ADDITIONAL TRANSFER PRICE REDUCTIONS"), subject to the receipt by CPS of an additional transfer price reduction of $* per unit from the Siemens CT division (i.e. $* from CPS and $* from Siemens CT). The Additional Transfer Price Reductions will become effective with the order of the * unit from Siemens to CPS after October 1, 2003 which shall include CPS Products ordered from CPS to fill Purchase Orders generated by CTI after May 1, 2004 pursuant to this Agreement. * Omitted information is the subject of a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and has been filed separately with the Securities and Exchange Commission. 2.9 Scope. The initial transfer price reductions and the Additional Transfer Price Reductions contemplated in Sections 2.7 and 2.8 above shall apply to Siemens global sales of CPS Products. 2.10 Periodic Transfer Price Review. Upon Siemens's written request given not more frequently than *, CPS and Siemens shall review CPS's Transfer Prices (as that term is defined in the Distribution Agreement). Following such review, Siemens shall have the right to provide its recommendations as to appropriate adjustments to such Transfer Prices. All determinations regarding the setting or the changing of Transfer Prices shall be made by CPS as provided in the Joint Venture Agreement, and no provision of this Section 2.10 shall restrict CPS's discretion in making such determinations.

ARTICLE 3 ORDERS FOR CPS PRODUCTS 3.1 Purchase Orders. CTI shall solicit Purchase Orders solely on the basis of the terms and conditions of sale (the "TERMS OF SALE") by utilizing the established standard sales processes of Siemens. In order to determine the price to customers, CTI's sales agents shall use the list prices as published in the Siebel quote system utilizing the same prizing authorities and escalation processes as the Siemens personnel. Siemens shall implement its pricing policies fairly between the Siemens and CTI sales organization so that neither party is disadvantaged in pursuing opportunities in the marketplace. Where appropriate, CTI shall inform each prospective customer that consummation of the sale is subject to Siemens' acceptance of the Purchase Order. 3.2 Submission of Purchase Orders to Siemens. Within one (1) business days after CTI has obtained a signed Purchase Order from a prospective customer, CTI shall submit the Purchase Order to Siemens for review and approval. CTI shall include any additional information regarding the prospective customer or the order that Siemens reasonably may request. 3.3 Acceptance of Purchase Orders. All Purchase Orders submitted by CTI are subject to acceptance in writing by Siemens in accordance with its corporate policy. Siemens shall determine whether or not it will accept a Purchase Order within two (2) business days of receiving the Purchase Order and any additional information from CTI. Siemens promptly thereafter shall deliver notice of its decision in writing to CTI. Siemens shall be obligated to accept all Purchase Orders submitted

by CTI that have been approved through the Siemens standard order acceptance process, which applies for all business conducted by Siemens in the Territory. If the Purchase Order requires financing, then the Purchase Order will be conditionally accepted based on financing approval. * Omitted information is the subject of a request for confi ential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and has been filed separately with the Securities and Exchange Commission. 3.4 Sales Revenue. Sales revenue under this Agreement shall accrue to Siemens in full, in accordance with generally accepted accounting principles. 3.5 Installation and Training. Siemens shall be responsible for installation and initial applications training through formal customer acceptance of the sold CPS Products. CTI agrees to provide installation support and initial applications training during the first six (6) months of the term of this Agreement, at a price to be mutually agreed by CTI and Siemens. Pricing shall be comparable to current pricing presently offered by CTI and/or Siemens. Wherever possible during the first six (6) months of the term of this Agreement, the party awarded the Service Contract for a CPS Product under the provisions of Article 7 will perform installation and training; and, if such party is CTI, then Siemens will pay to CTI $* per CPS Product, equal to the first-year warranty labor credit extended to Siemens under the provisions of the Distribution Agreement. 3.6 Backlog. The completion of firm Purchase Orders which have been executed by the customer prior to the Effective Date but for which delivery has not yet taken place (the "BACKLOG ORDERS") shall be carried out by Siemens or hCTI, whichever originally entered into the Purchase Order. 3.7 Sales Funnel. On or before June 1, 2004, representatives of CTI and Siemens shall review all unexpired quotes that are in the course of being negotiated by CTI that were outstanding as of the Effective Date (the "FUNNEL ORDERS"). CTI shall enter into all Funnel Orders, from time to time after the Effective Date, in the ordinary course of business. Based on its review of the Funnel Orders with CTI, Siemens shall select such of the Funnel Orders as meet Siemens' standards for acceptance, whereupon CTI and Siemens shall work together to effect a transition of the relationship from CTI to Siemens in a manner that meets the individual needs of the customer. CTI shall carry out all Funnel Orders (a) not selected by Siemens in accordance with the foregoing, or (b) selected by Siemens, but as to which a transition approach acceptable to the customer is not achieved.

ARTICLE 4 EXPENSES

4.1 Expenses. (a) Not later than one hundred fifty (150) days prior to the end of each CTI fiscal year, CTI shall prepare and present to Siemens a proposed annual operating and capital budget (the "BUDGET") for the expenses to be reimbursed by Siemens pursuant to Section 4.1(b) hereof ("REIMBURSABLE EXPENSES") during the following CTI fiscal year. Siemens shall have thirty (30) days in which to review the Budget and communicate any material objections or requested changes to the Budget in writing to CTI in reasonable detail. CTI and Siemens shall work together to promptly respond to any objections and requested changes submitted by Siemens. Siemens and CTI shall mutually agree upon a Budget by no later than June 20 of each year; provided, that if Siemens and CTI are unable to approve a Budget by the beginning of CTI's fiscal year, then until an agreement is reached the Budget for the prior year shall be deemed to be adopted as the Budget for the current year, with each line item, as applicable, in the Budget increased by the percentage increase in the Consumer Price Index - All Urban Consumers (CPI-U) U.S. City Average All Items 1982-84=100 from August of the prior year to August of the current year. * Omitted information is the subject of a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and has been filed separately with the Securities and Exchange Commission (b) Siemens shall reimburse CTI for all direct expenses incurred by CTI with respect to the Account Managers employed by CTI who assist in the sales, marketing and account management for the CPS Products and related administrative support personnel (the "ACCOUNT MANAGERS"), including without limitation (i) payroll, wages, salaries and benefits; and (ii) travel, lodging and related expenses; except employment taxes, which will be paid as provided in Section 6.2.

(c) On the tenth (10th) day following the end of each month during the term of this Agreement, CTI shall submit to Siemens an invoice identifying the amount of Reimbursable Expenses incurred in the previous month. Within thirty (30) business days following the date of such invoice, Siemens shall pay to CTI in cash via wire transfer to an account designated by CTI the amount set forth on such invoice. (d) The expenses to be incurred by Siemens pursuant to this Section 4.1 shall not exceed $* for the period from the Effective Date to September 30, 2004. (e) Contemporaneously with the execution of this Agreement, CTI has provided to Siemens, and Siemens has approved, a budget for the fiscal year from October 1, 2004 to September 30, 2005 reflecting annual expenses of not more than $*. 4.2 Evaluation of CRPs. (a) The Parties agree that the average customer realized prices for the CPS Product configuration set forth on Schedule 4.2 hereof (the "CRPS") will be reviewed no later than October 31, 2004 for the five months ending September 30, 2004 (the "REVIEW PERIOD") in order to determine whether, over the Review Period, the CRPs on sales of CPS Products in the United States exceed the following target CRPs for substantially similar product configurations: 2-slice PET/CT . . $* 6-slice PET/CT . . $* 16-slice PET/CT . . $* The Parties agree that the analysis of sales during the Review Period will include only those transactions that were entered into after the transfer price reductions became effective, regardless of shipment date. In the event the average CRPs exceed the target CRPs set forth above for CPS Products installed in the United States, Siemens and CTI shall each receive 50% of such excess with such payment, if any, to be made within thirty (30) days of the turnover and acceptance by customer. A similar review will be conducted each fiscal quarter during the term of this Agreement commencing October 1, 2004. The parties agree that the target CRPs will be reduced dollar-for- dollar with any transfer price reductions implemented after the initial transfer price reduction referred to in Sections 2.7 and 2.8 hereof. * Omitted information is the subject of a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and has been filed separately with the Securities and Exchange Commission (b) Transfer Price Relief to Luminaries. Siemens and CPS acknowledge that certain sales to key accounts and other key market opportunities ("luminaries") may from time to time necessitate a further reduction in CRPs for commercial reasons. The parties agree that CPS shall be free to reduce its transfer prices within the limited scope of making sales to such luminaries, such decision to be based upon reasonable business factors. Accordingly, the parties agree that CRPs arising from such transactions shall be excluded from the calculation contemplated in Section 4.2(a) above. The CRPs for all sales of PET and PET/CT products in multi-modality deals where the CPS volume is less than *% of the total order volume also will be excluded from the calculation contemplated in Section 4.2(a) above. The Parties shall designate one representative from each of their finance organizations to evaluate and agree on those transactions that should be excluded from the foregoing calculation. In the event the finance teams fail to agree, the disputed transactions shall be escalated to the President of each Party for a decision, prior to submission to arbitration in accordance with Section 12.1 of this Agreement. In order to facilitate proactive decision making, once per fiscal quarter the combined Siemens and CTI sales forces will develop a list of the luminary accounts to be targeted, as a 12-month rolling forecast. 4.3 Inspection. CTI shall have the right, exercisable twice per fiscal year upon five (5) business days notice to Siemens, to inspect at Siemens' headquarters for a period of no longer than three (3) business days the customer account information, financial records, service contracts, books, reports, and other documents prepared, maintained or retained by Siemens that support the calculation of CRPs contemplated in Section 4.2 hereof and the additional payments, if any, to be made, as well as the allocation of service contracts contemplated in Section 7.1 below. If Siemens reasonably determines that the dates initially chosen by CTI to perform the inspection would unreasonably interfere with Siemens's business, then Siemens and CTI shall select new dates for the inspection by mutual agreement. CTI agrees that it shall hold in confidence and treat as confidential all confidential information received from Siemens pursuant to this Section

4.3 and shall only use and disclose such information on a need-to-know basis in connection with the business relations between CTI and Siemens, for financial and planning purposes, to resolve disputes between the parties regarding the allocation of Service Contracts or the amount owed to CTI pursuant to Section 4.2 of this Agreement.

ARTICLE 5 TRADEMARKS 5.1 Siemens Brand. The CPS Products sold by CTI pursuant to the terms of this Agreement shall be marketed and sold under Siemens trademarks, service marks, logos, trade names, labels and/or other materials; provided, however, * Omitted information is the subject of a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and has been filed separately with the Securities and Exchange Commission. that those CPS Products sold by CTI in fulfillment of Backlog Orders pursuant to Section 3.6 of this Agreement or in fulfillment of Funnel Orders not entered into and completed by Siemens pursuant to Section 3.7 of this Agreement shall be sold under CTI trademarks, service marks, logos, trade names, labels and/or other materials. Nothing herein contained shall give or be deemed to give CTI or its employees, agents or contractors any right, title or interest in any trademark, service mark, copyright or other intellectual property right held or used by Siemens. CTI shall not knowingly take any action, or knowingly fail to take any action where such action or failure would, directly or indirectly, have an adverse effect upon the trademarks, service marks, copyrights or other intellectual property rights of Siemens. 5.2 CTI Products. All CTI Products shall be marketed and sold under CTI trademarks, service marks, logos, trade names, labels and/or other materials. Nothing herein contained shall give or be deemed to give Siemens or its employees, agents or contractors any right, title or interest in any trademark, service mark, copyright or other intellectual property right held or used by CTI. Siemens shall not knowingly take any action, or knowingly fail to take any action where such action or failure would, directly or indirectly, have an adverse effect upon the trademarks, service marks, copyrights or other intellectual property rights of CTI. 5.3 CPS. The parties hereto agree that nothing contained in this Agreement is intended (i) to limit or restrict CPS' right to label or use its trademarks, service marks, logos and trade names in any manner necessary to maximize the growth of its business, or (ii) to amend or modify any term or provision of the Joint Venture Agreement or the rights of the parties thereunder. With respect to the CPS Products shipped with the Siemens logo or under the Siemens brand, CPS agrees that it will not also place a CPS logo on the equipment, other than the CPS manufacturer label on the lower right rear corner, without the prior approval of Siemens. For purposes of this Agreement, the parties agree that CPS shall not be considered an "affiliate" of either CTI or Siemens, but shall be deemed an independent business enterprise subject to the oversight and control of its Board of Directors and the terms of the Joint Venture Agreement.

ARTICLE 6 TAXES, IMPORT, EXPORT 6.1 Sales and Related Taxes. In the event any governmental entity imposes any tax on the sale of CPS Products, Siemens shall either pay the amount of such tax directly, or cause the customers to pay the amount of such taxes directly, to such governmental entity. CTI shall have no obligation to pay any taxes on the sale of the CPS Products and Siemens agrees to indemnify and reimburse CTI for any such taxes imposed on CTI by any governmental entity, except that Siemens shall not be obligated to pay sales or related taxes on sales of any CPS Products for which Siemens does not get sales credit under the terms of this Agreement. 6.2 Employment Taxes. The parties acknowledge and agree that the Account Managers will be employed by CTI and will under no circumstances be considered employees of Siemens. CTI shall be responsible for all withholding, payroll and similar taxes related to its employment of the Account Managers none of the Account Managers shall be entitled to any benefits afforded to the employees of Siemens. CTI agrees that: (i) Siemens will not withhold on behalf of the Account Managers any sums for income tax, unemployment insurance, social security, or any other withholding pursuant to any law or requirement of angovernmental body; and (ii) all of such taxes, payments and withholdings, if any, are the sole responsibility of CTI. CTI agrees to indemnify and reimburse Siemens for any income tax, unemployment withholding or other employment taxes with respect to the Account Managers that are imposed on Siemens by any governmental entity.

ARTICLE 7 SERVICE AND WARRANTY

7.1 Service Contracts. (a) For purposes of this Article 7, the term "SERVICE CONTRACT" means a service contract covering a CPS Product for which formal customer acceptance is received (i) at the time of sale of the CPS Product, regardless of whether the CPS Product is sold as a new unit or as a used unit, or (ii) at any time after such sale until the date which is eleven (11) months after formal customer acceptance of installation of the CPS Product. (b) As soon as reasonably practicable after the Effective Date, the parties shall form a committee (the "SERVICE MANAGEMENT COMMITTEE") which shall be composed of six representatives as follows: three representatives each from Siemens and CTI with two representatives from each party from the service organization and one from the finance group. The presence of two Siemens representatives and two CTI representatives shall constitute a quorum for meetings of the Service Management Committee. The Service Management Committee shall meet on a monthly basis, and may meet by telephone conference. At each meeting, Siemens shall submit to the Service Management Committee a list of all Service Contracts received by Siemens since the previous meeting. The list of Service Contracts shall include a summary of all information the Service Management Committee deems necessary for the selection of such contracts by the Parties. The selection of such contracts by CTI and Siemens shall take into consideration certain parameters, including, but not limited to, predominant geographic coverage in the customer's region, pre-existing business relationships, and contract value. At the initial meeting of the Service Management Committee, Siemens shall have the right to select the first Service Contract it desires to maintain, then CTI shall have the right to select one Service Contract, and thereafter the parties shall alternate selections until all Service Contracts have been divided between them as closely as possible to the revenue split contemplated in Section 7.2 below. The selection sequence will continue to alternate at subsequent Service Management Committee meetings, such that the party that did not have the last selection at the prior meeting shall have the right to select first at the next meeting. Within thirty (30) days of the end of each fiscal quarter, the chief financial officer of Siemens or the chief financial officer of its Nuclear Medicine Group shall certify that all Service Contracts required to be submitted to the Service Management Committee under this Agreement have been submitted as required hereunder and that the summaries of such service contracts as provided by Siemens are true and correct in all material respects. 7.2 Service Contract Transfers. As a result of the selections made by the representatives of the Service Management Committee under Section 7.1 hereof, Siemens and CTI shall each enter into or otherwise effect the transfer or assignment of such initial Service Contracts to ensure that the aggregate revenues to be derived respectively by Siemens and CTI thereunder shall be substantially equal. Siemens shall ensure that the agreements executed by the customer authorize the transfer or assignment of such Service Contracts to CTI as contemplated in Section 7.1 above. 7.3 Service Contract Disputes. In the event the Service Management Committee is unable to resolve any dispute or controversy, the matter shall be promptly submitted to the President of each organization for resolution prior to submission of the dispute to arbitration in accordance with Section 12.1 of this Agreement. The parties agree to work in good faith to resolve any such dispute expeditiously in a manner consistent with the spirit of this Article 7. 7.4 First Year Warranty. First year warranty service shall be provided by the party that receives the Service Contract, with such party also receiving the first-year parts credit from CPS. If CTI provides first-year warranty labor, Siemens shall pay CTI the applicable lump-sum labor reimbursement amount set by Schedule 7.4 attached hereto. For all CPS Products, whether sold as new units or used units, not covered by a Service Contract at the time of formal customer acceptance of installation, the responsibility for providing first-year warranty labor on such CPS Products shall be allocated equally between CTI and Siemens by the Service Management Committee at the last monthly meeting before formal customer acceptance of installation. Any Service Contract later executed with respect to any such CPS Product shall be allocated in accordance with Section 7.1 above. 7.5 Existing Service Contracts; Installed Base.

(a) Except as provided in Article 8 of this Agreement, all contracts in force on the Effective Date between either CTI or Siemens and any third party for extended warranty service on any CPS Product shall be retained after the Effective Date by the party which originally entered into them. (b) Notwithstanding the other provisions of this Article 7, but subject to the provisions of Article 8, Siemens and CTI shall have the right independently to pursue any and all service contracts for CPS Products that, if entered into, would not meet the definition of "Service Contract" set forth in Section 7.1(a) above; and CTI nor Siemens shall be obligated to submit any such service contract to the Service Management Committee.

ARTICLE 8 INTERNATIONAL EXPANSION

8.1 Assignment of Service Contracts. (a) CTI shall assign to Siemens all scanner service contracts for the service of any CPS Products to which CTI or any of its affiliates is a party in any international market other than Korea or Japan. A list of the applicable service contracts to be assigned is attached hereto as Schedule 8.1. In connection with such assignment, Siemens agrees to assume all remaining first year warranty labor obligations applicable to such CPS Products, as well as installation and first-year warranty labor obligations as to those CPS Products covered by Backlog Orders to be installed at any international location after the Effective Date. CTI agrees to credit Siemens for the unused prorated portion of the first-year parts warranty for those CPS Products contemplated in the immediately preceding sentence, up to the amount set by CPS. The parties agree that in no event shall such credit exceed the aggregate unused prorated portion of the first-year parts warranty applicable to such assigned service contracts. (b) In consideration for the assignment of service contracts pursuant to this Section 8.1, Siemens shall pay CTI $2,200,000, in immediately available funds, to the account designated by CTI. CTI reserves the right to direct that some or all of these funds be paid directly to CTI's wholly owned European subsidiaries. (c) CTI shall be responsible for all severance and other costs associated with the cessation of its international sales and service business with respect to the sale and service of the CPS Products. Siemens shall have the right to interview, solicit and hire those CTI employees currently engaged in CTI's international sales and service operations for the CPS Products. 8.2 Limitation. In consideration of the assignment set forth in Section 8.1 above, CTI hereby agrees that, during the term of this Agreement, it shall not enter or re-enter the United States market or any international market with respect to the sale or service of CPS Products, either directly or indirectly, alone or in cooperation with any third party other than CPS, except as may be otherwise agreed in writing by the parties hereto or as follows: (a) In Korea, CTI shall continue its focus on sales based on the fee/scan business model and the service of such equipment. (b) From and after the Effective Date, the parties acknowledge and agree that CTI shall retain the existing Distribution Agreement for CTI PET Products dated January 22, 2003 (the "CMI AGREEMENT") between CTI and Kabushiki Kaisha CMI ("CMI") in Japan, which has an initial term of three (3) years; provided, that (i) upon the termination or expiration of the CMI Agreement, CTI shall not replace CMI with another distributor in Japan or extend the CMI Agreement with respect to the sale or service of CPS Products, and (ii) during the term of the CMI Agreement, CTI will not enter into any new agreements regarding the distribution of CPS Products in Japan. 8.3 Restrictive Covenant. In consideration of the payment of the consideration provided for in Section 8.1(b) of this Agreement, during the term of this Agreement neither CTI nor any entity in which CTI owns 50% or more of the voting securities, other than CPS (collectively, the "CTI RESTRICTED PARTIES"), shall engage in the business of selling, servicing, maintaining, or repairing PET or PET/CT scanners in the United States market or any international market other than Korea and Japan. 8.4 Termination of Restrictions. The limitations and restrictive covenants set forth in Sections 8.2 and 8.3 above shall terminate and become of no further force and effect immediately upon CTI's receipt of any notice of non-renewal of this Agreement given by Siemens pursuant to Section 10.1 below in order to allow CTI to prepare to re-enter the markets at or after the effective date of termination.

ARTICLE 9 SALE OF CTI PRODUCTS 9.1 Siemens as Representative. CTI hereby appoints Siemens, and Siemens hereby accepts appointment, as CTI's non-exclusive representative to offer for sale to Siemens' customers products manufactured and/or distributed by CTI and its subsidiaries (collectively, the "CTI PRODUCTS"), including but not limited to: (a) positron-emitting molecular probes used in PET procedures, whether for diagnosis of disease or for research purposes ("RADIOPHARMACEUTICALS"), distributed by PETNET; (b) cyclotrons; (c) REVEAL(TM) Marketing and Network Solutions; and (d) sources; provided, with respect to Section 9.1(d) above, that regulatory requirements for CPS sources are met and that offers are made by Siemens in a good faith basis. 9.2 Exclusivity. (a) Subject to the expiration or termination of any existing agreements to which Siemens is a party regarding the provision to Siemens customers of cyclotrons or radiopharmaceuticals, Siemens hereby agrees that during the term of this Agreement it shall offer exclusively CTI cyclotrons, PETNET radiopharmaceuticals, and CPS sources for sale to Siemens customers interested in purchasing cyclotrons, radiopharmaceuticals, or sources. It is a condition to Siemens' obligations under this Section 9.2 that the cyclotrons, radiopharmaceuticals, or sources be competitively priced, and that (with respect to radiopharmaceuticals), PETNET be able to timely deliver the radiopharmaceuticals to the customer site. Siemens agrees to review and pursue the early termination of any such conflicting agreement or relationship if Siemens can do so without cost to itself and such termination will not adversely affect Siemens's existing business operations. (b) Siemens and CTI agree that the provisions of this Article 9 do not impose any restriction on (i) CTI's right to distribute the CTI Products itself or through others, (ii) Siemens's rights to distribute its products itself or through others, or (iii) CPS's right to distribute any CPS Products itself or through others. 9.3 Procedures. CTI and Siemens shall cooperate to develop procedures for the sale of CTI Products pursuant to this Article 9; provided, that all sales of CTI Products shall be made in accordance with CTI's standard terms and conditions of sale and pursuant to orders accepted by CTI. 9.4 Packaging of CTI Products with Siemens Products. CTI Products offered by Siemens under this Article 9 may be included as an option to the customer as part of a package with the CPS Products and Siemens' own products. In no event shall Siemens be obligated to package CTI Products with any other Siemens products, nor shall any customer be forced to purchase any such package. Any such packaged offering shall comply with all Federal, state and local laws. 9.5 Commission. The commission that the Siemens sales representatives will receive for the sale of the CTI Products shall be consistent with the commission paid by CTI to its PET tomography sales representatives for the same products. 9.6 Mirada License. As additional consideration for CTI's execution of this Agreement, Siemens shall execute and enter into that certain Fusion7D(R) Software License Agreement dated as of the Effective Date (the "MIRADA LICENSE") between Siemens and Mirada Solutions Limited, a wholly owned subsidiary of CTI incorporated under the laws of England and Wales. 9.7 Further Cooperation. The parties will work together to identify other potential areas in which they may collaborate in furtherance of their respective businesses. Siemens also acknowledges its desire to enter into a separate agreement with Concorde Microsystems, Inc. ("CONCORDE") for the distribution of its microPET(TM) product line, on terms to be mutually agreed upon between Siemens and Concorde.

ARTICLE 10 TERMINATION 10.1 Term. The initial term of this Agreement shall be two (2) years from the Effective Date and shall automatically be extended for additional one (1) year periods unless either party provides not less than 180 days prior written notice of its election not to renew for such additional term or this Agreement is earlier terminated pursuant to Sections 10.2, 10.3, 10.4, or 10.5 hereof.

10.2 Termination for Cause. At any time during this Agreement, this Agreement may be terminated for cause: (a) By any party, upon thirty (30) days' written notice to the other parties, upon the occurrence of any one or more of the following events: (i) a material breach by any other party of this Agreement if such other party shall have failed to cure such breach within ninety (90) days' of receipt of written notice thereof from the terminating party describing with specificity the factual basis constituting the material breach; (ii) an adjudication of bankruptcy of any party under any bankruptcy or insolvency law; or (iii) the commission by any party of a receiver for business or property, or the making of any general assignment for the benefit of Creditors (b) By CTI, in the event that total unit sales of CPS Products represent less than *% of total unit sales of new PET and PET/CT scanners in the United States for two consecutive fiscal quarters as reported by the National Electronics Manufacturers Association (in either dollar volume or number of orders), if such reduction is not directly attributable to a decline in the quality of the CPS Products, non-competitive pricing or transfer pricing issues not attributable to the Transfer Prices paid for CTs to Siemens by CPS, adverse action by the U.S. Food and Drug Administration (the "FDA") related to CPS or the CPS Products, work stoppage or labor unrest at CPS that results in missed shipments, or similar events adversely affecting CPS's business operations in a manner that erodes total market share. (c) By CTI, if Siemens terminates the Mirada License for any reason. (d) By CTI, if Siemens is in breach or default of any of its payment obligations set forth in this Agreement and such breach or default continues for thirty (30) days or more after receipt of written notice thereof, upon written notice to Siemens, with such termination to be effective on the date of receipt by Siemens of such termination notice. 10.3 Termination Upon a Force Majeure Event. If a Force Majeure Event (as defined in Section 14.2) continues for a period of six (6) months or longer, then the entirety of this Agreement may be terminated by any party whose own performance is not delayed or prevented by the Force Majeure Event (the "UNAFFECTED PARTY") immediately thereafter by providing notice to the other parties. * Omitted information is the subject of a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and has been filed separately with the Securities and Exchange Commission. 10.4 Termination by Mutual Agreement . This Agreement may be terminated at any time during the term hereof the mutual written agreement of the parties hereto. 10.5 Termination Upon Exercise of Option. Either party shall have the right to terminate this Agreement at such time as Siemens attains an 80% or greater interest in CPS pursuant to the closing of the additional purchase and sale rights set forth in Section 14 of the Joint Venture Agreement (the "OPTION"). 10.6 Obligations Upon Termination. (a) Except as provided, CTI agrees that upon the termination of this Agreement for any reason whatsoever CTI shall: (i) cease all marketing and promotion of CPS Products and the solicitation of Purchase Orders on behalf of Siemens; and (ii) on or before the effective date of termination, assist Siemens in preventing any disruption of service or supply to customers of CPS Products located within the Territory, by providing Siemens with a complete and accurate list and description of all unfulfilled Purchase Orders from customers for the CPS Products submitted to CTI on or before the effective date of the termination. (b) Upon termination of this Agreement, Siemens shall reimburse CTI for all expenses for which Siemens is obligated to reimburse CTI and which were incurred on or before the effective date of termination. 10.7 Distribution of CPS Products. (a) Upon the termination or non-renewal of this Agreement by Siemens for any reason, CTI shall have the right to distribute CPS Products on substantially the terms set forth in the CTI Distribution Agreement, as such agreement may be amended from time to time by the parties.

(b) Upon the termination or non-renewal of this Agreement by CTI for any reason other than a payment default by Siemens in accordance with to Section 10.2(d) above, CTI shall not have the right to be a distributor of the CPS Products; provided, however, that Siemens and CTI may enter into discussions regarding an appropriate OEM relationship to further the commercial interests of the parties.

ARTICLE 11 LIMITS ON DAMAGES AND INSURANCE 11.1 Limitation of Damages. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR LOSS OF ANTICIPATED PROFITS, OR FOR ANY INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING OUT OF THIS AGREEMENT OR THE SALE OR USE OF THE CPS PRODUCTS. 11.2 Insurance. CTI and Siemens each agrees to maintain during the term hereof liability insurance for personal injury and property damage, including product liability and contractual coverage, as set forth herein. Coverage for personal injury shall be not less than One Million Dollars ($1,000,000) aggregate annual liability. Coverage for property damage shall be not less than Two Million Dollars ($2,000,000) per occurrence. CTI and Siemens agree that all liability insurance obtained by CTI and Siemens shall include CTI and Siemens as named insureds reasonably acceptable to CTI and Siemens. CTI and Siemens further agree, as a continuing obligation after the term hereof, to maintain such insurance with no less than the coverage specified above in full force and effect for the full life of the CPS Products sold hereunder. CTI and Siemens shall supply each other with a Certificate of Insurance upon written request by Siemens or CTI.

ARTICLE 12 DISPUTE RESOLUTION 12.1 Arbitration. Except for (i) claims resulting from an alleged breach of a party's confidentiality obligations hereunder or infringement of a party's technology or software, or (ii) situations in which a party may suffer irreparable harm, any controversy or claim between the parties arising out of or relating to this Agreement which cannot be settled by mutual agreement of the parties in lieu of the institution of legal proceedings by either party shall be submitted to binding arbitration on the terms set forth in the Joint Venture Agreement. 12.2 Release of Siemens by CTI. For and in consideration of the promises made by Siemens set forth herein, the adequacy and sufficiency of which hereby is acknowledged, CTI hereby does release, acquit, remise and forever discharge Siemens, all of its past and present servants, agents, employees, shareholders, officers, directors, partners, associates, principals, attorneys, successors, predecessors, insurers, and assigns, and any parent, subsidiary or affiliated entities from any and all claims, causes of action, liabilities, obligations, responsibilities, agreements, damages, actions, costs, and expenses of any nature whatsoever, including attorneys' fees, arising out of or relating to violations or alleged violations of Section 12.2 the Joint Venture Agreement related to the sale of PET image display or image analysis workstations, spare parts or sources, from the beginning of time to the Effective Date. No portion of this Section 12.2 shall apply to matters arising pursuant to this Agreement after the Effective Date. 12.3 Release of CTI by Siemens. For and in consideration of the promises made by CTI set forth herein, the adequacy and sufficiency of which hereby is acknowledged, Siemens hereby does release, acquit, remise and forever discharge CTI, all of its past and present servants, agents, employees, shareholders, officers, directors, partners, associates, principals, attorneys, successors, predecessors, insurers, and assigns, and any parent, subsidiary or affiliated entities from any and all claims, causes of action, liabilities, obligations, responsibilities, agreements, damages, actions, costs, and expenses of any nature whatsoever, including attorneys' fees, arising out of or relating to violations or alleged violations of Section 11.4 of the Joint Venture Agreement related to the sale of PET image display or image analysis workstations, spare parts or sources, from the beginning of time to the Effective Date. No portion of this Section 12.3 shall apply to matters arising pursuant to this Agreement after the Effective Date. 12.4 Release by CPS. For and in consideration of the promises made by CTI and Siemens set forth herein, the adequacy and sufficiency of which hereby is acknowledged, CPS hereby does release, acquit, remise and forever discharge CTI and Siemens, all of their respective past and present servants, agents, employees, shareholders, officers, directors, partners, associates,

principals, attorneys, successors, predecessors, insurers, and assigns, and any of their respective parent, subsidiary or affiliated entities from any and all claims, causes of action, liabilities, obligations, responsibilities, agreements, damages, actions, costs, and expenses of any nature whatsoever, including attorneys' fees, arising out of or relating to violations or alleged violations of Sections 11.4 or 12.2 of the Joint Venture Agreement related to the sale of PET image display or image analysis workstations, spare parts or sources, from the beginning of time to the Effective Date. No portion of this Section 12.4 shall apply to matters arising pursuant to this Agreement after the Effective Date. 12.5 Denial of Admissions. The parties hereby agree that the releases set forth in Sections 12.2, 12.3, and 12.4 of this Agreement shall not be deemed to be an admission by any party of any violation of any provision of the Joint Venture Agreement. 12.6 Sale of Workstations. The Parties hereby agree to amend the Joint Venture Agreement to provide that future sales of PET image display and image analysis workstations (as opposed to those workstations that provide PET reconstruction or image correction capability, which shall continue to be excluded as part of the CPS Business) by either CTI or Siemens pursuant to the terms of this Agreement shall not constitute a breach of the covenant not to compete contained in the Joint Venture Agreement.

ARTICLE 13 ADDITIONAL COVENANTS 13.1 Further Assurances. CTI, CPS, and Siemens shall cooperate reasonably with each other in connection with any steps required to be taken as part of their respective obligations under this Agreement, and shall i) furnish upon request to each other such further information; ii) execute and deliver to each other such other agreements, certificates, documents, and instruments; and iii) do such other acts and things, all as any other party to this Agreement reasonably may request for the purpose of carrying out the intent of this Agreement and the transactions contemplated hereby. 13.2 Assignment of Contracts. In the event that the transactions contemplated by this Agreement require the sale, assignment, assumption, transfer, conveyance, or delivery by any party hereto (the "ASSIGNOR") to another party hereto (the "ASSIGNEE") of any contract to which the Assignor is a party, and if either (x) the provisions of such contract (the "RESTRICTED CONTRACT") prohibit such assignment, or (y) the provisions of the Restricted Contract require the consent of any other party to such sale, assignment, assumption, transfer, conveyance, or delivery and such other party withholds, unreasonably delays, or unreasonably conditions such consent, then: (a) Notwithstanding any other provision hereof, neither this Agreement nor any other document related to the consummation of the transactions contemplated hereby shall constitute a sale, assignment, assumption, transfer, conveyance, or delivery or an attempted sale, assignment, assumption, transfer, conveyance ,or delivery of the Restricted Contract; and (b) The Assignor and the Assignee shall cooperate with each other in any reasonable and lawful arrangements designed to provide to the Assignee the benefits of use of the Restricted Contract for the term thereof (or any right or benefit arising thereunder, including the enforcement for the benefit of the Assignee of any and all rights of the Assignor against a third party thereunder); and (c) The Assignor and the Assignee shall use their respective best efforts, and shall cooperate with each other, to obtain the consent to the assignment of the Restricted Contract as quickly as practicable. Once consent for the sale, assignment, assumption, transfer, conveyance and delivery of a Restricted Contract is obtained, the Assignor promptly shall assign, transfer, convey, and deliver the Restricted Contract to the Assignee, and the Assignee shall assume the obligations under the Restricted Contract assigned to the Assignee from and after the date of assignment to the Assignee.

ARTICLE 14 MISCELLANEOUS 14.1 Relationship. Nothing in this Agreement shall be construed to render any party the employer or employee of any other party, the agent or principal of any other party, or a joint venturer or member of any other party. No party shall have the right to bind any other party, to exercise control of any other party, or to conduct any other party's business, except as expressly set forth in this Agreement.

14.2 Force Majeure Provision. No party hereto shall be liable for any delay arising from unanticipated catastrophic circumstances beyond its reasonable control including, but not limited to, acts of God, war, riot or civil commotion, fire, flood, terrorism, drought or act of government ("FORCE MAJEURE EVENTS"); provided, that the party seeking to be excused shall make every reasonable effort to minimize the delay resulting therefrom. Each party shall keep the other parties fully informed of any such circumstances. During the period that the performance by one of the parties of its obligations under this Agreement is been suspended by reason of a Force Majeure Event, all parties to this Agreement shall cooperate and use their commercially reasonable best efforts to continue the business contemplated by this Agreement; provided, that any Unaffected Party may (but shall not be required to) suspend performance of all or part of its obligations hereunder to the extent that such suspension is commercially reasonable. The parties agree to resume their performance under this Agreement as soon as possible upon the passing of the Force Majeure Event. 14.3 Assignment. No party shall have the right to assign or otherwise transfer its rights and obligations under this Agreement except with the prior written consent of the other parties; provided, however, Siemens and CTI shall each be entitled to assign any or all of its rights and obligations hereunder to any of its controlled subsidiaries, provided that both Siemens and CTI, as applicable, shall remain fully liable for the performance of all its obligations hereunder; and further provided that a successor in interest by merger, by operation of law, assignment, purchase or otherwise of the entire business of either party shall acquire all rights and obligations of such party hereunder. Any prohibited assignment shall be null and void. 14.4 Notices. All notices or other communication which are required or permitted hereunder shall be in writing and sufficient if delivered by hand, by facsimile or telecopier transmission (and a transmission confirmation is received by the sender), or by a recognized international or overnight courier, to the persons at the addresses set forth below (or at such other address as may be provided hereunder), and shall be deemed to have been delivered as of the date so delivered. Siemens: Siemens Nuclear Medicine Group 3501 North Barrington Road Hoffman Estates, Illinois 60195 Facsimile: (847) 304-7080 Attention: President, Siemens Nuclear Medicine With copies to: Siemens Medical Solutions USA, Inc. 51 Valley Stream Parkway Malvern, PA 19355 Facsimile: Attention: President & CEO and Associate General Counsel Siemens Legal Department J-16 51 Valley Stream Parkway Malvern, PA 19355 CTI: CTI Molecular Imaging, Inc. 810 Innovation Drive Knoxville, TN 37932 Fax No.: 865/218-3016 Attention: President With a copy to: CTI Molecular Imaging, Inc. 810 Innovation Drive Knoxville, TN 37932 Fax No.: 865/218-2760 Attention: General Counsel CPS: CPS Innovations 810 Innovation Drive Knoxville, TN 37932 Fax No.: 865/218-2878 Attention: President With a copy to: Kilpatrick Stockton LLP Suite 900 607 14th Street

b n u không đ Washington, DC 20005-2018 Fax No.: 202 585 0002 Attention: David A. Stockton 14.5 Entire Agreement. This Agreement, including the schedules attached hereto and incorporated as an integral part of this agreement, constitutes the entire Agreement of the parties with respect to the subject matter hereof, and supersedes any and all previous Agreements by and between CPS, Siemens and CTI with respect to the subject matter hereof, if any, as well as any and all proposals, oral or written, and all negotiations, conversations or discussions heretofore had between the parties related to this agreement. 14.6 Amendment. This Agreement shall not be deemed or construed to be modified, amended, rescinded, canceled or waived, in whole or in part, except by written amendment signed by the parties hereto. 14.7 Publicity. This Agreement is confidential and no party shall issue press releases or engage in other types of publicity of any nature dealing with the commercial and legal details of this Agreement without the other parties' prior written approval, which approval shall not be unreasonably withheld. However, approval of such disclosure shall be deemed to be given to the extent such disclosure is required to comply with governmental rules, regulations or other governmental requirements. In such event, the publishing party shall promptly furnish a copy of such disclosure to the other parties. Notwithstanding the foregoing, CPS, Siemens and CTI shall be permitted to file this Agreement and to disclose the terms of this Agreement in their respective filings with the U.S. Securities and Exchange Commission or any similar state agency. 14.8 Severability. In the event that any of the terms of this Agreement are in conflict with any rule of law or statutory provision or are otherwise unenforceable under the laws or regulations of any government or subdivision thereof, such terms shall be deemed stricken from this Agreement, but such invalidity or unenforceability shall not invalidate any of the other terms of this Agreement and this Agreement shall continue in force, unless the invalidity or unenforceability of any such provisions hereof does substantial violence to, or where the invalid or unenforceable provisions comprise an integral part of, or are otherwise inseparable from, the remainder of this Agreement. 14.9 Counterparts. This Agreement shall be executed in three or more counterparts, and each such counterpart shall be deemed an original hereof. 14.10 Waiver. No failure or delay by any party to take any action or assert or exercise any right or remedy hereunder shall operate or be deemed to be a waiver of such right or remedy in the event of the continuation or repetition of the circumstances giving rise to such right; nor shall any single or partial exercise of such right or remedy preclude any other or further exercise thereof or of any other right or remedy. No provision of this Agreement may be waived except in a writing signed by the party granting such waiver. Quy nề t ả ệ . Không có đi u kho n nào trong h p đ ng này cho phép t ồ b th c hi n ề ừ ỏ ự c bên kia ch p thu n b ng văn b n. ả ậ ấ ừ ỏ ế ượ ằ ợ

14.11 Authorization and Execution. By executing this Agreement each party represents and warrants to the other parties (i) that the entry into and execution and performance of this Agreement has been fully and duly authorized by all required corporate action, and (ii) that the person signing this Agreement on behalf of a party has been fully authorized by all required corporate action to execute this Agreement on behalf of the party for which such person is signing. 14.12 Confidentiality. Each party hereto agrees not to disclose to others the technical and business information of the other parties hereto ("CONFIDENTIAL INFORMATION"), and agrees to use the other parties' Confidential Information only for the implementation of this Agreement and to hold the other parties' Confidential Information confidential using at a minimum the same care it would exercise to protect its own Confidential Information but in no event less than a reasonable degree of care. The receiving party further agrees to disclose the Confidential Information of the disclosing party only to the receiving party's employees and agents who have a need to know and only to those employees and agents who have agreed in writing to confidentiality obligations substantially similar to those in this Section 14.12. The receiving party shall not permit any of its personnel to remove any proprietary or other legend or restrictive notice contained or included in any Confidential Information provided by the disclosing party, and the receiving party shall not permit any of its personnel to reproduce or copy any such Confidential Information except as expressly authorized under this Agreement. Provided, however, that such confidentiality obligation shall not apply to any information which (a) is now or hereafter becomes

a part of the public domain, other than by act or omission of the receiving party, (b) was independently developed by the receiving party or its affiliates; (c) information that was in such party's possession prior to disclosure by the other party, (d) is hereafter furnished to the receiving party by a third party, as a matter of right and without restriction on use or disclosure, who lawfully possesses such information and did not acquire it directly or indirectly from the other party, (e) is disclosed in any U.S. or foreign patent, or published patent application, whether owned by the other party or any third party, or (f) is required to be disclosed to a government agency or pursuant to a judicial proceeding, but only to the extent so required and provided that the receiving party gives the disclosing party advance notice of such disclosure and reasonably cooperates with the disclosing party (at the disclosing party's expense) to contest such disclosure. The duration of this confidentiality obligation shall be for the term of this Agreement and for two (2) years thereafter with respect to any Confidential Information that does not constitute a "trade secret" under applicable law, and for Confidential Information that does constitute a trade secret under applicable law, these confidentiality obligations shall last in perpetuity. Nothing in this Section is intended by the parties to abrogate any rights or obligations of the parties under common law or statutory law with respect to the use and disclosure of confidential information or trade secrets.

14.13 Survival. The provisions in Section 14.12 shall survive the expiration or termination of this Agreement indefinitely. 14.14 Governing Law. This Agreement shall be governed by, construed under, and interpreted in accordance with the laws of the State of Delaware, U.S.A, applicable to contracts made and performed entirely within that state.

[SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the Effective Date.

CTI MOLECULAR IMAGING, INC. By: /s/ Ronald Nutt ----------------------------------- Ronald Nutt, Ph.D. President

SIEMENS MEDICAL SOLUTIONS USA, INC.

By: /s/ Thomas N. McCausland ----------------------------------- Thomas N. McCausland President

CTI PET SYSTEMS, INC. By: /s/ R. Gregory Brophy

----------------------------------- R. Gregory Brophy President

Chapter 3 (P. 115) NEGOTIATING INSPECTION AND DEFECTS LIABILITY

Thị

1. Exporting and the Problem of Quality THE PROBLEM Export markets are often far away. When things go wrong with products, repair and replacement can be ruinously expensive. What special steps can the exporter take to minimize the risk of the goods being rejected or of heavy defects liability claims?

THE PRINCIPLE The first steps an exporter should take are to ensure that all exported goods meet or exceed the quality specified, that marking and packaging are correct, and that delivery is on time. Secondly, the agreement between the parties should contain specific quality specifications; detailed specification reduces the chance of a dispute because it provides a clear and objective standard that the goods must meet.

IN MORE DEPTH No manufacturer produces perfect products every time. Even so, quality is a key issue, and customer satisfaction is essential to successful business. Many companies have quality assurance programs to ensure that customers get what they pay for. Until things are going well in the local market, it makes little sense to export, because quality assurance and customer satisfaction are much rougher issues when the customer is in another country, and when distance makes communication, transport, inspection, payment, and verification of claims expensive and time consuming. Before looking in detail at inspection, defects liability and the other issues, let's trace the course of an exported product from manufacture through to the end of the defects liability period and see where the exporter is at risk.

Scenario: Verbena Electric is selling lightweight headphones with a built-in AM/FM radio. The equipment runs on a single AAA battery. The customer is Euroeast Impex, a purchasing house in an East European country with a huge market for modern, high quality equipment- provided the price is right. The two sides have agreed an FOB (Port Verbena) price of $2.78 per unit, excluding battery.

Quality is an issue from the start of negotiations. Euroeast wants a product it can sell in tens of thousands. But, despite the low price, this is not a throw-away product- the end user wants headphones that will last at least six months. How does Euroeast get the quality it wants.

CONCEPT REVIEW: Close Knit

Verbena Knils is selling 5,000 sweaters to an importer in Nonamia, a country 4,000 miles away. The Monamian buyer agrees to pay by letter of credit, but not by confirmed letter of credit. Delivery is to be made DDP (Port Nemo). As to specifications, the buyer’s general conditions of purchase state: "The quality of all deliveries shall be in accordance with the customs of the trade as practiced in the Republic of Nonamia." And further, “Clearly defective goods may'be rejected on arrival-and returned to exporter at the exporter's risk and cost." The buyer wants to buy from Verbena Knits on these loose and somewhat informal terms.

Where do you see danger for the exporter? If there is "Some Danger" or "Great

Danger,” what is the danger you foresee ?

1. In the terms of the letter of credit? ..........................................................  NO DANCER  SOME DANGER  GREAT DANGER

2. In the DDP delivery?..........................................................................  NO DANCER  SOME DANGER  GREAT DANGER

3. In the lack of detailed quality specification?................................................  NO DANCER  SOME DANGER  GREAT DANGER

 GREAT DANGER

4. In the "rejection on arrival" provision? ...................................... ... .  NO DANCER  SOME DANGER .5. In the unusually geographical distance between exporter and buyer?…......  NO DANCER  SOME DANGER  GREAT DANGER

1. Some danger. An unconfirmed letter of credit is liable to severe delay in payment; the buyer's bank (and therefore to some extent the buyer) take control of payment. 2. Some danger. The exporter bears the risk of the goods not only during their voyage but also through customs and during transportation in the buyer's country. This can cause problems. 3. Great danger. The right of the buyer to return "clearly defective" goods needs close definition: full specificadon is the only way. 4. Some danger. The buyer has the right to reject defective goods undermost applicable laws. The problem, as with question 3, is to define "defective." 5. Some danger. If anything goes wrong, the cost of putting things right increases with distance. :

What You Should Know 1. Delivery of poor quality products to export markets is particularly dangerous because the cost of curing defects is high. 2. To guard against high costs, the exporter should be particularly careful about quality assurance. 3. In negotiating quality clauses, the exporter should pay special attention to detailed, realistic specification of the goods. 4. Inspection provisions both before and after delivery must be negotiated with care. 5. The final quality hurdle is the defects liability period during which the exporter is liable to cure defects that come to light in the goods.

(Page 121) 3.2 INSPECTION, ACCEPTANCE AND REJECTION THE PROBLEM When goods are delivered, the buyer inspects them. What are the buyer’s rights of rejection? Under what circumstances can the buyer cancel the contract? PRINCIPLE The buyer has the right to inspect the goods and to reject them if they do not conform with the contract. Under certain circumstances, the buyer may cancel the contract, though normally the exporter takes or (has the right to take) corrective action. IN MORE DEPTH An exporter agrees to deliver goods of a certain quantity and quality. Any deviation is, essentially, a breach of contract. Everyone knows, however, that delivered goods are seldom “perfect.” Somehow the buyer must be protected against inferior goods, and the exporter must be protected against cancellation of the contract for trivial or insufficient reasons. The defects liability provision (or warranty) provides this double protection; the exporter says, in effect: “I promise to deliver perfect goods, but, if I break this promise, I still have a contract because I will fix the problem.”

Translate into Vietnamese CONTRACT FOR DISTRIBUTORSHIP AGENCY: DISTRIBUTORSHIP AGREEMENT THIS AGREEMENT dated the last day of January 2010 . by and between AGIP PETROLI SPA Singapore branch having a place of business at 302 Orchard Road 14-02 to 14-04 Tong Building, Singapore 0923 ("AGIP") And " xxxxxxxxxxxxxxxxxxx whose registered office is xxxxxxxxxxx ("DISTRIBUTOR") ' , Witnesseth: AGIP and DISTRIBUTOR hereby covenant and agree as follows: 1. Definitions As used in this Agreement the following terms shall have the meaning set forth hereafter: a) "Products" shall mean AGIP Lubricants for Automotive and Industrial application and Special Products as listed in the First Schedule for the distribution by Distributor in Consumer Packages (as hereinafter defined) carrying the registered AGIP trademarks and/or getting up; it is agreed by the parties hereto that AGIP or AGIP Affiliates (as hereinafter defined) may from time to time without assigning any reasons thereto make improvements to or changes in the Products during the currency of this Agreement; such improvement or changes even if resulting in a change in the characteristics of the Products shall not affect the status of the Products as the Products and AGIP shall notify DISTRIBUTOR of such improvement or changes b) "Territory" shall mean the Socialist Republic of Vietnam c) '"Consumer Packages" shall • mean such original standard packages from time to time adopted by AGIP d) "Affiliate" shall mean any entity which is controlled by or in control of or under common control with another specified entity "Control" shall mean' a 25% or larger ownership of issued and outstanding voting securities or common officers or directors or a contractual relationship allowing one entity to assume or substantially influence the management or operations of another. 2. Appointment

a) Subject to the terms and conditions in this Agreement AGIP hereby grants to the Distributor the sole right during the continuance in force of this Agreement to purchase for distribution and resale in the Territory those of its Products exclusively for Automotive and Industrial Application (excluding international marine application) specified in the First Schedule b) This appointment shall take effect on ../../19 .. and shall subsist for a period of .. years from that date unless otherwise terminated in accordance with the provisions of this Agreement and shall continue thereafter until terminated by either party giving to the other at any time six (6) months' notice in writing c) Provided always that the Distributor is not in breach of any of its obligations and terms whatsoever hereunder AGIP will not appoint any other distributor for the Products in the Territory during the term of this Agreement; however AGIP may during the period of six (6) months prior to the termination hereof appoint the Distributor's successor (if any) and allow AGIP and such successor to make itself known as AGIP's future distributor appointed to do business after the termination of this Agreement 3. Distributor's undertakings a) The Distributor shall during the continuance of this Agreement purchase all its requirement of the Products from AGIP and shall diligently and faithfully serve AGIP as its distributor in the Territory and shall improve and promote the sale of the Products for Automotive and Industrial application (excluding international marine application) to customers through the Territory and to ensure the best possible display of the Products in all marketing and sales outlets b) The Distributor shall ensure in all events that the minimum order for the Products for delivery to the Distributor shall be that set out in clause 6 (0 hereinafter set out in the Second Schedule hereto c) The Distributor shall ensure that to conform with all legislation rules, regulations and statutory requirements relating to the importation storage distribution and sale of the Products in the Territory from time to time. d) The Distributor shall not alter or treat in any way whatsoever the content and Consumer Packages of the Products and will supply Products only in Consumer Packages form and get up in which they are supplied to the Distributor by AGIP; the Distributor shall procure similar undertaking from all its marketing and sales outlets accordingly and shall be responsible for and stand liable for the compliance thereof e) The Distributor shall maintain sales records in .respect of in its outlets and supply each month a sales and stocks return and such other further records and reports all in the English Language as may be specified by AGIP from time to time f) The Distributor shall ensure that its salesmen visit regularly the business premises of present and potential marketing and sales outlets/customers for the Products in the Territory and in addition to visit attempt to obtain orders for the Products from any persons to whom they may be directed by GIP g) The Distributor shall be responsible for ensuring that the Products reach the consumer in the best possible condition and shall take all positive precautions to avoid contamination or alteration of the Products and the Consumer packages and shall educate and procure similar undertaking from all its salesmen and marketing and sales outlets accordingly and shall be responsible for and stand liable for the compliance thereof h) The Distributor shall promptly resolve satisfactorily any complaints relating to the promotion sale or provision of technical information and all other matters whatsoever in respect of the Products arising within the Territory; the Distributor shall promptly notify AGIP of any complaints or unusual comments whether favorable or unfavourable or by way of requests for information) it may receive pertaining to the Products or of any defective Products; it is understood that AGIP shall not be in anyway responsible for or liable to any complaints whatsoever and the Distributor hereby agrees to fully indemnify AGIP accordingly. The Distributor shall keep AGIP regularly and continuously informed of the progress and development of the market in the Territory for the Products and for all goods similar thereto or competitive therewith and of all laws 'and regulations affecting the

import distribution labelling packaging advertising and sale of the Products and of such goods in the Territory and of all matters whatsoever affecting or relevant to AGlP's business in the Territory. j The Distributor shall not distribute similar product in the Territory or enter into any business transaction in competition with AGIP k The Distributor will keep full proper and up-to-date records in the English Language showing clearly all enquiries, transactions and proceedings relating to the distributorship and shall at all times permit AGIP or its representatives full access thereto l) The Distributor hereby acknowledges that the Agreement is personal and shall not assign or purport to assign the benefit of this Agreement without the prior consent in writing of AGIP, of which consent shall not be unreasonably withheld without prejudice to the foregoing; it is understood that an amalgation or reconstruction or change in control and change in ownership of up 25% equity and above are deemed an assignment for which AGIP prior written consent must be procured m) The Distributor shall in selling the Products be bound by AGIP's conditions of sale as from time in force and any modification thereto made by AGIP either generally or in respect of any particular purchase and in selling shall contract on like terms to those conditions as from time to time in force together with any general or particular modifications as respects any particular sale and shall not make any promises representations warranties or guarantees with reference to the Products except such as are consistent with those conditions or as one expressly authorised by AGIP in writing n) The Distributor shall not directly or through any agent sell any of the Products outside the Territory or knowingly or having reason to believe that they would be so resold sell the Products to any person or body corporate or incorporate within the Territory with a view to their resale outside the Territory o) The Distributor shall not directly or through any agent sell any of the Products for marine application or knowingly or having reason to believe that they would be resold, sell the Products to any person or bod}' corporate or incorporate p) The Distributor acknowledges that it is not competent to and will not incur any liability on behalf of AGIP or in any way pledge or purport to pledge AGIP's credit or accept any order or make any contract binding upon AGIP q) The Distributor shall present a draft annual marketing advertising and promotion plan to AGIP for comment and approval prior to its implementation. It is understood that approval by AGIP does not amount to an acceptance of liability whatsoever or howsoever thereunder and the Distributor undertakes to fully indemnify AGIP at all times accordingly r) The Distributor undertakes that its marketing advertising and promotional activities in respect of the Products shall at all times comply with the applicable law and the industry standards s) Distributor shall conduct its business in a manner that will reflect favorably on AGIP and AGIP Affiliates, the Products and the good name and reputation of the foregoing and shall foster consumer confidence in the Products. Distributor shall not engage in any deceptive or. misleading promotion or advertising or indulge or partake in or condone any unethical trade practices t) The Distributor shall fully indemnify and keep AGIP fully indemnified and harmless at all times and from time to time and against any and all loss damage claim penalties whatsoever and howsoever or liability or expense (and if solicitor's fees on a solicitor and client's basis to be taxed) suffered or incurred by AGIP resulting from a breach of any of the terms herein by the Distributor or otherwise whatsoever and howsoever in relation to or arising out of this Agreement. 4. Principal's undertakings a) AGIP shall use its best endeavour to supply the Distributor with the Products ordered by the Distributor b) AGIP warrants to Distributor that the Products will comply with the given characteristics as amended from time to time as contemplated herein provided always any claim for breach of the foregoing warranty must be submitted in writing by Distributor to AGIP within 5 (five) days after the date in which such claim is made, failing which such claims shall not be considered or allowed; it is further provided that AGIP's liability in respect of any breach of the foregoing warranty shall be

limited in all events to the Distributor's purchase price of the Products involved plus the cost of transportation of such Products approved in writing by AGIP prior to the time that such cost is incurred c) Subject to AGIP prior written approval of the marketing advertising and promotional plan and the budget thereof and subject always to the strict compliance thereof AGIP agrees to reimburse the Distributor half the aforesaid budget spent or actual spending whichever is the lesser. The approval by AGIP does not amount to an acceptance of liability whatsoever or however thereunder and the Distributor- undertake to fully indemnify AGlP at all times accordingly d) No warranty or warranties expressed or implied including but not limited to any implied warranty of merchantability or fitness for any purpose! whatsoever are given by AGIP in respect of the Products excepting only that warranty given to Distributor pursuant above which is subject to the terms conditions and limitations therein set forth n) AGIP warrants that information furnished by AGIP to Distributor for advertising or other promotional purposes in respect of the products will be as far as practicable accurate at the time of publication 5. Agip's reservations AGIP reserves to itself notwithstanding anything to the contrary herein contained the following rights: a) To decline or to accept any order form the Distributor and by so declining shall not incur any liability whatsoever to the Distributor if the Distributor is in breach of any one of the terms whatsoever of this Agreement b) Without prejudice to the generality of this Agreement and without assigning any reason there to and without prior notice vary the First Schedule hereto defining the Products either by withdrawing therefrom a class or classes of Products named therein or by the addition thereto after notice to the Distributor of a further class or further classes of products of AGIP and as set to in Clause 1(a) above c) If the Distributor is not at any time producing adequate sales coverage throughout the whole of the Territory and the region thereof and without prejudice to any of its right under this Agreement AGIP may either exclude from this Agreement such part or parts of the Territory and/or exclude from this Agreement such one or more of the Products herein defined or to take both these courses of action save that neither such course of action shall be taken under this clause without prior notice to the Distributor d) To take such step itself as may seem necessary or expedient (including and without prejudice to the generality of the reserved right to appoint a representative in the Territory) to promote the Sale of the Products in the Territory and to notify the Distributor of any persons, firms or bodies corporate carrying on business in the Territory who appear to it to be in a position to enhance the sale of the Products e) To enter upon manufacture or market research or distribution of any products whatsoever without consulting the Distributor or remunerating the Distributor in any way for any of such products may be sold in the Territory f) AGIP may sell and supply directly without prior consent or approval of the Distributor the Products to AGIP Affiliate and such person or companies in which EN1 or companies belonging to ENI own a share of not less than 30% and to take part in in government's tenders from time to time for the supply and sale of the Products without remunerating the Distributor in any way 6. Prices, delivery and conditions of sale a) Prices quoted to the Distributor for any of the Products are set out against the Products in the First Schedule hereto and are subject to change by AGIP at any time prior to Distributor's firm order b) AGIP shall have no liability whatsoever for any delay in delivery or performance caused by war, industrial disputes, fire, force majeure or any other circumstances whatsoever beyond its control c) Without prejudice to any other rights under this Agreement AGIP shall be entitled to withhold further supplies without liability whatsoever while payment of any sums due from the Distributor remains outstanding

d) Distributor shall submit its estimated requirements for the Products during successive four months’ periods to AGIP at least two months prior to the commencement of each such period e) For shipments of the Products to Distributor under this Agreement Distributor shall submit its firm orders with irrevocable confirmed Letters of Credit established and received and further acceptance by AGIP as follows - not later than the 10th (tenth) day of the month preceding the month in which order is to be shipped for Products to be supplied ex-Singapore plant - not less than 60 (sixty) days prior to the desired delivery dale for Products to be supplied ex-Italy The terms of the irrevocable confirmed Letters of Credit shall be prescribed and approved by AGIP from time to time f) The first Contract Year of this Agreement shall commence' on the effective date hereof and subsequent Contract Years shall commence on anniversaries of said effective date; during successive Contract Years Distributor shall purchase from AGIP no less than the quantity of the Products set out in the Second Schedule Minimum quantities for subsequent renewal terms shall be agreed upon between the Parties hereto no less than 6 (six) months prior to the commencement of the renewal term in question or if not so agreed shall be the minimum quantity for the immediately preceding Contract Year or the actual quantity sold during such year whichever is the higher to be increased by 10% every subsequent renewal year up to 19 .. g) Distributor orders for the products may specify delivery at one time but no requested delivery shall be for less than 1 (One) Container of Products h) AGIP reserves for itself and the AGIP Affiliates the right to discontinue the manufacture or sale of any Products or to make changes in its composition at any time without any liability to Distributor apart from that of notifying Distributor i) Delivery of the Products shall be made within 60 days from the date of the receipt and acceptance by AGIP of the irrevocable confirmed Letter of Credit for Products to be supplied ex-Italy and within 30 days for Products to be supplied ex-Singapore j) If for any reasons whatsoever the Distributor shall fail to neglect to take delivery of the Products within 1 day of schedule date (inclusive) the AGIF shall be entitled to treat the order as cancelled and invoice the Distributor for all costs and expenses incurred or dispose of the Products within 14 days thereafter and invoice the Distributor for all costs and expenses incurred by AGIP and any diminution in the sale price 7. Passing of Risk/Title a) Unless otherwise agreed the risk to the Products shall pass to the Distributor as soon as or when the Products or part thereof are deemed delivered or ready for delivery to the Distributor and/or the Products or part thereof are deemed to be in the Distributor's possession b) Notwithstanding the aforesaid and without prejudice thereto the Title to the Products only pass to the Distributor upon full payment of the price of the Products to AGIP c) Until full payment and prior to the Distributor's sale of the Products the Distributor shall keep and/or store the Products in such manner consistent with AGIP's ownership and manifested to all third parties 8. Payment terms a) The Distributor agrees to pay for all Products of AGIP ordered by way of irrevocable confirmed Letters of Credit through a bank payable at sight to AGIP in United States Dollars payable in Singapore or elsewhere as AGIP may determine from time to time b) All amounts required to be paid by the Distributor shall be paid without deduction or abatement whatsoever

9. Stocks

The Distributor shall at all times during the continuance of this Agreement carry stocks of no less than one month's supply of the Products and ensure that all orders received by the Distributor's marketing and sales outlets are supplied without due delay; the Distributor shall take all reasonable steps to ensure that the stocks are properly stored at all times and that a continuous stock rotation policy is maintained for all stocks in all warehouses to ensure the quality of the Products is preserved

10. Trademarks and patents a) It is agreed that all rights in the trade marks appearing upon or used in relation to the Products and of the goodwill attaching thereto are and shall remain the exclusive property of AGIP or its associated companies; the Distributor shall only use the said trade marks in conjunction with the Products and in accordance with the provisions of this Agreement; the said trademarks shall not be used in any manner liable to invalidate the registration or lessen the value thereof; the right to use the said trade marks in connection with the Products is only granted to the extent that. AGIP is able to do so without endangering the validity of the registration or lessening the value. The Distributor shall immediately inform AGIP of any and every improper or wrongful use or any actual or potential infringement in the Territory of AGIP's patents trademarks, designs, models, or similar industrial or commercial monopoly rights which come to the Distributor's notice and shall provide full co-operation to AGIP at all times b) The Distributor shall not do or omit to do anything by which the goodwill and reputation associated with the trade marks might or diminished or jeopardised and shall include in, all printed matter on which any of the trade marks of AGIP (or one of its associated companies as the case may be) the form thereof to be determined by AGIP c) Distributor is authorised to use AGIP's registered names logos and trademarks related to the Products during the existence of and in the course of operating under this Agreement; but nothing contained herein shall be construed as granting or shall grant to Distributor any rights, title or interest in the above said names and trademarks or other industrial property right owned or being used by AGIP or any AGIP Affiliate. Distributor shall take no steps to register any AGIP or AGIP Affiliate trademark, trade name brand or logo or any other word(s) or symbol(s) deemed deceptively similar thereto by AGIP. Distributor shall have no right to use any such word(s) or symbol(s) as or as part of its corporate or trade name d) Upon expiration of this Agreement Distributor shall forwith cease all use of AGIP's or any AGIP Affiliate's industrial property rights and shall not thereafter use any such right or any trademark name brand or logo deemed deceptively similar thereto by AGIP except in connection with the sale of such quantities of the Products as Distributor may have in stock at the time of expiration or termination 11. Confidentiality a) The Distributor shall not at any time during or after the term divulge or allow to divulge to any persons any confidential information relating to this distributorship or to AGIP b) Any technical commercial and confidential information given in order to assist the Distributor to carry out its obligations in this Agreement is only to be used for the said purposes only c) The Distributor shall ensure that its employees and dealers and marketing and sales outlets are aware of and observe the provisions of this clause both during the subsistence of this Agreement and thereafter d) All written material embodying information designated by AGIP as confidential and all copies thereof are to be returned to AGIP on the termination of this Agreement e) The Distributor acknowledges that all information concerning the Products identified by AGIP or any AGIP Affiliate as trade secret which Distributor has obtained or shall obtain in consequence of this Agreement whether from AGIP and AGIP Affiliate or otherwise are solely for the purposes of tills Agreement; distributor undertakes to use the same degree of care as in preserving the secrecy of its own secret business information and shall procure similar undertaking from its own employees and dealers and marketing and sales outlets accordingly and Distributor shall be responsible for and stand liable for the compliance thereof. The obligations of this Section shall not apply however to information which:

i) prior to the transmittal thereof to'Distributor was of general public knowledge; or ii) becomes subsequent to the time of transmittal to Distributor a matter of general public knowledge otherwise than as a consequence of a breach by Distributor of its obligation under this Section; or iii) is made public by AGIP; or iv) was in the possession of Distributor in documentary form prior to the time of Disclosure thereof to Distributor by AGIP and was not acquired directly or indirectly fro AGIP and is held by Distributor free of any obligation of confidence to AGIP or any third party; or v) is received in good faith from a third party to disclose it who to the best of Distributor's knowledge did not obtain the same from AGIP and who imposes no obligation of secrecy on Distributor with respect to such information

12. Independence of the parties It is agreed by the parties hereto that the Distributor is operating and will continue to operate for its own account and nothing in this Agreement is intended or shall be constructed to authorise the Distributor without the prior written approval of AGIP to create or assume any liability or indebtedness of any kind in the name of or on behalf of AGIP or to give any warranty of make any representation in the name of or on behalf of AGIP and this Agreement shall not be construed as constituting the Distributor as agents of AGIP for any purpose whatsoever or to constitute a partnership between the parties hereto 13. Force majeure a) In the event that AGIP shall be unable to continue the commercial production of the Products by reason of causes beyond its control including by way of illustration (but specifically not limited to fire, flood, explosion, action of elements, acts of God, accidents, epidemics, strikes, lockouts or other labour troubles or 'shortages, inability to obtain or shortage of material, equipment or transportation, insurrections riots, or civil commotion, war, enemy action, acts, demands or requirements of any government or by other causes which it could not reasonably be expected to avoid then it shall not be responsible for any loss whatsoever to the Distributor howsoever arising. Thereafter AGIP shall use its best endeavours to resume the commercial production of tlie Products b) In case of the extension of the circumstances of force mnjeure throughout a prolonged period of time whereby the performance of the respective obligation could not be carried out this Agreement shall be terminated at the request" of either party and'' this Agreement shall be treated as frustrated whereupon: i) without demand all money due to AGIP shall be paid immediately without deduction; and ii) the Distributor shall cease to distribute the Products of AGIP immediately 14. Termination

This Agreement shall terminate

a) on expiry date; or

b) if:

i) any encumbrance shall take possession of any of the property of either party; or ii) either party shall become insolvent; or iii) the Distributor shall become bankrupt or to go into liquidation either voluntary or compulsory unless as part of a bona fide scheme of reconstruction or amalgamation approved by AGIP or to be dissolved compound with its creditors or have a receiver appointed in respect of the whole or any part of its assets; or iv) a receiver is appointed in respect of one whole or any of the assets or undertaking or other process shall be issued against any property of the Distributor; or v) the Distributor shall cease or threaten to cease to carry on the whole or any substantial part of its business other than in the course of reconstruction or amalgamation approved by AGIP hereto; or

vi) If the Distributor commits or allows to be committed a breach, of any of its obligations herein stated and does not remedy such breach within fourteen (14) days after written notice has been given to it by AGIP; or vii) If the Distributor commits or is charged with the commission of a criminal or unlawful act or by commission has committed or charged with a criminal or unlawful act; or viii) If the Distributor engages in any conduct prejudicial to AGIP or AGIP's Affiliates generally or the marketing of the Product generally. Then in any such event AGIP may be written a notice forthwith terminate this Agreement but without prejudice to any other rights of the parties hereto. 15. Effects of termination If this Agreement terminates for any reason whatsoever and without prejudice to any other rights: a) Without demand all money due to AGIP shall be paid immediately without deduction b) The Distributor shall cease to distribute the Products of AGIP immediately c) AGIP shall have the discretion and option to regard any unexecuted orders placed by the Distributor and accepted by AGIP before such termination as cancelled excepted those in respect of which the Distributor shall have furnished documentary evidence to the satisfaction of AGIP within thirty (30) days from the notice of the Products ordered to third parties prior to the termination of this Agreement d) The Distributor shall if requested by AGIP forthwith return to AGIP or elsewhere as AGIP may direct at the expense of AGIP all goods or Products belonging to AGIP in its possession or under its control and all advertising and promotional matters relating to the Products in its control. In case of default AGIP shall be entitled without notice to enter at any time upon the premises where the said goods or Products may be for the time being and to remove the same c) All Products remaining unsold which in the mutual opinion of AGIP and Distributor are not in good condition shall be forthwith disposed of by the Distributor as directed by AGIP f) The Distributor shall return to AGIP all samples and publicity promotional and advertising material and technical material and copy thereof used in the distributorship g) The Distributor shall return to AGIP all originals and copies of all documents and information in any form containing or covering in any way part of the Intellectual Property and technical specifications and literature h) In the event of termination of this Agreement AGIP shall have the option to repurchase from Distributor any or all of the Products purchased from AGIP and owned by Distributor on the date Distributor receives written notice of AGIP's intention to exercise the repurchase shall be the invoice price thereof actually paid by Distributor plus verified transport cost paid by Distributor; in the event of the exercise of this repurchase option by AGIP Distributor shall promptly deliver the Products to AGIP in conformity with all laws and requirements which may be necessary or proper to transfer good title to such Products to AGIP free and clear of any charge lien or encumbrance; AGIP shall pay Distributor for such product promptly after Distributor has complied with all of its obligations hereunder i) Distributor recognizes and agrees that it is fully compensated for its activities in developing the market for. the Products in promoting the name and reputation of the Products and in building goodwill in respect of the Products by way of revenues derived from re-sales of the Products during the currency of this Agreement; consequently in no event shall termination of tins Agreement for any reasons whatsoever and howsoever. Give rise to any right of action by Distributor to recover additional compensation of loss or damage from AGIP

16. Non-Competition During the term of this Agreement the Distributor shall not distribute manufacture develop or occupy itself in any other way directly or indirectly with goods of a nature competitive with the Products in- or outside the Territory without prior written consent from AGIP

17. Appointment of sub-distributors a) The Distributor shall have the right to appoint Sub-Distributors and outlets to store and distribute the sales of the Products within the Territory on behalf of Distributor b) The Distributor shall also ensure that all Sub-Distributors and outlets shall at all times observe and comply with the terms and conditions as stated in this Agreement which are applicable to themselves as distributors and the Distributor shall be responsible and stand liable for the compliance thereof

18. Non-Waiver It is understood and agreed that the failure of delay on the party of AGIP to require performance or compliance of the Distributor of any provisions of this Agreement shall not affect AGIP's right to require performance or compliance has been waived in writing

19. Assignment This Agreement shall be binding on the successors and assigns of each of the..parties hereto; provided however that this Agreement shall not be assigned, transferred or sold in whole or in part by Distributor unless the terms and conditions of such assignment transfer or sale are approved in writing by AGIP

20. Savings of terms a) Notwithstanding termination herein the terms conditions warranties undertakings and indemnities contained or referred to herein shall continue to subsist and bind the parties and each individual thereof insofar as same or any part thereof remain unfulfilled or to be performed or outstanding or for the purpose of giving effect to each and every one of them b) The several undertakings of the parties shall survive and shall be treated as in full force and effect notwithstanding any change in shareholding and directorship or the constitution of AGIP c) If anyone or more of the provisions contained herein or any documents or records executed in connection herewith shall be invalid illegal or unenforceable in any respect under any applicable law, the validity legality and enforceability of the remaining provisions or part thereof contained herein shall not in any way be affected or impaired

21. Arbitration All disputes arising in connection with the present agreement shall be finally settled- under the provisions of the Singapore Arbitration Act and any modifications thereof from time to time. Arbitration proceedings shall take place in Singapore; Singapore law shall be applicable

22. Entire Agreement a) This Agreement embodies the entire understanding of the parties and overrides and supercedes any prior promises representations understandings or implications b) Any amendment hereto must be in writing and signed by the duly authorised representatives of AGIP and Distributor. No amendment to this Agreement shall be effected by the acknowledgement or acceptance by AGIP of purchase orders, invoices, shipping instruction forms or, others similar documents which contain terms or condition at variance with or in addition to those set forth herein unless such acknowledgement or acceptance specifically states that it is intended to amend this Agreement

23. Interpretation a) Any reference to any of the parties herein include their assignees and/or successors-in-title and/or personal representatives b) Words importing the singular tense include the plural tense' and vice-versa

c) Words importing the masculine gender include the feminine gender and neuter gender and vice- versa d) Person(s) includes a Corporation and vice-versa

e) The Clause headings in this Agreement are for ease of reference only and will not affect the interpretation hereof

24. Notices Any notices required to be served hereunder shall be sufficiently given if forwarded by registered post recorded delivery cable telex or telegraph to the address set out at the head of this Agreement or such other address as may have been notified in writing to the other party for such purposes

25. Execution This Agreement may be executed in any number of counterparts, any single counterpart or a set of counterparts executed in either case by all the parties hereto shall constitute full and original agreement for all purposes

IN WRITNESS WHEREOF the parties hereto have caused this Agreement to be executed in counterpart original by their duly authorised representatives on the day and year first set forth above

SIGNED by On behalf of AGIP FETROLI SPA SIGNED by On behalf of DISTRIBUTOR

(Page 126) 3.3 WARRANTY AND GUARANTEE

THE PROBLEM Are a warranty and a guarantee the same thing? Why do some contracts replace a warranty with a defects liability provision”? THE PRINCIPLE A guarantee is a promise about somebody else’s performance; a warranty is a promise about your own. When businessmen speak of the “seller’s guarantee” or “warranty” they mean the exporter’s liability for defects; to avoid confusion, many drafters today use the term “Defects Liability Provision.” IN MORE DEPTH A warranty is a promise you make about your own performance. The word is used in many contexts. A warranty of title, for example, is a promise to a buyer that the exporter really owns the contract goods. A product warranty is a promise by the exporter to cure defects in his products.

There are two parties to a warranty: buyer and seller. A guarantee, on the other hand, involves three parties, as the diagram shows. The guarantor makes a promise to one party at the request of another. There is a major confusion of terminology. Black’s Law Dictionary comments:

Internationally, the distinction between warranty and guarantee is often blurred. First, businessmen loosely use the words as though they mean the same thing. Another common belief is that a warranty covers materials and workmanship, while guarantee covers specifications. This is not true. Does it matter? In fact, yes. Confusion between warranty and guarantee can be dangerous. When?

Let’s say a contract is written in English, but German law applies. German law makes a clear distinction between a “seller’s warranty” and a “seller’s guarantee” – the seller’s obligations are more extensive under a “guarantee.” So loose English will get the exporter into trouble if German law, or any closely related law applies to the contract.

As a general rule, incorrect use of “guarantee” causes trouble; use the word only if you mean a third party guarantee.

p.127-148

When businessmen speak of the “seller’s guarantee” or “warranty” they mean the exporter’s liability for defects; to avoid confusion, many drafters today use the term Defects Liability Provision. A defects liability provision (or warranty) covers defects that are present at the moment of delivery. Normally quality control prevents products with obvious defects from leaving the factory; in the next step, products with obvious or “patent” defects are identified during open package inspection and rejected. The defects that give rise to the most serious problems between exporter and buyer are hidden or latent defects. Defects may be (a) in workmanship, (b) in materials, or (c) in design. However, fair wear and tear and misuse by the buyer are not covered by the provision. The defects liability period is the period during which the exporter is liable for- and must make good- defects that are apparent on delivery or that come to light later. The buyer, of course, must prove that the defect was present in the goods at the date of delivery- often a difficult task. It is important for both sides in a contract negotiation to understand that a defect is a fault provably present in the goods on delivery- nothing more. In principle, under most laws, the exporter is liable only for problems that arise from defects.

CONCEPT REVIEW: GET WEAVING Verbena Textile is replacing twenty of its looms. The looms are thirty years old, and spare parts are hard to find. The factory engineer chooses the best of the old looms and cannibalizes the others to make twelve looms in good working order. Verbena Textile negotiates to sell these looms to Esperanza Cotton Mills. Esperanza Cotton wants twelve-month warranty with the looms; Verbena Textile is prepared to sell them on “as is.” 1. What arguments are the two sides likely to put forward in negotiating the warranty (defects liability)? …………………………………………………………………………………………………… ………………………………………. 2. Which side do you think is “in the right”? …………………………………………………………………………………………………… ……………………………………….

1. Second-hand machinery is usually sold internationally "as is.” From the buyer's point of view this has an obvious disadvantage—if the machine goes wrong, repair may be expensive or impossible. However, it makes little sense for the seller to offer a warranty. Firstly he is not in the business of selling or repairing machines. Secondly, assuming he is prepared to offer a warranty, the cost would be prohibitive—in some cases the total cost might be more than the cost of a brand-new machine using the latest technology.

2. Both sides have a point. The most common solution is for the buyer to check the machines carefully for full functionality before buying them- and then to accept the sale without warranty.

Translate into Vietnamese ABC'S CONTRACT

GENERAL TERMS AND CONDITIONS

1) Shipment or delivery The obligations of Seller to ship or deliver the goods specified on the face of this Contract ("Goods") by the time or within the period specified on the face of this Contract shall be subject to the availability of the vessel or the vessel's space If, under the terms of this Contract, Buyer is to secure or arrange for the vessel or vessel's space, Buyer shall secure or arrange for the necessary vessel or vessel's space on berth terms basis and give Seller shipping instructions within a reasonable time prior to shipment, including but not limited to the name and detailed schedule of the vessel. If Buyer fails to give such instructions within a reasonable time prior to shipment, Seller may, at its sole discretion and at Buyer's risk and account, arrange for the vessel or the vessel's space and make shipment of the Goods, without prejudice and in addition to any other rights and remedies Seller may have under this Contract or at law or in equity or otherwise.

In case of shipment or delivery installments, any delay or failure in shipment of one installment shall not be deemed a breach of this Contract giving rise to a right of Buyer to cancel this Contract or refuse to accept performance with respect to other installments.

2) Payment If payment for the Goods shall be made by a letter of credit, Buyer shall establish in favor of Seller - an irrevocable letter of credit through a prime bank of good international repute immediately after the conclusion of this Contract in a form and upon terms satisfactory to Seller. If Buyer fails to make any due payment, to establish a letter of credit or otherwise to perform its obligations hereunder, Seller may demand that Buyer provide, within a reasonable time, adequate assurance satisfactory to Seller of the due performance of this Contract and may with old shipment or delivery of any all of the undelivered Goods until such assurance is given. Buyer shall pay the price specified on the face of this Contract without set-off counterclaim, recoupment or other similar rights which Buyer may have against Seller, which rights shall be exercised in separate proceedings between Buyer and Seller. Any new, additional or increased freight rates, surcharges (bunker, currency, congestion or other surcharges), taxes, customs duties, export or import surcharges or other governmental charges, or insurance premiums, which may be incurred by Seller with respect to the Goods after the conclusion of this Contract shall be for the account of Buyer and shall be reimbursed to Seller by Buyer on demand. If Buyer fails to pay for the Goods in accordance with this Contract, Buyer shall pay to Seller as liquidated damages and not as a penalty overdue interest at the rate of the lower of eighteen percent (18%) per annum or the maximum interest rate permitted by the laws of Buyer's country, calculated from the date for such payment until the actual date of payment calculated on the 360 day-a-year basis for the actual number of days elapsed.

3) Force Majeure If the performance by Seller of its obligations hereunder is directly or indirectly affected or prevented by force majeure, including but not limited to Acts of God, flood, typhoon, earthquake, tidal wave, landslide, fire, plague, epidemic, quarantine restriction, perils of the sea, war declared or not or threat of the same civil commotion, blockade, arrest or restraint of government, rulers or other labor dispute, explosion, accident or breakdown in whole or in part of machinery, plant, transportation or loading facility, governmental request, guidance, order or regulation, unavailability of transportation or loading facility, bankruptcy or insolvency of the manufacturer or supplier of the Goods, or any other causes or circumstances whatsoever beyond the reasonable control of Seller or manufacturer or supplier of the Goods, then Seller shall not be liable for loss or damage, or failure of or delay in performing its obligations under this Contract and may, at its option, extend the time of shipment or delivery of the Goods or terminate unconditionally and without liability the unfulfilled portion of this Contract to the extent so affected or prevented

4) Default In case of (i) Buyer's failure to perform any provision of this Contract; (ii) Buyer's inability to pay its debts generally as they become due; (iii) Buyer's bankruptcy or insolvency or (iv) appointment of a trustee, receiver or liquidator of Buyer of any material part of Buyer's assets or properties ("Events of Default"), Seller may, at its sole discretion, (i) terminate this Contract or any part thereof; (ii) declare all obligations of Buyer immediately due and payable; (iii) resell the Goods; (iv) hold the Goods for Buyer's account and risk; (v) pospone the shipment of Goods; or (vi) stop the Goods in transit, and Buyer shall reimburse Seller for all losses damages arising directly or indirectly from such Events of Default. The rights and remedies of Seller hereunder are cumulative and in addition to Seller's rights, powers and remedies existing at law or in equity or otherwise.

5) Intellectual property rights

Nothing herein contained shall be construed as transferring any patent, trademark, utility model, design, copyright, mask word or any other intellectual property rights in the Goods, as such rights being expressly reserved to the true and lawful owners thereof. Seller shall be neither responsible nor liable for any infringement or unauthorized use with regard to any patent, trademark, utility model, design, copyright, mask work or any other intellectual property rights. 6) Warranty, claim

Unless expressly stipulated on the face of this contract, seller makes no warranty or condition, expressly or impliedly, 'as to the fitness or suitability of the goods for any particular purpose or use or the merchantability thereof.

If any warranty exists. Seller's liability shall be limited to replacement or repair of the defective Goods. Any claim by Buyer of whatever nature arising under or in relation to this Contract shall be made by registered airmail within thirty (30) days after the arrival of the Goods at the port of destination, or solely in respect to a claim alleging the existence of a latent defect in the Goods, within six (6) months after the arrival of the Goods at the port of destination, and any such claim shall contain full particulars with evidence certified by an authorized surveyor.

7) Limitation Seller shall not be responsible, whether in contract or warranty, tort or on any other basis, to Buyer for any special, incidental, consequential, indirect or exemplary damages, and in no event shall Seller's total liability on any or all claims from Buyer exceed the price of the Goods.

8) General (1) All disputes, controversies or differences arising out of or in relation to this Contract or the breach thereof which cannot be settled by mutual accord without undue delay shall be settled by arbitration in Tokyo, Japan, in accordance with the rules of procedure of the Japan Commercial Arbitration Association; the award of arbitration shall be final and binding upon both parties, and judgment on sucli award may be entered in any court or tribunal having jurisdiction thereof; this Contract shall be, in all respects, governed by and construed in accordance with the laws of Japan; the trade terms herein used, such as FOB, CFR and CIF, shall be interpreted in accordance with "INCOTERMS 2000". (2) The failure of Seller at any time to require full performance by Buyer of the terms hereof -shall not affect the right of Seller to enforce the same; the waiver by Seller of any breach of any provision of this Contract shall not be construed as a waiver of any succeeding breach of such provision or waiver of the provision itself. (3) This Contract constitutes the entire agreement between the parties hereto and supersedes all prior or contemporaneous communications, agreements or undertakings with regard to the subject matter hereof; this Contract may not be modified or terminated except by a written agreement of Seller and Buyer. (4) Buyer shall not transfer or assign this Contract or any part thereof without Seller's prior written consent.

(page 149) CHAPTER 4: THE LEGAL FRAMEWORK

1. The Big Picture

THE PROBLEM

Many exporters are gifted salesmen, and their contracts reflect this emphasis on sales. Unfortunately, there are a number of legal loose ends that must be tied down if a good sales technique is to mature into a profitable way of doing business.

THE PRINCIPLE

Like the other phases of an export negotiation, the legal framework can be negotiated in clear steps- in this case six.

IN MORE DEPTH

A contract is not merely a list of ideas agreed by the exporter and the buyer during negotiation: it is an enforceable, legal instrument. The two sides ignore the legal dimensions of the contract at their peril.

STEP 1. THE APPLICABLE LAW: choice of law

STEP 2. CONTRACT OR NO CONTRACT? Meeting of minds, capacity, legality, consideration.

STEP 3. ENTIRE AGREEMENT. Whereas recital, contract documents, definitions.

STEP 4. THE PARTIES. Identity, naming, notices, assignment.

STEP 5. STATUS OF THE CONTRACT. Termination, cancellation, recission, language.

STEP 6. SETTLEMENT OF DISPUTES. Amicable settlement, arbitration, litigation.

The first question about the legal framework of the contract is always: what law have the two sides chosen to fill the gaps in their agreement (Step 1). Then the question arises is the document the parties are signing really a contract, or is just a piece of paper (Step 2)? If it is a contract, is it the entire agreement? And if it is the entire agreement, how do the two sides ensure that it includes everything they want it to include (Step 3)?

Once the full legal nature of the contract is established, it is time to turn to the parties signing it. Are the parties all they seem to be? And will they remain the same during the lifetime of the contract (Step 4)? Good relations usually prevail during the negotiation of a contract. Later, however, things can go wrong. A good contract allows for this by foreseeing circumstances under which the parties might wish to end their agreement (Step 5). If a dispute arises, some means of settling things should be agreed beforehand: that way at least some goodwill might be preserved and the cost of the dispute minimized (Step 6).

CHOOSING AN APPLICABLE LAW

What considerations should an exporter bear in mind when negotiating an applicable law?

Although national laws differ greatly in detail, most laws belong to one of two families: Anglo-American or Continental. The Anglo-American family is based on case-law (the law develops over centuries through court decisions); the Continental family is based on a legal code (the law is expressed in a code). The two systems work in different ways and produce different kinds of contract.

Anglo-American contract law is case law: judges decide cases on their merits (the rights and wrongs of the cases; decisions create precedents. A precedent is binding: future judges (subject to complex rules( are obliged to follow it. After a while, so many precedents exist that even the best judges become confused. The case-law principle has a remarkable result: nobody knows the law in a given case until the judge reaches a decision. The Anglo- American lawyer can suggest the outcome of a case- but certainly is impossible. Under Continental systems, outcomes are more predictable: judges simply apply the code- they are not required to use their sense of justice to seek the fairest solution to the case.

Scenario: Nonamia was until recently, a socialist country with-no developed commercial law—in fact, the necessary law is still not published. Abet Johnson runs a factory in Nonamia that makes quality jogging shoes. He receives several inquiries from European countries. One customer, Frankimport. is interested enough to suggest some broad contract terms: price, delivery dale, length of defects liability period. Johnson now asks a lawyer in Nonamia to draft a contract. Early in the discussion, the lawyer asks Johnson: "What law applies to the contract?" Johnson has no idea. The lawyer explains the principle: a contract covers many issues; anything left undecided is regulated by the applicable law. The lawyer lists three possibilities: - The exponer's law (the law of Nonamia): - The buyer's law (the law of Germany); - A third-party law (e.g.. the law of Sweden or of England). Each option is radically different: . !

Option 1: Nonamia has no contract law—there is no water round the fish. If there is a dispute, the Nonamian judge must make a decision, " but this decision is unpredictable: To gain some degree of certainty, the parties must write a contract detailed enough to cover most eventualities. This is difficult and expensive; even when it is completed, the Nonamian judge may not enforce it as the parties intended. Option 2: German contract law is codified. The code (the BGB) has been clarified by a hundred years of interpretation in the courts. The contract can be short and to the point—on the other hand using the law, of the buyer's country gives the buyer a perhaps unfair advantage in the event of a dispute. Option. 3: Choosing a third-party law—English law perhaps or Swedish law—gives neither side an advantage. But the law must be chosen carefully. Swedish law is a member of the Continental family. The contract can be short and to the point—Swedish law (we can suppose) will fill gaps in the contract fairly and reasonably. English law, on the other hand, is a member of the Anglo-American family. The advantage of English law is that its principles have been refined over many centuries to deal with international trade: it is internationally familiar and extremely flexible; if the parties draft the contract carefully, they can achieve almost any result they wish. On the other hand, a contract under English law is usually lengthy and derailed: English law is case law, so the parties normally decide many issues ahead of time rather than leaving the judge to make decisions on the basis of precedents. The choice of an applicable law is not easy—but it is wiser to choose a law than to leave the issue open. A summary of the factors involved:

CONTINENTAL SYSTEMS

GOAL ANGLO-AMERICAN SYSTEMS Justice in the individual case Consistency and uniformity of

PREDICTABILITY AND CONSISTENCY OF COURT DECISIONS enforcement Decisions in all but the most difficult cases are precictable with some accuracy. Decisions are generally consistent from court to court.

LENGTH AND DETAIL OF CONTRACT INTERNATIONAL ACCEPTANCE

Because the law regulates most problems, contracts can be short and lacking in detail. Continental laws do not have the prestige of Angto-Arnencan laws in international practice. They tend to focus on national rather than internalionat issues Unless matters are carefully regulated in the contract, the decision of the judge is not fully predictable. Different judqes may give widely different judgments. To be clear, contracts must regulate many issues, so they tend .to be long and detailed. English and Amencan law have been refined over the centuries to cope with issues of intemational trade. The principles are widely understood and respected.

Sometimes the parties cannot agree an applicable law, so they leave the matter open- the contract contains no provision at all on applicable law. What then? If the contract does not specify an applicable law, then a special branch of law known as “international private law” comes inyo play and decides the law of the contract. In the case of an export contract, especially an E-, F-, or C- term contract, the law chosen is nearly always the law of the exporter. In our Nonamian jogging-shoe scenario above, that means the choice of Nonamian law- and, a great deal of uncertainty. The contract clause that specifies the applicable law should be carefully worded. It should state not only that the chosen law that supplements the provisions of the contract, but also that it regulates some difficult issues- Do the partes actually have a contract? What rules of interpretation shall apply? And so on.

CONCEPT REVIEW 1 Swords and Shares

Plough Shares is a Verbenan company making non-mechanical farm equipment. On 3 rd July 2004 it receives a letter from Wide Horizon Farm Tools in Esperanza. The letter asks Plough Shares to quote its latest price on two of its catalog items; 1005X3 Mattocks and 2068Z2 Shovels. Order size is 500 of each item. The two companies have never done business together. Plough Shares quotes $4,000 for the mattocks and $2,500 for the shovels. On the quotation is clearly stamped: "Our General Conditions of Sale apply to all deliveries.". An order arrives exactly in line with the offer except that it is stamped: "Our General Conditions of Purchase apply to this Order." Plough Shares confirms the order, stamping it, as before: "Our General Conduions of Sale apply to all deliveries." The goods are delivered FOB on 4th September; they are inspected and accepted by the buyer on 4th October. The

invoice sent by Plough Shares is also stamped with the familiar stamp. Wide Horizon pays for the goods. Then there is a serious warranty claim: the handles of both the mattocks and the shovels break easily. On 14th March Wide Horizon notifies Plough Shares of the problem. Plough Shares says "Too bad— the defects liability period has expired." Wide Horizon replies: "Not at ail—the period runs for another two weeks." The disagreement arises, as you have probably guessed, because the Seller's general conditions allow a six-month warranty from the date of delivery, and the Buyer's Conditions a six-month warranty from the date of acceptance. 1. Is the original letter from Wide Horizon an "offer to buy"? YES NO 2. Is the quotation from Plough Shares an offer to sell? YES NO 3. Is the order placed by Wide Horizon an offer to buy or is it an acceptance? OFFER TO BUY ACCEPTANCE

4. Is there a clear and full acceptance of an offer at any stage of the negotiation ? YES NO 5. Do the two sides have a contract? YES NO LEGAL POSITION NOT CERTAIN 6. If yes. who is right on the warranty case? PLOUGH SHARES WIDE HORIZON LEGAL POSITION NOT CERTAIN

1. No. It is a request for quotation. 2. Yes 3. Offer 10 buy. There is a major discrepancy between the terms of the oner and

the "acceptance.” 4. No 5. The legal position is unccertain. 6. Again uncertain. If there is a contract, the terms are unclear.

CONCEPT REVIEW 2 Out Of The Window Verbena Farm Power is taking delivery; of 300 gasoline powered mini-generators (5 kW) for farm use. The supplier is a German company, Supergrid. After signing the concract, Verbena Farm realizes that Supergrid's price is too high: the same equipment is available in the United States at half the price. So Verbena Farm is delighted when a new Government Order prohibits all machines louder than 90 decibels. Verbena Farm argues that since the German machine produces 95 decibels, it is illegal and the contract is null and void. Supergrid offers to thicken the sound insulation on the machine; Verbena Farm refuses this offer. Imagine now three versions of the contract. Version 1 contains this clause:

Severability In the event that any provision of the Agreement is held to be illegal or otherwise unenforceable, such provision shall be deemed to have been deleted from this Agreement, while the remaining provisions shall be and shall continue in full force and effect.

Version 2 contains this wording Partial Invalidity If any provision or provisions of this contract are invalid, or become invalid, this has no effect on the validity of the remaining provisions. If any provision of this contract is invalid, or becomes invalid, tne parties have the duty to replace the invalid provision with a new valid provision that fulfills the original intent of the invalid provision Version 3 says nothing ai all on this subject.

Which version of the contract is most favorable to Verbena Farm's argument? Which version is least favorable? Least favorable: VERSION 1 Most favorable: VERSION 1 VERSION 2 VERSION 3 VERSION 2 VERSION 3

Least favorable for Verbena Farm is Version 2: this wording clearly obliges the parties to redraft the disputed clause. The most favorable version is possibly version 3—but everything then depends on the applicable law. Is a partly illegal contract wholly illegal under the law that applies to this contract? If German law applies, for example, the answer in case of doubt is "Yes."

CONCEPT REVIEW 3 Taken into Consideration General Supplies, a Verbenan company, trades in food, clothing, household goods, and so on. It has an export contract with Frankimport, a German company, to sell 400 cartons of

pineapple rings in 500 gram cans. Two weeks before delivery is due, Frankimport sends the following fax to General Supplies:

Will you please change our order to 131 cartons of pineapple juice, 110 cartons of pineapple chunks, and 200 cartons of pineapple rings. According to the price list you sent us, the total invoice price is now exactly the same as the original price. Please confirm the new arrangement immediately. General Supplies confirms the new order with the following fax:

We hereby confirm your change of order. We shall now send 131 cartons of pineapple juice, 110 cartons of pineapple chunks, and 200 cartons of pineapple rings. There is no change in the price.

FRANKIMPORT The goods are delivered FOB (Port Verbena) and paid for under a letter of credit. When the goods arrive in Bremen, however, Frankimport finds 400 cartons of pineapple rings. It informs General Supplies immediately that it is rejecting half the consignment, as deviating from the agreement as modified. General Supplies replies that the original contract was never modified according to the law of Verbena, and that Frankimport must accept the whole consignment. 1. What is the source of this dispute? …………………………………………………. 2. The law of Verbena (which is a member of the common-law family) applies to the contract. Who is right about the validity of the modification? GENERAL SUPPLIES 3. Section 2-209.1 of the Uniform Commercial Code states: An agreement modifying a contract..needs no consideration to be binding.

If there were a similar regulation in Verbena, how would it affect this dispute? ………………………………………………………………………………………………..

1. The dispute arises because ah agreenk'ni to modify a contract requires, under some

laws, consideration: both sides must have new risks and duties under the new agreement. In this case. only General Supplies has a new duly and only Frankimport has a new right.

2. General Supplies 3. Consideration would not be required, and Frankimport would be justified in relying on the modification and rejecting the goods.

Translate into Vietnamese JOINT VENTURE CONTRACT. Based on:      ' ­ The Law on Foreign Investment in Vietnam approved by the National "Assembly of the  Socialist Republic of Vietnam" on December 29th, 1987 ­ The Decree 29/HDBT on February 6th, 1991 of the Council of Ministers regulating in detail  tliQ implementation of the Law on Foreign Investment in Vietnam Today, 1st December, 19 ... the Parties have agreed to sign this contract to establish a Joint  Venture Company ("JVC") on the terms and conditions as follows: Article 1: NAMES OF THE PARTIES TO THE JOINT VENTURE' VIETNAMESE PARTNER (PARTY A): DEPARTMENT OF HOME TRADE HANOI Head office at 10 Le Lai Street, Hanoi Socialist Republic of Vietnam Tel: 252578 Fax: (84) 2 ­54592 Represented by: MR. DUONG DINH ­ Director FOREIGN PARTNER (PARTY B): IMEX PAN ­ PACIFIC INC A Company registered and incorporated in the Republic of the Philippines with head office: Ground floor, Corinthian Plaza, Pasea de Roxas, Legaspi Village, Makati, Manila, Philippines Tel: 8104391­94, Tlx: 65714 PHLMPXPN, Fax: 632­810­10­10' Represented by: Mr. JOHNATHAN H. NGUYEN ­ President

INVESTED   AND   LEGAL   CAPITAL   –   CAPITAL   CONTRIBUTION

Article 2: NAME, HEAD OFFICE, OBJECTIVE OF JVC .        The JOINT VENTURE COMPANY shall be named as: ­ International Name: Hanoi General Commercial Centre ­ Head Office:   Hang Bai Street corner Trang Tien Street Hanoi, Socialist Republic of Vietnam The JOINT VENTURE COMPANY shall be a limited company granted the status of a juridical person subject to Vietnam laws, stipulated m the Joint Venture Contract and Charter of the Joint Venture .    ^ ­ Main objectives of the Joint Venture Company Building and operating 4 Star Hotel, and Business Centre of international standards to be located at Hang Bai Street on the corner of Trang Tien Street, Hanoi, Socialist Republic of Vietnam: ­ The Joint Venture Commercial Centre after completion will have the following facilities: 1) 4 Star Hotel 2) Business Centre with office space for rental in accordance with International Standards 3) Restaurants, Bars, Discos, Function Rooms, food and beverage facilities and other Hotel  related facilities for tourist services Article'3:  INCREASE AND TRANSFER ­ Project cost:  USDxx,000,000.00 (xx million US Dollars) ­ Legal capital: USDxx,000,000.00 and contributed by the two Parties as follows: USD xx,000,000.00 by party A (30%) USD xx,000,000.00 by party B (70%) ­Loan:       USD   xx,QOQ,000.00   to   be   borrowed   from   any   financial   institution   and  arranged by Party B for the Joint Venture; terms and conditions of the loan will be  mutually agreed on by both parties The juridical responsibilities of each party for the third party is within its contributed capital.  All legal capital will be contributed in a lump sum or installments at appropriate periods  agreed on by both parties and the State Committee for Co­operation and Investment.       If either of the two parties does not follow the Schedule of Capital Contribution, that party   shall have to inform the other party within 90 days before and shall be responsible for­any  losses caused by the such failure            CAPITAL CONTRIBUTION The capital contributed by Party "A" shall be USD xx,000,000.00 comprising of: ­ Land rental for xx years ­ Fees for the retirement and relocation of present employees ­ Fees for clearing the construction area The capital contributed by party B shall be USD xx,500,000.00 comprising of architectural  design, materials, equipment, working capital and other expenses CAPITAL INCREASE          On the basis of the needs of development during the operation, the Joint Venture Capital  can increase its legal capital in the following forms:               ­ Reinvesting the profit share of each party.

­ Contributing new capital The increase of the legal shall be agreed by both parties and be approved by the State   Committee for Co­operation and Investment CAPITAL TRANSFER During operation, either party can transfer its capital contribution to the other party or the  third party approved by the State Committee for Co­operation and Investment • Article 4: DURATION OF THE CONTRACT The stipulated duration of this contract is xx years from the official date of establishment of  the Joint Venture and can be extended by the agreement of the Parties hereto together with  and subject to the approval of the State Committee for Co­operation and Investment • Article 5: RESPONSIBILITIES OF EACH PARTY . PARTY A'S RESPONSIBILITIES 1.. To contribute its capital (as stipulated in Article 3 of this contract) 2. To complete the application formalities to obtain the investment license and other  necessary permits for the establishment of the Joint Venture Company 3. To obtain all necessary permits for Party B's personnel to stay and work in Vietnam 4. To take part in controlling in the Joint Venture 5. To do all necessary tasks to facilitate the operation of the Joint Venture PARTY B'S RESPONSIBILITIES               1. To contribute its capital (as stipulated in Article 3 of this contract) 2. To take part in controlling the Joint Venture    3. To provide its know­how and management experience to the Joint Venture :  4. To advise on and supply the technical data for 'machinery necessary equipment and  materials for the Joint venture so that party A can study their use and supply for an import  quota when necessary. 5. To study markets and imported commodities such as machinery, equipment, materials,  accessories, etc., through its Head Office and/or Branches 6. To provide Party A with lists and prices of commodities which are not available in  Vietnam 7. To ensure capital for building, the foundation of the Hotel and Business Centre 8. To ensure the availabilities of the working capital to make the business profitable 9. To market the Hotel and Business Centre and use its best endeavours to attract and  bring in foreign tourists to patronise the Hotel Business Centre MUTUAL OBLIGATIONS 1. On the basis of labour contracts, the Joint Venture Company shall employ, appoint,  terminate and supervise the Board of Directors in their employing, appointing, terminating,  and supervising other personnel of the Joint Venture 2. Salaries and subsidies of all personnel of the Joint Venture shall be paid by the Joint   Venture Company 3. Salaries and subsidies for foreign personnel shall be paid in foreign currency  4. To further the best interests of the Joint Venture, both parties can request the Board of  Management   to   change   or   replace   personnel;   any   change   or   replacement   shall   not   be   implemented without proper reasons

5. Citizens of Vietnam have priority to be recruited to work for the Joint Venture; the Joint   Venture can employ foreign experts for work requiring highly technical skills which cannot   be done by the Vietnamese citizens 6. Any interest and obligation of Vietnamese personnel working for the Joint Venture shall  be ensured by their labour contracts in accordance with Vietnam labour Regulations for  enterprises with Foreign Capital 7. Salaries and other subsidies for Vietnamese personnel shall be paid in Vietnamese Dong  currency 8.   During   operation   of   the   Joint   Venture   the   Board   of   Directors   shall   organize   regular  training programs for Vietnamese personnel of the Joint Venture 9.   The   Board   of   Directors,   during,   the   operation   of   the   Joint   Venture   shall   arrange   the   schedule of training and visits for Vietnamese managers working for the Joint Venture 10. Both parties shall inform each other of all their major policies which affect the Joint  Venture • Article 6: CONTROL AND MANAGEMENT The   Head   of   the.   Company   shall   be   its   Board   of   Management   consisting   of   9   (nine)  members appointed as follows: ­ Party "A" shall appoint 3 (three) members ­ Party "B" shall appoint 6 (six) members • The powers, duties, activities, and­ terms of this: Board of Management shall be stipulated  in the Charter of the Joint Venture BOARD OF DIRECTORS             The Board of Directors of the Joint Venture Company shall be appointed by the Board of  Management on the basis of the agreement between the two parties .     ­ The first Board of Directors for the initial period lasting 5 years of the Joint Venture shall   be appointed as follows:  ­ General Director and Vice General     Director of Finance:            By Party B ­ Managing Director and Chief Accountant:       By Party A ­ • Article 7: FISCAL YEAR The   fiscal   year   of   the   Joint   Venture   shall   commence   on   January   1 st  and   terminate   on  December 31st of the same year The first fiscal year shall commence from the official date of establishment to the December  31st of the same year • Article 8: PRINCIPLES OF ACCOUNTING The   Joint   Venture   Company   shall   implement'   its   accounting   system   on   the   basis   of  Vietnamese Accounting principles and standards and be checked by Vietnamese Financial  Organization (as stated in Article 18 of Law on Foreign Investment in Vietnam as aforesaid)  • Article 9: YEARLY ACCOUNTING REVIEW ' Every year, the Joint Venture shall be responsible for its accounting review in conformity  with regulations of the Vietnam Government; documents of the yearly accounting review  'must be submitted to the relevant authorized organization after approval by the Board of   Management • Article 10: INSURANCE

Both parties agree to choose a Vietnamese insurance company to insure the assets of the  Joint Venture • Article 11: PROFIT­PROFIT SHARING­ ESTABLISHMENT FUNDS  The Joint Venture and its foreign partner shall be liable to fulfill their financial obligations to  the   Vietnam   Government   as   stipulated   in   the   Investment   License   issued   by   the   State  Committee for Cooperation and Investment After fulfilling all its financial obligations to the Vietnamese Government, the Joint Venture   shall  use  5%  of its profit to  set  up  a  reserve  fund;  Other  funds shall  be  established  in   conformity with Vietnamese Laws The reserve fund shall be limited to not more than 25% of the legal capital in accordance  with Article 30 of the Law on Foreign Investment; the Board of Directors shall decide the  profit share of both parties as follows: Profit sharing for the initial xx years of the Joint ­ Venture ­ Party A: 30% ­ Party B: 70% The profit sharing of both parties shall be as follows: After xx years     after xx years   after xx years Party A:     35%            40%            50% Party B:     65%            60%            50% Party B can remit the following abroad: ­ Profit from the business         .    .         , ­ Receipts from supplying services and technology transfers . ­ Money from loans and interest of the said loans ­ Money and other assets officially belonging to Party B Foreign personnel working for the Joint Venture can remit their legal income after returning   their income tax in conformity with regulations on foreign exchange • control of Vietnam;  During operation of the Joint Venture losses of the Joint Venture in any fiscal year shall be  compensated by profits in following years but this shall no longer, be valid after five years  as stipulated in Article 27 of the law on Foreign, Investment    Article 12: EXPENSE FOR ESTABLISHMENT OF THE JOINT VENTURE                       All expense concerned with the establishment of each partner shall be included in the  investment cost of the Joint Venture Company Article 13: OFFICIAL OPERATING DATE   :          The Joint Venture shall be officially established when the State Committee for Cooperation   and Investment approves and issues the Investment license                       Article 14: DISSOLUTION ­ BANKRUPCY ­ FORCE MAJEURE The Joint Venture can be dissolved before the termination of the contract in the following  cases: ­ Both parties agree and suggest the dissolution to be passed by the Board of Management  ­ The Joint Venture is juridically appraised as a bankrupt company         ­ One of the two parties does not want to continue as a Party in the Joint Venture and wants  to transfer its contributed capital without agreement of the other party but the State  Committee for Co­operation and Investment permits the dissolution              Formalities  of bankruptcy declaration  shall  be  carried  out in  conformity  with   appropriate  international regulations agreed to by the two parties

In case of observance of Vietnamese­ laws and regulations on bankruptcy declaration, both   parties agree to refer this to Vietnam Economic Arbitration or other juridical organization in   accordance with the Law on Foreign Investment In case of Force Majeure such as earthquake, storm, flood, fire, war, or any other  unforeseen disaster which has occurred beyond the control of any party, that party shall be  discharged of its related commitments in this contract provided:            ­ The Force Majeure is the proximate cause which obstructs or delays the execution of the  contract ­ That each party has tried all possible measures to overcome such occurrences ­ That each party shall immediately, after such occurrence, inform the other party of the  same and within 20 days, send the other party a written notice indicating the measures  undertaken and the cause which prevents the execution of the Contract duly confirmed by  the relevant authorities at the place where the disaster occurs Article 15: LIQUIDATION In case of liquidation as stated in Article 14 of this contract, the Board of Management shall  appoint a committee to execute the liquidation During liquidation, the assets of the company shall first be used to pay for worker's salaries,   unpaid taxes, due debts, and liquidation expenses, the other. assets . shall be shared by  the two parties according to their rate of capital contribution (both for profits and losses)  The   Name   of   activities   of   the   Liquidation   Commission   shall   be   stated   in   details   in   the  Charter of the Joint Venture Company In   case   of   bankruptcy   as   stated   in   Article   14   of   this   contract,   the   liquidation   shall   be  executed in conformity with Article 19 of Law on Foreign Investment • Article 16: DISPUTE   Upon   the   approval   of.   the   State   Committee   for   Cooperation   and   Investment,   the   Joint  Venture   Contract   shall   become   a   juridical   document   which   shall   bn   respected   by   both  parties Any one­sided contractual termination is not valid. Any   dispute   between   the   two   parties   arising   from   the   execution   of   this   Joint   Venture  Contract   shall   first   be   resolved   through   mutual   consultations   and   amicable   settlement  proceedings; if, however, the two parties fail to reach an agreement, 'the dispute shall be   referred to the Singapore Economic Arbitration All matters that are not provided for in this Contract but are necessary for the carrying out of  the objectives of the Joint Venture , Company will be carried out by each party in accordance with the Charter of the Joint­ Venture Company or­the applicable­Investment Law and Implementing Decree This contract is made in 10 copies in English and Vietnamese and comes into effects on the  date of issuance of the Investment License, Signed on ...... ...... ...... ......19 ...... FOR FOREIGN PARTY FOR THE VIETNAMESE PARTY: IMEXPAN­PACIFIC INCORPORATED DEPARTMENT OF HOME TRADE HANOI

DUONG DINH DIRECTOR JOHNATHAN H. NGUYEN PRESIDENT

(page 158) CONTRACT OR NO CONTRACT

ầ ấ ạ ợ ồ ộ ỉ ề ả ấ ấ ồ ụ ủ ợ ồ ợ

ỹ ố ả ồ ợ ị ậ ề ợ ấ ợ ư ệ ồ ị ợ

THE PROBLEM If a dispute arises about a contract, the lawyers for each side study the text to see if the contract is a binding and enforceable agreement or if there are loopholes: can one side say the "contract" is not worth the paper it is written on? Each applicable law looks at this problem differently. What reasons are common in international cases for deciding that the parties have "no contract"? THE PRINCIPLE Under most legal systems, a contract is enforceable only if (a) the parties achieve a "meeting of minds" through a process of offer and acceptance, if (b) both sides are capable ệ of entering a contract, and if (c) the purpose of the contract is legal. Theo h u h t các h ế ự c s th ng pháp lý, h p đ ng có tính ch t ràng bu c ch khi nào (a) các bên đ t đ ố ượ “th ng nh t ý chí” thông qua quy trình đ ngh và ch p nh n, (b) c hai bên có năng l c ký ự ậ ị ố An odd twist of Anglo-American k t h p đ ng, và (c) m c đích c a h p đ ng h p pháp. ế ợ law is that the contract must give both sides rights and duties—one-sided contracts are "no contract." Lu t pháp Anh- M v n r t ph c t p cho r ng h p đ ng ph i quy đ nh trách ứ ạ ằ ả i cho các bên – h p đ ng ch có m t phía đ a ra b xem là “không ph i nhi m và quy n l ộ ỉ h p đ ng”. ồ IN MORE DEPTH ADVERBIAL CLAUSES OF CONCESSION Though/ Although he is 1) sick, he goes to work.

No matter how sick he is, he goes to work.

However sick he is, he goes to work. Though/ Although their lines of reasoning are different, Continental laws and Anglo-American laws are both geared to … No matter how different their lines of reasoning are, Continental laws and Anglo-American laws are both geared to However different their lines of reasoning are, Continental laws and Anglo-American laws are both geared to However sick, he goes to work.

Sick as he is, he goes to work.

Despite/ In spite of/ Notwithstanding sickness, he goes to work. Though/ Although sick, he goes to work. However different their lines of reasoning, Continental laws and Anglo-American laws are both geared to Different as their lines of reasoning are, Continental laws and Anglo-American laws are both geared to Despite different lines of reasoning, Continental laws and Anglo-American laws are both geared to Their lines of reasoning being different, Continental laws and Anglo-American laws are both geared to …

(II) Though he goes everywhere, he always remembers his home. No matter where he goes, he always remembers his home. Wherever he goes, he always remembers his home. Despite any place he goes to, he always remembers his home. (III)Though he says anything, he is a bad manager.

ụ ậ ị ỹ ề ư ồ ủ ệ ủ ầ ớ ộ ố ế ẫ ư ứ ỏ ư ụ ậ However different their lines of reasoning, Continental laws and Anglo-American laws are both geared to the needs of the international business community: different procedures, different drafting styles, different agreements—but a common purpose and, in many cases, duy có khác nhau, nh ng lu t pháp c a châu Âu L c đ a và Anh- a common result. Dù t ử : quy trình xét x , i đáp ng nhu c u c a c ng đ ng doanh nghi p qu c t M đ u nh m t ắ cách d th o, cách th a thu n tuy khác nhau nh ng m c đích v n nh nhau và trong ự ả ư ng h p, k t qu cũng nh nhau. nhi u tr ả ườ ề ư ế ợ

This is particularly true in deciding the issue of contract or no contract. The Anglo-American argues that a contract is an enforceable agreement, and that an "invalid contract" is therefore a contradiction in terms; the Continental lawyer has no trouble with the idea of an invalid contract. For the exporter, it makes no difference if the lawyer tells him he has "no contract" or an "invalid contract"—either way he is in trouble. What are the most likely causes of such an uncomfortable situation? -

The Meeting of Minds A contract comes about when there is a meeting of minds, when one side says "I make you this offer" and the other side says "I accept." But sometimes there is a written agreement and no "meeting of minds." How can that happen?

Duress If I hold a pistol to your head and force you to sign a contract, this is duress—undue pressure. A contract never came into existence because there was no meeting of minds. Similarly, if one party has an excessively strong position (a monopoly on the supply of a vital raw material, for example), and if this party uses this position to dictate grossly unfair terms, the agreement is likely to be ruled "unconscionable." An unconscionable agreement is no contract.

Mistake and Fraud A mistake about the goods or a deliberate fraud can mean that there was no meeting of minds. For example, I could have a contract with you to buy the cargo of the Empress of Verbena for $900. Unfortunately there are two ships of this name: I was selling the cargo of one, and you believed you were buying the cargo of the other. Or if I try to cheat you by saying that the cargo consists of new leather jackets when the jackets are unused but thirty years old—in each case there was no meeting of minds and no contract.

Failure to Follow the Rules of Offer and Acceptance A contract comes into force when an offer is made by one side and accepted by the other. Complex rules govern this process and they are often broken. What are these rules?

Offer and Acceptance A contract comes into existence when one party (the offerer) makes an offer, and another party (the offeree) accepts it. An offer is not always, in international practice, the first move in forming a contract. Often the buyer first makes an inquiry or, more formally, issues a Request for Tender. In line with this inquiry, the exporter makes a tender or an offer, usually the offer is open for a stated period of time. If the buyer rejects the offer, it is clearly dead; as soon as the buyer says "No," the exnorter is no longer bound by the offer. Normally, of course, buyers do not say “No”- they make a counteroffer: “You want 900. I’ll offer you 600.” In other words, “Yes, if …” What is on the negotiating table now? The counteroffer is a rejection; in effect it kills the original offer. On the table now is not an offer to sell for 900 but an offer to buy for 600. The exporter must now make a choice: accept, reject, or make another counteroffer, for example: “Let’s say 800.” The cycle of offer and counteroffer continues until one side says “I accept” or until negotiations are broken off. When a dispute arises- especially if there is no written contract- lawyers scrutinize the process of offer and acceptance, trying to discover the exact point, if any, at which a contract came into existence. Since most negotiations deal with many issues at the same time- price, payment, delivery, warranty- deciding if the parties really have a contract and, if so, on what terms, can become an expensive nightmare. This is one main reason to put every agreement into writing and sign it.

THE ENTIRE AGREEMENT CLAUSE

For the Anglo-American exporter, signing a contract amounts to saying everything we discussed so far is now dead- this contract is the final form of our entire agreement. This principle derives from an ancient rule of English law known as the Parol Evidence Rule. For the Continental exporter this is not so: a letter that predates the contract, a memo, the minutes of a meeting- all might have some bearing on the contract,

CONCEPT REVIEW: BUTTONED UP

Verbena Paintshop makes spray-painting equipment. It sells a unit costing $55.000 to Esperanza Respray, a small company that resprays busses and tracks. Delivery (FOB) takes place on 3rd August 2004. The machine is inspected in Esperanza on 18th September 2004. On 10th January, Esperanza Respray notifies the exporter that the compressor in the spraying unit has failed, and that the machine cannot be used. Verbena Paintshop sends a replacement compressor by air; it arrives on 5th February, 2005. On 16th September 2005, Esperanra Respray notifies the exporter that the compressor failed for a second tirne on 20th August and asks for a further replacement. Verbena Paintshop refuses. Study the Defects Liability provision below. What arguments are the two two sides likely to put forward in making their cases?

Defects Liability Period The Defects Liability Period shall be a period of six months. If any defect occurs during the Defects Liability Period, the Buyer shall forthwith inform the Seller in writing the details of the defect. The Seller shall be responsible for making good with all possible speed any defect as notified which arises from defective materials, workmanship or design. The provision of this clause shall apply to any goods repaired, replaced or otherwise made good by the Seller, but not so as to extend the Defects Liability Period for more than twelve months from the commencement date of original defects liability period. 1. .Arguments likely to be used by Espsranza Respray: ………………………………………………………………………………………………………… ………………………………………………………………. 2. Arguments likely to be used by Verbena Paintshop: ………………………………………………………………………………………………………… ………………………………………………………………. 3. Points requiring better regulation in this defects liability provision: ………………………………………………………………………………………………………… ……………………………………………………………….

1. Espcranza Respray will argue that the compressor is obviously a poorly made item since it failed twice—there is probably a defect in design. Further it will say that the exporter's liability for defects extends to all replaced items. The second failure occurred—and was notified—within the maximum agreed defects liability period, i.e., twelve months from the commencement of the period. 2. Verbena Paintshop has two arguments: firstly there was a delay of four weeks between the second failure and the required notification: this is not notification "forthwith:" the failure to offer timely notification cancels the seller's duty to cure the defect; Secondly, the defects liability period began with delivery (3rd August 2004); the failure of the compressor thus occurred when it was no longer under warranty. 3. The clause would be clearer if it stated when the defects liability period began. Under most applicable laws the period begins with delivery. More exact specification of the notification period is not common or necessary.

CONCEPT REVIEW: WHO CHOOSES? The defects liability provision below is taken from a set of general conditions in common use by Chinese companies. Read the answer the questions

The Seller warrants that goods are made of the best materials, with first class workmanship, and comply in all respects with the specifications given in Annex B. The Seller warrants that the goods when correctly mounted and properly operated and maintained, shall give appropriate performance for a period of twelve months. If a defect in materials, workmanship or design, or any discrepancy with specifications comes to light during the warranty period, the Seller shall at his own cost satisfy the claim, subject to the agreement of the Buyer in one of the following ways:

a. Agree to the rejection of the goods and refund to the Buyer the value of the goods thus rejected;

b. Reduce the price of the goods according to the degree of inferiority, extent of damage, or amount of loss suffered by the buyer; c. Replace the defective goods with new goods which conform to the quality and performance given in Annex B; d. Repair the defective goods to bring them in conformity with the quality and performance specifications given in Annex B; e. Allow the Buyer or a third party appointed by the Buyer to repair the defective goods and to bring them in conformity with the quality and performance specifications given in Annex B at Seller’s risk and cost.

EXPORTER

1. Are these general conditions Conditions of Sale or Conditions of Purchase? SALEPURCHASE 2. If there is a defect, who chooses the method of cure? BUYER 3. Is this a warranty of freedom from defects on delivery or a warranty of durability? DURABILITY FREEDOM FROM DEFECTS

1. Conditions of Purchase. (See answer to question 2) 2. The exporter proposes a method, but the buyer must agree to it. Thus the buyer is in control, 3. Durability. Another sign that we are dealing with conditions of purchase.

CONCEPT REVIEW: WHO PAYS?

Verbena Medical makes hospital beds and other hospital furniture. It exports 40 beds to South Central Hospital in Espcranza City. The defects liability provision in the contract includes this wording:

The Seller shall indemnify and hold harmless the Buyer against any loss or damage whether direct or indirect suffered by the Buyer as the result of defective or faulty goods delivered by the Seller.

Assume that the coniract is subject to the law of Espcranza which is modelled on U.S. law. During the defects liability period, one of the beds collapses with unfortunate results: 1. The bed itself is unusable and must be replaced; 2. The patient who was in the bed is injured, with extra medical costs of $5,000; 3. The injured patient, a rich politician, threatens the hospital with a lawsuit for his "pain and suffering"—the. hospital pays the patient $9,000 to avoid the lawsuit; 4. Hospital equipment around the bed is damaged—the equipment cost $4,000; 5. The ward where the bed was situated is a private ward—it cannot be used for 3 days with a loss to the hospital of $3.000: 6. Two orderlies at the hospital start a fight over who broke the bed—one of them is hospitalized at a cost of $5,000; 7. During the fight, equipment is smashed at a cost of $8,000.

Which costs must Verbena Medical most probably pay? 1.  2.  3.  5.  7.  4.  6.  :

6. No 1. Yes 3 Possibly 5. Yes 7. No 2. Yes 4 Yes

SUMMARY: What You Should Know 1. The purpose of the defects liability provision is to allow the exporter to cure defects in delivered goods: the provision'must therefore explain the corrective action he must take. 2. The normal options are to repair, to replace, to allow reduction in the price of the goods, allow return of the goods, or to allow the buyer to repair the defect at the exporter's expense. 3. The exporter likes to have full discretion over what corrective action he takes; buyers, however, resist this. 4. The exporter usually, though not always, pays for curing defects. 5. The consequences of a defect can be costly; the panics often negotiate at length to decide who pays for consequential loss or damage.

CONCEPT REVIEW: BUTTONED UP

Verbena Paintshop makes spray-painting equipment. It sells a unit costing $55.000 to Esperanza Respray, a small company that resprays busses and tracks. Delivery (FOB) takes place on 3rd August 2004. The machine is inspected in Esperanza on 18th September 2004. On 10th January, Esperanza Respray notifies the exporter that the compressor in the

spraying unit has failed, and that the machine cannot be used. Verbena Paintshop sends a replacement compressor by air; it arrives on 5th February, 2005. On 16th September 2005, Esperanra Respray notifies the exporter that the compressor failed for a second tirne on 20th August and asks for a further replacement. Verbena Paintshop refuses. Study the Defects Liability provision below. What arguments are the two two sides likely to put forward in making their cases?

Defects Liability Period The Defects Liability Period shall be a period of six months. If any defect occurs during the Defects Liability Period, the Buyer shall forthwith inform the Seller in writing the details of the defect. The Seller shall be responsible for making good with all possible speed any defect as notified which arises from defective materials, workmanship or design. The provision of this clause shall apply to any goods repaired, replaced or otherwise made good by the Seller, but not so as to extend the Defects Liability Period for more than twelve months from the commencement date of original defects liability period. 1. .Arguments likely to be used by Espsranza Respray: ………………………………………………………………………………………………………… ………………………………………………………………. 2. Arguments likely to be used by Verbena Paintshop: ………………………………………………………………………………………………………… ………………………………………………………………. 3. Points requiring better regulation in this defects liability provision: ………………………………………………………………………………………………………… ……………………………………………………………….

1. Espcranza Respray will argue that the compressor is obviously a poorly made item since it failed twice—there is probably a defect in design. Further it will say that the exporter's liability for defects extends to all replaced items. The second failure occurred—and was notified—within the maximum agreed defects liability period, i.e., twelve months from the commencement of the period. 2. Verbena Paintshop has two arguments: firstly there was a delay of four weeks between the second failure and the required notification: this is not notification "forthwith:" the failure to offer timely notification cancels the seller's duty to cure the defect; Secondly, the defects liability period began with delivery (3rd August 2004); the failure of the compressor thus occurred when it was no longer under warranty. 3. The clause would be clearer if it stated when the defects liability period began. Under most applicable laws the period begins with delivery. More exact specification of the notification period is not common or necessary.

CONCEPT REVIEW: WHO CHOOSES? The defects liability provision below is taken from a set of general conditions in common use by Chinese companies. Read the answer the questions

The Seller warrants that goods are made of the best materials, with first class workmanship, and comply in all respects with the specifications given in Annex B. The Seller warrants that the goods when correctly mounted and properly operated and maintained, shall give appropriate performance for a period of twelve months. If a defect in materials, workmanship or design, or any discrepancy with specifications comes to light during the warranty period, the Seller shall at his own cost satisfy the claim, subject to the agreement of the Buyer in one of the following ways:

a. Agree to the rejection of the goods and refund to the Buyer the value of the goods thus rejected; b. Reduce the price of the goods according to the degree of inferiority, extent of damage, or amount of loss suffered by the buyer; c. Replace the defective goods with new goods which conform to the quality and performance given in Annex B; d. Repair the defective goods to bring them in conformity with the quality and performance specifications given in Annex B; e. Allow the Buyer or a third party appointed by the Buyer to repair the defective goods and to bring them in conformity with the quality and performance specifications given in Annex B at Seller’s risk and cost.

1. Are these general conditions Conditions of Sale or Conditions of Purchase? SALEPURCHASE 2. If there is a defect, who chooses the method of cure?

EXPORTER

BUYER 3. Is this a warranty of freedom from defects on delivery or a warranty of durability? DURABILITY FREEDOM FROM DEFECTS

1. Conditions of Purchase. (See answer to question 2) 2. The exporter proposes a method, but the buyer must agree to it. Thus the buyer is in control, 3. Durability. Another sign that we are dealing with conditions of purchase.

CONCEPT REVIEW: WHO PAYS?

Verbena Medical makes hospital beds and other hospital furniture. It exports 40 beds to South Central Hospital in Espcranza City. The defects liability provision in the contract includes this wording:

The Seller shall indemnify and hold harmless the Buyer against any loss or damage whether direct or indirect suffered by the Buyer as the result of defective or faulty goods delivered by the Seller.

Assume that the coniract is subject to the law of Espcranza which is modelled on U.S. law. During the defects liability period, one of the beds collapses with unfortunate results: 1. The bed itself is unusable and must be replaced; 2. The patient who was in the bed is injured, with extra medical costs of $5,000; 3. The injured patient, a rich politician, threatens the hospital with a lawsuit for his "pain and suffering"—the. hospital pays the patient $9,000 to avoid the lawsuit; 4. Hospital equipment around the bed is damaged—the equipment cost $4,000; 5. The ward where the bed was situated is a private ward—it cannot be used for 3 days with a loss to the hospital of $3.000: 6. Two orderlies at the hospital start a fight over who broke the bed—one of them is hospitalized at a cost of $5,000; 7. During the fight, equipment is smashed at a cost of $8,000.

Which costs must Verbena Medical most probably pay? 1.  2.  3.  5.  7.  4.  6.  :

1. Yes 3 Possibly 5. Yes 7. No 6. No

2. Yes 4 Yes (Page 42) TRANSPORT THE PROBLEM For the exporter, transportation has two aspects: the physical safety of goods – which means appropriate packaging and correct marking – and correct documentation. Unless the shipping documents are in perfect order, prompt payment under a letter of credit is difficult or impossible. What are the dangers? THE PRINCIPLE The parties should state in their contract what packaging should bear. The exporter must follow the agreement scrupulously or payment may be delayed. The exporter should ensure that the shipping documents correspond exactly with the conditions of the letter of credit and that the bill of ladding is “clean,” otherwise, again, payment can be seriously delayed.

ầ ế ồ ồ ả ả ỉ ề ọ t kê là c li c nêu rõ trong h p đ ng, các th t ợ ế ứ ả ượ ề ủ ợ ư ừ ệ c a h p đ ng”, và đ nh nghĩa cũng r t quan tr ng khi so n th o. (Page 169) THE CONTRACT AS THE ENTIRE AGREEMENT THE PROBLEM An ancient rule of Anglo-American law states that the final written version of the contract replaces all previous agreements between the parties. What implications does this rule have for the exporter? THE PRINCIPLE Most international contracts – whatever legal system they adopt – include an “entire agreement provision. “This clause has important results: the background of the contract must be established within the contract itself, important letters and memoranda must be listed as “contract documents,” and definitions play an important part in contract drafting. H u h t các h p đ ng qu c t ả c v n d ng – đ u ph i ệ ố ế ợ bao g m đi u kho n “h p đ ng hoàn ch nh.” Đi u kho n này có tác đ ng h t s c quan tr ng: b i ố ợ ề ồ c nh c a h p đ ng ph i đ ồ ả ượ ồ ả “ch ng t ừ ủ ợ ứ - cho dù đó là h thông pháp lý nào đã đ ượ ậ ụ ộ , memo ph i đ ả ấ ạ ọ ồ ị

IN MORE DEPTH

When an exporter and a buyer sign a contract, are they simply adding the final link to a chain of agreements? Or are they putting into words a final and definitive version of everything agreed so far? The Continental and Anglo-American systems differ widely in their answer to these questions.

THE WHEREAS RECITAL: THE BACKGROUND OF THE CONTRACT In most exporter deals, the contract is the “entire agreement.” Unfortunately, however, the text of a contract seldom answers important background questions: Why did the parties sign the contract in the first place? What made the deal attractive? How long had the parties known each other? What future business did they hope for? And so on. If a dispute arises, the judge must ask such questions in order to understand the contract fully; often the parties give different answers. How can the court establish the truth? If the contract is the entire agreement, then earlier letters and documents cannot be used as evidence. To overcome this uncertainty, lawyers write the answers to background questions into the contract. Through the whereas-recital. Contracts often begin:

THIS PROCUREMENT CONTRACT between The Styropak Company of Nonamia and Verbena Packaging Ltd. Of Verbena Witnesseth that

WHEREAS the parties have for many years successfully traded together

AND WHEREAS Styropak has recently developed biodegradable styrofoam packaging

The parties hereby agree ……..

The word “whereas” means “because” or “considering that”; in other words whereas-clauses are not provisions, promises or conditions—they are explanations. A typical whereas-recital contains many types of background information. An example from a technology acquisition contract:

- WHEREAS the parties have successfully cooperated in a number of projects in the Republic of Verbena during the last. ten years; (Background of Collaboration)

- WHEREAS the Supplier has wide experience in the supply of electronic products for use in tropical conditions; (Expertise of the parties)

- WHEREAS the parties concluded on 28 May 2007 a Memorandum of Understanding and intend to develop products for Verbena; (Previous Agreements)

- WHEREAS the Supplier has developed and patented an electronic relay under the registered trade-name "Hair Trigger"; (Reference to a Patent)

- WHEREAS both parties are interested in introducing this new technology into the East Asian region; (Mutual Interest)

- WHEREAS the purchaser wishes to incorporate the latest relay-manufacturing technology in its own products; (Goals of the Parties)

- AND WHEREAS the government of the Republic of Verbena actively supports the introduction of pioneer technology (Economic Support Available)

It is hereby agreed that ……

Contracts for the sale of goods seldom contain so much information, but the purpose of any recital is the same: if a dispute arises, the recital allow the court to discover the real meaning of the contract through an understanding of the expectations of the parties when they signed it. Sometimes the exporter is tempted to treat the recital as a chance to promote his skills and the excellence of his products. This is a mistake. If the contract gets into trouble, the buyer will have a "big stick" with which to beat the exporter "You told me you were the

best — and I acted on that belief." If big claims are in the recital in black-and-wnite the exporter is trapped. In a contract written under a Continental Law, a recital (or "preamble") is useful—it prevents misunderstanding—but it is not essential. Continental lawyers often avoid the complicated grammar of the whereas-clause; they prefer simple sentences under the heading Preamble. The legal result is, of course, exactly the same.

DEFINITIONS Another result of the entire agreement provision is the need for a definitions section. Many terms are discussed during negotiations- faxes and letters andlikely to be exchanged asking “What exactly do you mean by…?” It is common practice to group all definitions in a section of their own near the beginning of the contract. Every word that the two sides discuss during their negotiations is likely to require a definition.

CONCEPT REVIEW 3: MAKING CLAIMS Verbena Leather makes leather carrying cases for cameras, lap-lop computers and other hi-tech personal equipment. It has successfully exported one consignment of its products to Japan, but it has otherwise sold mostly in the local market. A buyer in the United States is interested in making a large purchase. During the negotiations, the American buyer mentions the whereas-recital and offers the wording he wants to include in the contract. Read it and then answer the questions.

Whereas Verbena Leather has a highly trained workforce and the most modern leather-making machinery; And whereas Verbena Leather has wide experience is supplying products to all parts of the world; . . And whereas Verbena Leather is fully familiar with regulations regarding import of leather goods into the United States; The parties nereby agree...

1 Why does the American buyer want this wording in the recital? ………………………………………………………………………………………….. 2. Why might such high claims be dangerous for Verbena Leather? ………………………………………………………………………………………….. 3. Does this whereas-recital have any advantages for Verbena Leather? YES NO

1. The wording will help the buyer if the products run into technical or regulatory problems in the United States. The exporter cannot plead ignorance or inexperience. 2. An experienced exporter will always run into trouble in new market. If a dispute arises, the judge might well take this fact into account in deciding the case- but not if this wording is in the recital. 3. No.

CONCEPT REVIEW 2: Top Priority

The clause below is taken from a set of tender documents for the supply (and installation) of a lighting system. It has three obvious weaknesses. What are they?

'"Contract Documents" means collectively the completed Tender Documents with possible supplements, the Contract Agreement, Tender Drawings, the Notice of Award, the Performance Bond, the Guarantee for Advance Payment, the Form of Retention Guarantee, the Copy of Policy for Third Party Insurance, the Letter of Power of Attorney and the Joint Venture Agreement (if any) with annexures and appendices included therein and any additions, supplemental agreements, change orders and extra work orders (if any).

1. ……………………………………………………………………………………………. ……………………………………………………………………………………………….. 2. ……………………………………………………………………………………………. ……………………………………………………………………………………………….. 3. ……………………………………………………………………………………………. ………………………………………………………………………………………………..

1. The list has no order of precedence: if there is a conf.ict among the documents, nobody will know which prevails. 2. The list is carelessly put together—it includes anything that might be important; it should be cut back to essentials. 3. By using the words "if any," the list includes documents which may not even exist. CONCEPT REVIEW 3: Hide and Seek

Let us stay with the leather goods contract from Concept Review 1, Making Claims. During negotiations the two sides spend a great deal of lime discussing the type of leather to be used. One product, as it is agreed, is to be made of "antelope hide" and the specifications in the contract include that phrase. But what is an antelope? There is a long exchange of faxes on this subject; finally the two sides agree a list of breeds that are "antelopes as far as the contract is concerned. The list is important, and it is signed by both sides. After this the contract is signed. Relying on this signed list, Verbena Leather uses gazelle skin (which is included in the list) for some products. The American buyer objects and tries to reject the delivered goods. The dispute goes before a judge in California.

What are the irnportant considerations in deciding who is right? 1. ……………………………………………………………………………………………. ……………………………………………………………………………………………….. 2. ……………………………………………………………………………………………. ……………………………………………………………………………………………….. 3. ……………………………………………………………………………………………. ………………………………………………………………………………………………..

The essential question is this: is the list of breeds part of the contract or not? To decide this, we must first ask if the list of breeds is mentioned in the contract as a contract document. If it is, then it is pan of the contract and enforceable. If it is not mentioned as a contract document, then we must ask if the contract contains an entire agreement provision or, failing that, if the applicable law assumes that the contract is the entire agreement. If—for whatever reason—the contract is the entire agreement, then the list of breeds, which was agreed before the contract was signed, has no validity.

SUMMARY: What you Should Know

1. The Anglo-American contract is, traditionally, the entire agreement. To avoid confusion, most international contracts contain an "entire agreement" clause (re)stating this position. 2. The entire agreement clause means that all documents that predate the concract become invalid when the contract is signed. 3. One result is that the background to the contract—often needed by a court to interpret the contract—is provided in the form of a whereas-recital. 4. Any important documents (tellers, memo rand-urns, and so on) that predate the contract are listed in the contract as "contract documents." Such documents must be given an order of seniority in case of contradictions. 5. Definitions of terms agreed during negotiations are included in a definitions sections in the concract.

TERMINATION “Termination” occurs when either party pursuing power created by agreement or law puts an end to the contract otherwise than for its breach. Thus runs America’s UCC. If the two sides agree in the contract that one of the parties may, under certain circumstances, end the contract, then this is an act to terminate. In practice, there are two kinds of termination: termination for convenience and termination for default. Termination for convenience occurs when one party (usually the buyer) simply decides to drop the contract. No rule is required. This is unusual in a standard export contract, but is common in time-frame contracts. (A time-frame contract is one which allows the buyer to order items at his discretion over a long period of time- two years perhaps.) Termination for default occurs when the contract sees certain defaults which allow one side (usually the buyer to terminate, Contracts within an Anglo-American framework tend to stipulate that on termination (for whatever reason), the “party terminated” has the right to be paid for all supplies or services correctly delivered. Contracts within the Continental framework tend to omit this provision, relying on the applicable law to resolve the issue. To avoid any uncertainty, termination clauses should include such wording as:

In the event of termination for whatever reason, the Seller shall be entitled to receive full payment for all goods and services delivered by the Seller at the date of termination.

An example, then, from an American time-frame contract:

Termination for Default The Buyer may by written notice of. default to the Seller, terminate the whole or any part o£ this contract in any one of the following circumstances:

(i) If the Seller fails to make delivery of the Goods within the time specified herein; (ii) If the Seller fails to perform any of the other provisions of this contract, or so fails to make progress as to endanger performance of this contract in accordance with its terms, and in either of these two circumstances does not cure such failure within a period of 10 days.

CANCELLATION When one party breaches a contract, the other has the right to demand cancellation of the contract.'" Cancellation' occurs when either party puts an end to the contract for breach.Note the difference between termination and cancellation. The contract is terminated under a provision of the contract: a contract is cancelled when one side has breached and the other simply refuses to proceed. Docs every breach allow cancellation by the other party? Clearly not. The law dues everything it can to enforce contracts- cancellation on trivial grounds makes no legal sense. Accordingly, most laws see a breach as either fundamental or noi fundamental. A fundamental breach goes ''to the heart of the contract" and allows the other side " to say —"Enough. The contract is over." How can you decide what is and what is not "fundamental breach"? Some cases are easy to decide, but there is a large gray area— under every well-established law, the courts are frequently .askcd to make decisions on hard cases. When a contract is cancelled, a payment problem arises: should the party in breach receive compensation for duties performed so far? Courts worldwide find it difficult to establish a principle on this, and judgment is usually on a case-by-case basis. Naturally the party in breach has a weak case: even so, there is some chance of recovering what has genuinely been earned.

RESCISSION Termination and cancellation are both one-sided procedures. When the two parties agree to end a contract, the generally used term is rescission. Lei's say, for example, that a supplier of electric cable has difficulty supplying the quality his customer requires, and the customer has meanwhile found a cheaper supplier elsewhere. Both sides now have an interest in dissolving the contract. In legal theory, they enter a new contract to annul the old contract. (The mutual surrender of rights is seen as providing the necessary consideration.) Unfortunately the term rescission is used in other contexts than a mutual agreement to end a contract; international contract drafting would benefit if it were not.

Impossibility and Frustration Occasionally a contract is discharged because it is impossible or totally pointless to continue with it. The classic cases are a contract to rent a music hall which burns down—no music hall, no contract—and a contract to rent scats along the route of a procession which is cancelled—once again, no procession, no contract. Most legal systems recognize that sometimes a contract has lost its point and give one of the parties the right to end it. But the courts are reluctant to allow this—contracts are signed to be kept, not to be broken. The exporter is wise to assume that performance will be required.

THE LANGUAGE OF THE CONTRACT Whenever versions of a single document exist in two languages, there are Conflicts: no translation is ever perfect. Ideally, the parties should agree on a contract language, making it clear that translations do not have the same authority as the original version in the contract language. What happens, though, if the parties cannot agree? There are two roads: (a) the parties say nothing at all—in a dispute, the judge decides which version to trust; (b) the parties make two (or more) versions equally authoritative; again, the judge decides which version to favor.

CONCEPT REVIEW 1 TONGUE TWISTER

Read this status-of-the-contract and assume the contract says nothing else about language.

Copies of the Contract, one in English and one in Swahiti, have been signed by bothe parties. Each party retains one copy in each language.

1. 2. What are the dangers of a clause like this? Why do you think the two sides accepted it?

1. Translations always produce conflicts; the danger here is that nobody knows which version prevails. 2. The reason that two sides accept a loose clause like this is usually laziness — and a hope that problems will not arise. Not the best contract practice.

CONCEPT REVIEW 2 Fundamentals

It is seldom easy to decide if a failure to perform by the other side constitutes a "fundamental breach." Remembering that difficult cases often finish up in the courts because the lawyers for the two sides cannot agree, look at each of these situations and make your "best guess." . 1. Delivery is two weeks late. The exporter is required under the contract to pay liquidated damages of 0.5% of the contract price per week up to a maximum of 5%.  FUNDAMENTAL  NOT FUNDAMENTAL  NO BREACH 2. Same situation, except that delivery is sixty weeks late.  FUNDAMENTAL  NOT FUNDAMENTAL  NO BREACH 3. A machine that is of the greatest importance in the buyer's operations breaks down one week after delivery. There is a six month defects liability provision in the contract.  FUNDAMENTAL  NOT FUNDAMENTAL  NO BREACH 4. The buyer agrees to open a letter of credit, but. three months after the agreed date, the letter of credit has still not been opened.  FUNDAMENTAL  NOT FUNDAMENTAL  NO BREACH 5. The buyer agrees to open a confirmed letter of credit with the First World Bank of Sheboygan. When the confirmed letter of credit arrives, it is issued by the Moon Bank of Verbena.  FUNDAMENTAL  NOT FUNDAMENTAL  NO BREACH

1. No breach. The contract allows late delivery. 2. Almost certainly fundamental breach. Sixty weeks delay is fifty weeks longer than the contract foresaw in the liquidated damaged provision. Such a delay would, in most cases, go "to the heart of the contract." 3. No breach. The contract foresees cure of defects. 4. Fundamental breach 5. Probably not fundamental breach—the issuing bank has asked for, and received.confirmation by a bank in the exporter's country. The exporter' s interests are fully covered.

Settlement of Disputes THE PROBLEM Many disputes are unnecessarily bitter because the parties did not specify a clear and detailed procedure for settling their problems. What procedures are available? What works best in the international context? THE PRINCIPLE Most negotiators prefer to take disputes to arbitration before a specialist court rather than litigation before a local judge. To avoid lengthy and expensive proceedings, a well drafted contract specifies an acceptable arbitration procedure. IN MORE DEPTH' Signing a contract is like a wedding in that few of the people involved foresee the arguments, the disputes—even the quarrels—that generally the ahead. Unlike marriage partners, however, the panics to a contract regulate in advance, either expressly or implicitly, a mechanism for settling their disputes. If the contract says nothing explicit, then the applicable law provides the answer litigation before a judge. Litigation Of the three options available for settling disputes, litigation before the courts is internationally the least attractive: it is public, it is expensive, it is time-consuming, and the results are very legalistic rather than businesslike. For the exporter and the buyer, litigation in a civil court creates special problems: if it sometimes appears difficult to get justice in one's own country-—in a foreign country it may seem impossible. Yet one side must inevitably appear in a foreign court. Since most people are reluctant to accept this serious disadvantage, what are the other choices? Many contracts foresee a two-step process for dispute resolution: * Amicable Settlement;

* Arbitration. The first step—amicable settlement—is not essential, but it is worth considering in any export negotiation. Amicable Settlement and Conciliation The very word "dispute" suggests an angry confrontation between two sides each of which believes it is in the right—an unhealthy business situation. An amicable settlement clause calls for the friendly settlement of disagreements before they turn into disputes. A typical wording: Resolution of Disputes The Buyer and the Seller shall make every effort to resolve amicably by direct, informal negotiation any disagreement or dispute arising between them under or in connection with the Contract.

ARBITRATION If the two sides cannot reach agreement between themselves, the resolution of their dispute requires a forum. This is a court of law unless the parties specify otherwise. In practice, most contracts do specify otherwise, calling arbitration. Arbitration has a long history. It began with courts set up by medieval trade guilds to settle disputes among guild members. Such members-only courts kept things private and cheap; further the judges were senior practitioners of the craft who understood the business perfectly.

The other advantages of arbitration are: * Its tendency to be quicker than litigation (at least there is no lengthy appeals procedure); * The foreseeability of the costs. On the other hand, costs are extremely high, and many costs- executive time invested in preparing the case, for example- can never be recovered. Even so, most contracts contain a clause specifying arbitration; compared with litigation it is generally seen as the lesser of two evils. In drafting an arbitration clause, four practical questions must be resolved: - How many arbitrators sit in the court? -Where does the court sit? -What is the language of the court? -Who pays court costs?

Does the court of arbitration have the power to enforce its judgement and make others comply? In a direct sense, no. In practice, however, an arbitral award can normally be enforced through the civil courts. Civil courts take necessary steps to order to pay for fine or compensation because most trading countries have accepted the major international convention on the enforcement of awards- the so-called New York Convention. Others have bilateral arrangements or have signed other accords. But a word of caution is in order here: having a right to enforcement and achieving enforcement are two different things. If the buyer comes from a. country which has a. poor reputation for enforcing awards—-or if the country is not a signatory to the Convention—then the exporter should be especially careful to ensure that payment is secure preferably with an al-sight, confirmed letter of credit. Money in hand is always preferable to a right to be paid money in a far-off country.

In Conclusion Overall, the main concern of the two sides should be dispute avoidance, rather than dispute management. Formal dispute resolution is expensive and damaging to business relationships—even if you win.

CONCEPT REVIEW Beyond Dispute Blue King Beer is a brewery in Verbena that exports about 40% of it production. Blue King is negotiating with a hotel chain in Esperanza to supply a range of "fancy" beers suited to the taste of tourists. The minimum contract price over a period of three years is agreed as $400,000—about 5% of Blue King's turnover. During negotiations the subject of a settlement of disputes clause comes up. How would you advise the two sides when they ask you the following questions? In each case give your reasons in the space provided. 1. Is it reasonable to omit a settlement of disputes clause completely?  YES  NO .................................................................................. 2. If no, should we specify arbitration? Or litigation?  ARBITRATION  LiTiGATiON ................................................. 3. Should we add an amicable settlement provision?

 YES  NO ................................................................................. 4. If yes, should this provision contain a detailed procedure for amicable settlement?  YES  NO .............................................................................. 5. If a contract specifies arbitration, where is. the best place tor the tribunal to meet?  UNSPECIFIED  BUYER'S COUNTRY  NEUTRAL COUNTRY  EXPORTER'S COUNTRY.  COUNTRY OF THE DEFENDANT 6. Should we state that both sides accept any arbitral award as "final and binding"?  YES  NO ………………………………………………………….

1. No. A sizable contract should contain a clause on settlement of disputes. 2. Arbitration—it is likely to be quicker, cheaper and more businesslike; it will not put one side at a real (or imagined) disadvantage before the national courts of the other. 3. Yes. A serious (and successful) attempt at amicable settlement can save huge sums of money. 4. Yes. A procedure ;in support of amicable settlement has been found to save considerable legal costs and management lime. 5. Possibly the country of the defendant. This creates extra costs for the side wishing to begin the dispute and thus makes amicable settlement more likely. 6. Yes. It is always worth stating this even though such clauses are not always enforceable.

CHAPTER 5: THE EXPORT CONTRACT

1. Making the Contract Safe THE PROBLEM

Once all the commercial and legal decisions have been made and put into contract form, the exporter may still be at risk. How can the last contractual risks be eliminated?

THE PRINCIPLE

The contract must be systematically examined for weaknesses before it is signed. The four step process that examines the contract ceilings, special risks that come from the particular circumstances of the contract, risks that come from outside the contract and risks that might be hidden in the applicable law.

IN MORE DEPTH

Let’s think of the contract as an old-fashioned castle. How can the exporter make the castle safe? Obviously by looking for weaknesses and by finding ways to strengthen the castle at those points. We will have a tidy four-step approach to making our contracts safe.

STEP 1. CEILING: Are any liabilitites unlimited?

STEP 2. ROADBLOCK: What special risks should be limited?

STEP 3. IRON CURTAIN: How can the exporter limit the effect of the applicable law?

STEP 4. SIGNPOSTS: How can the exporter limit the effect of third party actions?

STEP 1: THE CEILING

The exporter will certainly notice several places where he has agreed to make payments: if he is late, for example; if a machine fails to reach promised specifications; if he is late in curing a defect; or whatever. Each of these liabilities must be capped in some way: a ceiling figure must be set. A full examination of the contract discovers where the exporter has unlimited time or money liabilities: a ceiling clause makes the situation safe.

STEP 2: THE ROADBLOCK

The most familiar roadblocks in export contracts are set up to cover force majeurre and the exporter’s liability for consequential loss or damage incurred by the buyer.

Each individual contract encounters different risks arising perhaps from:

• The nature of the product; • The means of transport;

• The market situation; • The economic or political situation in the exporter’s or the buyer’s country.

STEP 3: THE IRON CURTAIN

The total agreement between the two sides is their written contract plus the relevant provisions of the applicable law. It has also become clear that the applicable law- especially if it is the law of other side- can contain unwelcome surprises: rights of the buyer against the exporter, duties of the exporter that involve unexpected cost. The situation can be clarified to some extent by the inclusion of an “iron curtain” clause. The iron curtain clause, perhaps, is like a ring-wall, joining all the defensive outposts and roadblocks around Contract Castle. No approach is allowed unless it is through an accepted and understood doorway.

STEP 4: CHANGING THE ROADSIGNS

There are two likely sources of third party interference in the exporter’s contract affairs: the tax office is one, and the other are outsiders who sustain some loss or injury from goods supplied under the contract.

In his own country, the exporter must pay any taxes levied by his government- that is obvious. However, the exporter may find- especially under DDP contracts where part of the work is done and part of the profit is earned in the buyer’s country- that the buyer’s government also wishes to collect taxes from him. Naturally he cannot refuse to pay- but he can at least “change the roadsign.” He can redirect the tax office to the buyer’s address by using the standard clause on taxation.

The exporter tries to limit (or exclude) liability wherever possible. The table below shows the areas where the exporter is most at risk and actions he will try to take to reduce his liability to a foreseeable figure.

DELIVERY OTHER TERMINATION DEFECTS LIABILITY TOTAL LIABILITY

Search for other danger areas Define what counts as delay and what does not Define what counts as a defect and what does not If possible, pass the buck with an indemnificatio n clause Limit termination for default to closely defined situations

Define excusable delay, especially force majeure Limit duties to repairing or replacing goods with latent defects Try to limit your total liability to your insurance coverage Define the danger and write a clause that limits or excludes liability Ensure that you will be paid for work performed up to the date of termination

Try to get a grace period

Exclude liability for consequential loss or damage Try to exclude payment of damages if termination is allowed

Try to exclude other remedies if carriages are paid

SET A CEILING

ADD AN IRON CURTAIN

“All rights and duties not expressly included are excluded.”

(page 203) USING A MODEL CONTRACT THE PROBLEM

Asking a lawyer to draft a complete contract for each export deal does always make economic sense: the time and money invested are out of proportion to the value of the contract. In such cases, the exporter is tempted to proceed without any kind of contract. Is this dangerous? Why or why not?

THE PRINCIPLE

A model contract is a half-way house between the dangerous practice of trading without a contract and the expensive practice of asking a lawyer to tailor a contract for each deal. No model contract can regulate every problem, but most important issues can be addressed and reasonable alternatives suggested.

International trade between companies on different continents with different cultures and different concepts of law cannot risk such informal proceedings. For an agreement to be clear, workable and enforceable, it must normally be reduced to a written, signed contract. IN MORE DEPTH Unfortunately, asking a lawyer to draft a contract for each new agreement is costly and time-consuming; many companies simply don’t bother. This is where a “model contract” is helpful. Unfortunately, however, using a model contract is not as easy as it sounds. Many model contracts are too general; with over 150 nations in the world, each with its own law – no model contract can cover them all. Other models are too specialized: a model contract designed for use in England offers offers little guidance to an Ethiopian exporter trying to sell a machine to Vietnam. In every case, a model contract requires adaption before it meets the needs of the two sides.

Translate the following Convention into Vietnamese. The translation given on the right serves as example for you to continue.

ICC MODEL CONTRACT FOR THE SALE OF GOODS H p đ ng M u Xu t nh p kh u Hàng hóa c a Phòng TM Qu c t ợ ồ ố ế ủ ẩ ậ ẫ ấ

1. THE CONTRACT IN ENGLISH

CONTRACT FOR THE SALE OF GOODS BETWEEN

...................................... hereinafter called "the SELLER"

AND

...................................... hereinafter called "the BUYER"

PREAMBLE (NOTE: The Preamble is optional) ' The agreement between the parties to this Contract is based on the following understandings: (NOTE: The following clauses are examples only. Delete as appropriate) 1. The BUYER is acting partly on its own behalf and partly as a purchasing agent for other companies 2. The BUYER is acting as purchasing agent for .....................' 3. Both parties understand that Goods made to the BUYER'S special specifications may have no value or very limited value on the open market 4. The SELLER understands that the BUYER in specifying the Goods has relied to a large extent on the expertise of the SELLER 5. The SELLER understands that the BUYER is under contract to resell the Goods and that if the Goods are defective or non-conforming in quality or quantity, the BUYER may be liable for damages in an amount exceeding .....................(Currency and amount) 6. The SELLER understands that the BUYER intends to install the Goods as a component part in equipment to be resold, and that if the Goods are defective or non-conforming in quality or quantity, the BUYER may be liable for substantial damages 7. …………………………..(List of additional background understandings between the parties)

1. Applicable Law This Contract and all questions relating to its formation, validity, interpretation or performance shall be governed by the law of.............(Name of country) (NOTE: The subclause below is optional) This Contract shall not include, incorporate or be subject to the provisions of the "United Nations Convention on Contracts for the International Sale of Goods" 2. Definitions In this Contract the words below have the meanings ascribed to them unless the context otherwise clearly dictates: 2.1. Unless expressly modified by the parties, "FOB", "CIF" and other trade terms have the meanings and obligations ascribed to them in Incoterms 2000, Publication 460 of the International Chamber of Commerce, Paris

2.2. "Contract" means this Contract, its preamble and appendices, as well as all documents expressly listed as Contract documents or otherwise expressly mentioned in this Contract 2.3. "Goods" means the Goods specified in Clause 4 below 2.4. "Price" means the Price as specified in Clause 9 below payable to the SELLER for the Goods 2.5. "Delivery" means Delivery as specified in Incoterms 1990 under the Incoterm or Incorterms agreed in this Contract 2.6. "Day" means a calendar Day. For the purposes of this Contract, Saturdays, Sundays and all holidays are considered as Days 2.7. "Direct" costs and losses are costs and losses arising in immediate connection with any failure to deliver, any delay in Delivery or any defect in Goods delivered under this Contract. Such costs and losses must have an immediate, foreseeable and probably causal connection with the delay or defect. All other costs and losses are deemed by this Contract to be "indirect"; In particular, loss of profit, loss of use, and loss of contract are considered indirect losses 2.8. "Government" means national Government, local Government, local authorities, and their agencies. In particular customs and/or excise departments are considered as Government agencies 2.9. "Termination" means the discharge of the Contract by one of the parties under any right expressly granted by this Contract; The discharge of the Contract by any other right arising from the applicable law or any oilier source is deemed to be "cancellation" of the Contract 2.10. ........................(list of additional definitions agreed between the parties)

3. Entire Agreement and Contract Documents This Contract constitutes the entire agreement and understanding between the parties. There are no understandings, agreements, conditions, reservations, or representation, oral or written, that are not embodied in this Contract or that have not been supersede by this Contract (NOTE: The subclause and list below are optional) In addition to the text of Contract itself, the documents listed below shall form part of the Contract; All listed documents and the clauses of this Contract shall be read, if possible, so as to be consistent; In the event of conflict, the order of precedence for the provisions and documents which constitute this agreement shall be as follows: (NOTE: The list below contains examples only. Delete as appropriate) a. Any alterations made on the face of the printed Contract

b. The Contract itself

c. Specifications

d. Manufacturing drawings

e. The BUYER'S Special/ General Conditions of Purchase

f. The SELLER'S SpeciaVGeneral Conditions of Sale

g. .....................................................................( Further contract documents).

4. Scope of Supply The Goods to be delivered under this Contract are specified .......(Use "below" or_the name of the annex where the goods are specified)

5. Delivery 5.1. Date, Place and Terms of Delivery Delivery of the Goods shall be made ...............(agreed Incoterms); the schedule date of Delivery shall be ...............( Agreed date of delivery); Risk and title to the Goods shall pass from the SELLER to the BUYER on Delivery The place of Delivery under this Contract is ..............................(Agreed place of delivery. Note: In FOB, FCR, CIF and CIP.(etc.) contract, this is part of shipment). 5.2. Naming and Arrival of Vessel (NOTE: This clause is intended primarily for use in FOB and FAS contracts). The BUYER shall advise the SELLER of the name of the vessel not later than ...........(Number of days). Days before the agreed Delivery date

If the vessel named by the BUYER fails to arrive on or before ...................( Date of arrival of ship). then the SELLER may at his discretion deliver the Goods to a bonded warehouse in the port of ................( Port of shipment). and shall be deemed to have fulfilled his Delivery obligations under this Contract; In this event, the SELLER must notify the BUYER of the full circumstances of the Delivery to the warehouse. With Delivery to the warehouse, all costs, including but not limited to cost of storage and insurance are to the BUYER'S account

5.3. Shipping Marks and Packaging (NOTE: The following two subclauses are examples; reword as appropriate). On the surface of each package delivered under this Contract shall be marked: the package number, the measurements of the package, gross weight, net weight, the lifting positions the letter of credit number, the words RIGHT SIDE UP, HANDLE WITH CARE,':

KEEP DRY, and the mark .....................................( Shipping mark) Goods are to be packed in ...................( Description of required packing) and are to be well protected against dampness, shock, rust or rough handling. The SELLER shall be liable for any damage to or loss of the Goods attributable to improper or defective packaging (NOTE: The following subclause is relevant only to deliveries in Germany).

5.4. Disposal of Packaging Responsibility for the disposal of any packaging shall be the BUYER'S .

6. Notification of Delivery (NOTE: This clause applies largely to contracts under which delivery takes place in the country of the seller). lmmediately on Delivery, the SELLER shall notify the BUYER of delivery by .................. (Means of notification, e.g., FAX). This notification shall include ……..(List of documents and information required)

7. Inspection before shipment

7.1. Inspection by the Buyer

The BUYER may, at the BUYER'S option, inspect the Goods prior to shipment. At least .............. (Number of days). Days before the actual Delivery date, the SELLER shall give notice to the BUYER, or to any agent nominated by the BUYER, that the Goods are available for inspection. The SELLER shall permit access to the Goods for purposes of inspection at a reasonable time agreed by the parties (NOTE: Customs requirements for importation of goods into Indonesia and the Philippines require inspection by SGS prior to shipment from the Seller's country. The following clause is recommended for sales to these countries).

7.2. Inspection by Inspection service The parties understand that importation into ............(Name of country) requires inspection of Goods by SGS before shipment from the SELLER'S country; The SELLER agrees to cooperate fully with the SGR' in providing access to and necessary information about the Goods for the purpose of such inspection

8. Early Delivery, Partial Shipment, Delay in Delivery 8.1. Early Delivery (NOTE: The three sub-clauses below, are alternatives. Delete as necessary).

Early Delivery is not permitted under this Contract Delivery up to .........(Number of days). Days early is permitted; however, payment shall not become due until the date agreed for payment in this Contract. Delivery up to .......... (Number of days) Days early 'is permitted; in this case payment shall fall due as though the actual Delivery date were the Delivery date agreed in the Contract. 8.2. Partial Shipment (NOTE: The two sub-clauses below are alternatives. Delete as necessary). Partial shipment is not permitted under this Contract

Partial shipment, is permitted under this Contract, subject to the agreement of both parties; however, any costs

arising from partial shipment shall be to the account of the .........(BUYER or SELLER).

8.3. Delay in Delivery

In the event of late Delivery for reasons other than force majeure as defined in Clause 17 below, the SELLER shall pay as liquidated damages and not as a penalty the sum of .........(Figure). of the value of the undelivered part per Day of late Delivery up to a maximum of ......... (Figure). of the Contract Price; Payment of liquidated damages shall be due without the BUYER having to furnish proof of any loss, damage or injure (NOTE: The two sub-clauses below are alternatives. Delete as necessary). Payment of liquidated damages shall constitute full and complete satisfaction of any claim of the BUYER against the SELLER arising from the or in connection with late Delivery of any Goods; In particular the SELLER shall not be liable for any indirect loss or damage, as defined in Clause 2.7 above, arising from or In connection with late Delivery of any Goods. Payment of liquidated damages by the SELLER shall not preclude the BUYER from seeking compensatory damages from the SELLER for any loss, injury or damage arising from or in connection with late Delivery of any Goods; In particular the BUYER shall be entitled to compensation from the SELLER for any indirect or consequential loss or damage, including but not limited to loss of profit, loss of use or loss of contract, arising from or in connection, with late Delivery of any Goods; However, payments made as liquidated damages shall be offset against any compensatory damages recovered from the SELLER for the late Delivery of any Goods. 8.4. Termination for Delay In the event that the SELLER becomes liable to pay the maximum sum payable as liquidated damages under Clause 8.3 above, then the BUYER shall, upon due notice, have the rignt to terminate the Contract ' 9. Price The Price for the Goods to be delivered under this Contract is ........ Currency symbol and figure. (...................Currency and figure in words.) 10. Terms of Payment Payment shall be made by means of an irrevocable, confirmed letter of credit; The BUYER shall open the letter of credit on or before .........( Date of opening of letter of credit). on the terms agreed by the parties and annexed to this Contract a? Appendix .......... .........(Appendix number).

This Contract shall not come into force under Clause 16 below until the SELLER has received advice that the letter of credit has been opened in his favour and has ascertained that the terms are in accordance with those

agreed between the parties; Any discrepancy between the terms agreed by the parties and the letter of credit as issued shall be notified by the SELLER to the BUYER immediately 11. Inspection of the Goods 11.1. Duty to Inspection and Notify Discrepancies The BUYER shall inspect the Goods on their arrival at the place of destination. If the Goods fail to conform with the Contract in either quality or quantity, then the BUYER shall notify the SELLER of any discrepancy without delay 11.2. Failure to Notify Discrepancies If the BUYER does not notify the SELLER of any such discrepancy within ......... (Number of days). Days of the arrival of the Goods, then the Goods shall be deemed to have been in conformity with the Contract on arrival.

11.3. Buyer's Rights in the Event of Discrepancy in Quantity If a material discrepancy in quantity exists and is duly notified to the SELLER, the BUYER at his discretion and subject to Clause 8.2 above may either: a. Accept the delivered portion of the Goods and require the SELLER to deliver the remaining portion forthwith; or b. Accept the delivered portion of the Goods and terminate the remaining portion of the Contract upon due notice given to the SELLER. If any material discrepancy in quantity exists such that ………..….(Description of fundamental discrepancy) and if such discrepancy is duly notified to the SELLER, the BUYER may at his discretion: a. Adopt either of the remedies prescribed above in this clause; or b. Reject the delivered portion of the Goods and recover from the SELLER all payments made to the SELLER as well as all costs, expenses and customs duties incurred by the BUYER in association with the shipment, movement through customs, insurance or storage of the Goods (NOTE: Clause 11.4 below may not be necessary if SGS inspection takes place before shipment). 11.4. Buyer's Rights in the Event of Discrepancy in Quality Discrepancies in quality shall be considered as defects and shall give rise to claims under the defects liability provision of this Contract in Clause 12 below However, a fundamental discrepancy in quality shall give the BUYER the right to refuse Delivery of the Goods in whole or in part and to recover from the SELLER all payments made for the unaccepted portion of the Goods as well as all costs, expenses and customs duties incurred by the BUYER in association with the shipment, movement through customs, insurance or storage of the unaccepted portion of the Goods 12. Defects Liability

12.1. Seller's Liability for Defects The SELLER warrants that the Goods supplied under this Contract shall at the date of their Delivery: a. Be free from defects in material

b. Be free from defects in workmanship

c. Be free from defects inherent in design, including but not limited to selection of materials, and be fit for the purpose for which such Goods are normally used If any defect provably present in any of the Goods on the date of Delivery comes to light during the defects liability period, then the BUYER shall forthwith notify the SELLER; The SELLER, without undue delay, shall at his own risk and cost and at his discretion repair or replace such item or otherwise make good the defect The SELLER'S liability for defects is subject to the BUYER having adhered to all procedures and instructions applicable to the .......... Condition of use (e.g., "storage, installation, use or operation")l of the item, and expressly excludes damage to the Goods caused by fair wear and tear or by misuse occurring after Delivery 12.2. Defects Liability Period

The SELLER shall be liable for defects which come to light during a period of .......... days from ........... 2 ; After the end of this period, the BUYER shall have no right to raise claims of any kind against the SELLER for any defect in any Goods of the SELLER'S supply The defects liability period shall be prolonged by the length of any period during which the Goods cannot be used by the BUYER because of a defect. However, if new Goods are delivered to replace defective Goods, the defects liability period shall not begin again on the replacement Goods 12.3. Limitation of Defects Liability (NOTE: The two clauses below are alternatives. Delete as necessary) The duty to repair and replace or otherwise to make good defects is the only duty of the SELLER in the event of the Delivery of defective Goods; In particular the BUYER shall not be entitled to compensation from the SELLER for an}' indirect loss or damages as defined in Clause 2.7 above, arising from or in connection with Delivery of defective Goods The SELLER'shall indemnify and hold harmless the BUYER against any loss or damage however arising whether direct or indirect which shall be suffered by the BUYER as the result of defective or faulty Goods delivered by the SELLER.

13. Liability to Third Parties (NOTE: The two clauses below are alternatives. Delete as necessary) The ..........3 shall compensate and hold harmless the .......... ''from any award of damages, reasonable costs, expenses or legal fees, in the event of any action or lawsuit by a third party resulting from any injury, loss or damage to the third party caused by a defect in the Goods delivered under this Contract In the event of such Lawsuit, the ........' shall immediately notify the ..........: and shall fully cooperate with the ..........' in taking any necessary legal action. In the event of any action or lawsuit by a third party resulting from any injury, loss or damage to the third party caused by a defect in the Goods delivered under this Contract, the party against whom the action or lawsuit is brought shall bear all costs, expenses, awards of damages or legal fees arising therefrom

14. Taxation All income taxes, value added taxes, customs duties, excise charges, stamp duties or other fees levied by any Government, Government agency or similar authority shall be borne exclusively by the party against whom they are levied. 15. Assignment of Rights and Delegation of Duties The rights under this Contract may not be assigned nor the duties delegated by either party without the prior written consent of the other party. 16. Coming Into Force This Contract shall come into force after signature by both parties and after: a. The issuance of a letter of credit in accordance with the terms of Clause 10 above; b. .................................................................2 If the Contract has not come into force within ..........3 Days of its signature by both parties, all its provisions shall become null and void.

17. Force majeure (NOTE: The word duty is marked' by an asterisk in this clause; for contracts under Philippines law, the word duty should be replaced by the word obligation). If either party is prevented from or delayed in, performing any duty under this Contract by an event beyond his reasonable control, then this event shall be deemed force majeure, and this party shall not be considered in default and no remedy., be it under this Contract or otherwise, shall be available to the other party. (NOTE: The subclause below contains examples only. It should be modified as necessary). Force majeure events include, but are not limited to: war (whether war is declared or not), 'riots, insurrections, acts of sabotage, or similar occurrences, strikes, or other labour unrest;

newly introduced Laws or Government regulations; delay due to Government action or inaction, or inaction on the part of any inspection agency; Fire, explosion, or other unavoidable accident; flood, storm, earthquake, or other abnormal natural event. (NOTE: The subclause below on non-force-majeure events is Optional) Force majeure events do not include .......... .......... .......... .......... If either party is prevented from or delayed in, performing any duty under this Contract, then this party shall immediately notify the other party of the event, of the duty affected, and of the expected duration of the event. If any force majeure event prevents or delays performance of any duty under this Contract for more than .......... 2 Days, then either parties may on due notification to the other party terminate this Contract. 18. Termination Notice of Termination as defined in Clause 2.9 of this Contract shall be in writing and shall take effect .......... 3 Days from the receipt of such notice by the party notified. In the event of Termination, the duties of the parties shall be as incurred up to the date of Termination; In particular, the SELLER shall receive the full Price of any Goods delivered and accepted by the BUYER; The provisions of this Agreement dealing with defects liability, arbitration, and such other provisions as are necessary in order to resolve any post-Termination disputes shall survive Termination. 19. Partial Invalidity If any provision or provisions of this Contract are invalid or become invalid, then this shall have no effect on the remaining provisions. Further, the parties agree to replace any invalid provision with a new, valid provision having, as far as possible, the same intent as the provision replaced. 20. Modification and Waiver Modification of the terms and conditions of this Contract shall be binding on both parties even without consideration if the modification is in writing, is signed, and is expressly stated to be a modification of this contract. Any waiver of any right under this Contract is binding on the party making the waiver even without consideration provided the waiver is in writing, is signed and is expressly stated to be a waiver of the said right; 21. Language The language of the Contract, of all Contract Documents, and of all correspondence and other communication between the parties shall be English. 22. Notices Notices served by one party to the other under this Contract shall be made, in the first instance by facsimile transmission (hereinafter called "FAX"). A further copy of each notice shall be sent by registered mail and signed. The effective date of the notice shall be the date of FAX transmission. In the event of a dispute about the receipt of a FAX, however, the effective date of the notice shall be the date of receipt of the registered letter or a date seven days after the registered mailing, whichever is earlier. Notices shall be sent to the following addresses and FAX numbers: SELLER: .......... .......... .......... .......... .......... .......... .......... Address:.......... .......... .......... .......... ...'.....,. .......... .......... FAX Number: .......... .......... .......... .......... .......... .......... .......... BUYER: .......... .......... .......... .......... .......... .......... .......... Address:.......... .................... .......... ..........'.......... .......... FAX Number: .......... ...'....... .......... .......... .......... ..---- - Any change in an address or FAX number shall be the subject of a required notice under this Contract. 23. Settlement of Disputes All disputes arising in connection with this Contract shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by .......... Number (of arbitrators)' arbitrators appointed in accordance with the said rules. The place of arbitration shall be .......... Name of the place (city) of arbitration. The language of arbitration shall be English. (NOTE: The three sub-clauses below are alternatives. Delete as necessary). In the event of arbitration, each party shall bear its own costs.

In the event of arbitration, the court shall assess the amount of the costs to be borne by each party In the event of arbitration, the party against whom the award is made shall bear the entire costs of both parties to the action. The parties agree that any award made in accordance with the provisions 5f this clause is final and binding on both parties. • Execution The parties, intending to be legally bound, have signed this Contract on the dates and at the places stated below: For and on the behalf of: SELLER For and on the behalf of: BUYER

Title: Title:

Date: Date: Place: Place: (NOTE: The witnessing of signatures is not required by all national laws). Witness of SELLER'S Signature Witness of BUYER'S Signature

3. MODEL CONTRACT FOR THE SALE OF GOODS AND THE CIVIL CODE OF VIETNAM ' The are three main types of contract, under CCVN (see appendix 2 for the, English and Vietnamese versions).

• Sales/Procurement Contract (421-442) • Contract to Manufacture (550-561) • Contract for Services (521-529) The model Contract is a pure Sales Contract - an exchange of "assets" for "money". In -the following parts some principal clauses from the model Sales contract are compared with the stipulations regarding civil contracts by the civil code of the Socialist Republic of Vietnam with a view to offering the reader an insight into the subject - matter.

3.1. Structure of the Model contract

What you should know before reading the contract

Preamble Clause 1 : Applicable Law Clause 2 : Definitions Clause 3 : Entire Agreement and Contract Documents

What the Buyer will get

Clause 4 : Scope of supply

How the good will be supplied

Clause 5 : Delivery

Clause 6: Notification of Delivery Clause 7: Inspection before Shipment Clause 8: Early Delivery, Partial Shipment, and Delay in Delivery What the Buyer will give

Clause 9; Price ;

How the Buyer will pay Clause 10: Terms of Payment

What if the goods are not as ordered ?

Clause 11: Inspection of tlic Goods Clause 12: Defects Liability

Liabilities outside the contract

Clause 13: Liability to Third Parties Clause 14: Taxation

The legal status of the contract

Clause 15: Assignment of Rights and Delegation of Duties Clause 16: Coming Into Force Clause 17: Force Majeure

Clause 18: Termination Clause 19: Partial Invalidity Clause 20: Modification Clause 21: Language Clause 22: Notices Clause 23: Settlement of Disputes

Execution

Details not include in the main body of the contract

Appendices

Clause 7: Inspection before Shipment Clause 8: Early Delivery, Partial Shipment, and Delay in Delivery What the Buyer will give

. Clause 9: Price

How the Buyer will pay

Clause 10: Terms of Payment What if the goods are not as ordered ?

Clause 11: Inspection of the Goods Clause 12: Defects Liability . • .

Liabilities outside the contract

Clause 13: Liability to Third Parties Clause 14: Taxation

The legal status of the contract

Clause 15: Assignment of Rights and Delegation of Duties Clause 16: Coming Into Force ... ^ Clause 17: Force Majeure ' Clause 18: Termination Clause 19: Partial Invalidity Clause 20: Modification Clause 21: Language Clause 22: Notices Clause 23: Settlement of Disputes

Execution

Details not include in the main body of the contract

Appendices

3.2. Interpretation of the Contract under CCVN

• Article 135. Interpretation of Civil Transactions

1. The interpretation of a civil transaction must be based upon the actual desire of the parties at the time of establishing such transaction an on the objectives of such transaction. 2. Where a civil transaction may be interpreted as having different meanings, the civil transaction must be interpreted in accordance with a meaning consistent with the objective of the transaction, and shall be in accordance with the customs of the place where the transaction was established; if the party which is economically stronger includes in the civil transaction points 'which are disadvantageous to the weaker party, the interpretation of the civil transaction must be such that favors the weaker party.

• Article 408. Interpretation of contracts 1. If a contract contains unclear provisions, the interpretation of such provisions shall not only rely upon the wording of the contract but also shall be based upon the common intentions of the parties. 2. If a clause of the contract susceptible of many meanings, shall be chosen the meaning, which would allow the implementation of the clause to most benefit the parties. 3. If a contract contains a wording with many different meanings the contract shall be interpreted according to the, meaning which best conforms to the characteristics of the contract. 4. If a contract contains clauses or words which are difficult to understand, those shall be explained according to the customs at the appointed place for the execution of the contract. 5. When a contact lack some provisions not belonging to the essential substance, the contract shall be supplemented according to the customs in regard of such types of contracts at the appointed place for the execution of the contract. 6. The clauses of contract shall be interpreted in relations to each other so that each is given the meaning derived from the contract as a whole.

• Remark: Where rules of interpretation allow the court a great deal of freedom, the parties should be as precise as possible. 3.3. Applicable Law of the Contract under CCVN.

•Article 834: Civil contracts

1. Forms of civil contracts shall be governed by the law of the country where contracts are concluded. The contracts that are concluded in a foreign country with violations of law governing forms of contracts shall be valid in Vietnam if the form of those contracts does not violate the law of the Socialist Republic of Vietnam. 2. The rights and obligations of parties in a civil contract shall be determined by the law of the country where performance of the contract takes place. The contracts that are concluded and performed wholly in Vietnam shall be governed by the law of the Socialist Republic of Vietnam. If the place of performance of a contract is not indicated then the place of performance shall be determined by the law of Socialist republic of Vietnam. 3. The civil contract having has immovable property in Vietnam as its subject-matter shall be governed by the law of the Socialist Republic of Vietnam.

• Remark: Article 834 is in need of clarification by the courts.

3.4. Applicable Law of the Contract under the Model Contract. 1. Applicable law

This contract, and all questions relating to its formation, validity, interpretation or performance shall be governed by the law or.................... (Note: The subclause below is optional). This contract" shall not include, incorporate or be subject to the provisions of the "United Nations Convention on Contracts for the International Sale of Goods. '

• Remark The Model Contract assumes freedom of contract in choosing an applicable law. It also allows-for exclusion of the Vienna Sales Convention.

3.5. Scope of Contract: Technical Specifications Notes for preparing the Technical Specification A set of precise and clear specifications is-a prerequisite for bidders to respond realistically and competitively to the requirements of the Purchaser without qualifying their bids. In the context of International Competitive Bidding (ICB), the specifications must be drafted to permit the widest possible competition and, at the same time, present a clear statement of the required standards of workmanship, materials, and performance of the goods and services to be procured. Only if this is done will be objectives of economy, efficiency, and fairness in procurement be realised, responsiveness of bids be ensured, and the subsequent task of bid evaluation facilitated. The specifications should require that all goods and materials to be incorporated in the goods be new, unused, and of the most recent or current models, and that they incorporate all recent improvements in design and materials unless provides for otherwise in the contract ... Care must be taken in drafting specifications to ensure that they are not restrictive. In the specification of standards for equipment, materials, and workmanship, recognised international standards should be used as much as possible. Where other particular standards are used, whether national standards of the Borrower's country or other standards, the specifications should state that equipment materials, and workmanship that meet other authoritative standards, and which ensure at least a substantially equal quality than the standards mentioned, will also be acceptable. '

Source: World Bank Standard . Bidding' Document: Procurement of Goods, p. 65.

• Remark: Technical specifications must • be prepared to allow absolute

certainty as to the scope of contract,

3.6. Legal Families and the Applicable Law • The total agreement between the parties is their written contract (the fish) plus the applicable private law (the water) • In principle, the parties to a contract are free to decide the private law that will supplement their contract; i.e., the parties are free to choose the water their fish swims in. • Each country has its own national law. These laws belong to one of three families.

- The Civil Law Family: legal systems based on codified laws. The aim is consistency and predictability. The judge applies the written law. Examples: France, Germany, Spain. - The Common Law Family: legal systems aimed at achieving the most just result in the individual case. There is no written law - only precedents to guide decision- making. Examples: England, United State, Malaysia. - The Religious Law Family: legal systems based on Moslem principles. For contracts, there laws tend to adopt international common law or civil law principles. Examples: Saudi Arabia, Pakistan.

3.7. The Vienna Sales Convention ..

- The United Nations .Conventions, on Contracts for the International Sale of Goods (The Vienna Sales Convention) is the law of any country that adopts it. Where the Convention conflicts with existing national law, the Convention prevails.

• The Convention applies to international sales only. — - The parties to a contract can "opt out" of the Convention with a clause such as: This contract, and all questions concerning its validity, interpretation and performance shall be governed by the law of the Republic of Verbena. This contract shall not include, incorporate or be subject to the provision of the "United Nations Convention on Contracts for the International Sales of Goods". • Many questions about the meaning of the Convention must be answered in the courts. So far the answers have been slow in coming. - Even so, the importer might wish to accept the Convention if the law applicable to the contract is weak or underdeveloped, or if it favours the seller too strongly.

3.8. Requirement to provide a User's Guide. • Article 435: Obligations to provide information and User's Guide. The seller is bound to provide the purchaser with necessary information on the assets sold, and guidelines for using those assets. If the seller fails to perform this obligation, the purchaser shall have the right to request the seller to perform the obligation; If the seller still does not perform it, the purchaser shall have the right to annul the contract and claim for compensation of damages.

* Remark: The buyer's right to annulment for failure to produce a user's guide would not normally be acceptable in a seller.

169 3.9. Transfer of Risk, Transfer of Title.

• 'Article 432: Moment of Transfer of the Ownership 1) The ownership over purchased items shall pass to the purchaser from the moment when the purchaser receives the object, except for cases where parties agree or law stipulates otherwise.

• Article 43: Moment of Passage of Risk. 1. The seller party shall bear risks regard of the sold assets until the moment when assets are delivered to the purchaser, and the latter shall bear risks from the moment of receiving assets if parties have not agreed otherwise.

• Remark: The concepts of "deliver^'" and "receipt" will require some definition by the courts. Under an Incoferm contract, both terms could mean delivery.

3.10. Transfer of Risk and Title under the Model Contract.

5. Delivery 5.1. Date, Place and Terms of Delivery Delivery of the Goods shall be made ............... The scheduled date of Delivery shall be ................ Risk and title to the Goods • shall pass from the SELLER to the BUYER on Delivery.

Remark: Transfer of risk and title .together is often the simplest arrangement. 3.11. Place of Delivery under CCVN and under the Model Contract.

• Article 426: Place of Delivery of Assets Parties shall agree upon the place of delivery of assets; If there are no agreement on this then the provision of Article -289 [residence or headquarters of Buyer] of this Code shall be applied.

The place of Delivery under this Contract is .............................;5 5. Agreed place of delivery. Note: In FOB, FCR, CIF and CIP (etc) contracts, this is the port/place of shipment,

'Remark: Place of Delivery should be stated. In C-term contracts it is the port of shipment, not the port of arrival.

3.12. Time of Delivery under CCVN and under the Model Contract.

• Article 425: Time of performance of a Sale Contract 1. The time for performance of a sale contract shall be agreed upon by parties. The seller must deliver the assets to the purchaser at the time as agreed. The seller can deliver the assets before the Fixed time only if the purchaser agrees. In cases where parties do not fix the time for delivery of assets, the purchaser shall have the right to request the seller to deliver assets and the seller shall have the rights to ask the purchaser to receive assets at any time, provided that parties shall inform to each other within a reasonable period of time, and provided further that parties do not have other agreements. 2. If parties have not agreed upon a. term of payment, the purchaser shall have to pay upon receipt of the assets. 5. Delivery 5.1. Date, Place and Terms of Delivery Delivery of the Goods sliall l(e made ...... The scheduled date of Delivery shall be

•Remark: •' .. . It is essential to clarify the time of delivery. Late delivery has important financial consequences. The warranty period usually begins to run from delivery. 3.13. Force Majeure under CCVN and under the Model Contract.

' • Article 308: Civil liability due to breach of civil obligations.

1. The obligor, who fails to fulfil improperly the obligation, shall bear civil liability to the obligor. 2. The obligor, who cannot fulfils the obligation due to force majeure events, shall not bear civil liability, unless otherwise provided for by agreements or stipulated by the law.

17. Force Majeure If either party is prevented from, or delayed in performing any duty* under this Contract by an event beyond his reasonable control, then this event shall be deemed force majeure, and this party shall not considered in default and no remedy, be it under this Contract or otherwise, shall be available to the other party. [NOTE: The subclause below contains examples only. It should be Modified as necessary]. Force majeure event include, but are not limited to: war (whether war is declared or not), riots, insurrections, acts of sabotage, or similar occurrence's; strikes, or other labor unrest: newly introduced laws or Government regulations; delay due to Government action or inaction, or inaction on the part of any inspection agency, fire, explosion, or other unavoidable accident; flood, storm, earthquake, or other abnormal natural event.

[NOTE: The subslause below on • non - force 'Majeure events is optional] Force Majeure events do not include

If either party is prevented from, or delayed in, performing any duty* under this Contract, then this party shall immediately notify the other party of the event, of the duty* affected, and of the expected duration of the event. If any force Majeure event prevents or delays performance of any duty* under this Contract for more than ... 2 days, then either party may on due notification to the . other party terminate this Contract.

• Remark: • Forced Majeure need details negotiation.

3.14. Penalties and Liquidated Damages under CCVN

• Article 377: Punitive damages. 1. Punitive damages is measure that shall be applied by the agreement or the parties or by law to secure the fulfillment of an obligation by which the defaulting party must pay an amount of money to the injured party. 2. An agreement or punitive damages, must be filed in an act which may be .separated from included into the main contract.

• Article 378; Rate of punitive damages. The rate of punitive damages may be a certain sum of money or may be terminated by percentage of the value of the breached part of the obligation, but must not exceed 5%. Article '379: Relationship between punitive damages and compensatory damages. ' 1. The parties may agree upon that the defaulting party shall have to pay only punitive damages but not compensatory damages, or both, either punitive damages and compensatory damages; " if the rate of compensatory damages was not agreed upon in advance, the entire damages must be compensated.

2. If the parties have agreed upon the choice between punitive damages or compensatory damages, the right to choose shall be granted to the injured party. 3. In case where punitive da infixes rather compensatory damages have been agreed upon by the parties or stipulated by law, the defaulting party must pay only punitive damages.

• Remark: The 5% rate for punitive damages is stringent is, but it is unclear. The possible of paying both compensatory and punitive damages is highly unattractive to the seller: few contracts will allow it.

3.15. Liquidated damages under the Model Contract

8.3. Delay in Delivery * In the event of late Delivery for reason other than force majeures defined in Clause 17 below, the SELLER shall pay as liquidated damages and not as a penalty the sum of