Monday, March 31, 2008

The Future of Incoterms

Developed by the International Chamber of Commerce, Incoterms consist of 13 standard trade definitions used in international sales contracts. As part of the contract between the buyer and seller, Incoterms define the responsibilities of the buyer and seller for delivery of goods, and determine how costs and risks are allocated to the parties. By using Incoterms, a buyer and seller have a standard set of guidelines, which determine the responsibilities of each party, reducing the possibility of costly misunderstandings and disputes. Incoterms are not part of the contract for transportation; however, the terms define which party is responsible for arranging transportation, delivery and international insurance.

The first version of the Incoterms was introduced by the ICC in 1936. To keep up with changes in international trade, the Incoterms have been updated six times, most recently in 2000. Changes to the 2010 edition are now being discussed by the ICC Commercial Law & Practice Committee. One change includes the removal of the year from the title. Currently, the inclusion of the year implies that a new edition would not be released for ten years. Incoterms could be revised at any time, thus a neutral title should help alleviate these assumptions.

What should be changed, added or deleted during these revision discussions? One idea suggests clarification for certain terms that are often misunderstood and misused. Another option would be to remove terms that are not frequently used. With the increased use of the Internet as a means to transact business, is it possible that a new term or terms could be created to apply strictly to Internet contracts? In addition, there were some suggestions that were not implements for the 2000 edition that might be more practical now. Another issue the committee must consider is the changes in relationships and contracts as result of cargo security requirements. It’s still early, but we should be prepared to learn a few new terms and say goodbye to some old ones.

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