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International Sales Contract and Essential Clauses

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List five clauses that should be included in an international sales contract and explain why they should be included.

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This solution explains five clauses that should be included in an international sales contract and why they should be included.

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1. Mutual Agreement clause(s)

Most international agreement has a clause, which clearly identifies the nature of the relationship between the parties. Why? The sole purpose of this type of clause is to assure each party that there is no fundamental misunderstanding between themselves (for an example and the limitations of such a clause see http://www.davis.ca/publications/2001-distribution_agreement_or_franchise_agreement.pdf).

While the Convention generally permits oral agreements and oral modification of contracts, the general practice in international trade is for the parties to have a written agreement. With certain exceptions, this is the UCC's approach. The agreement must be such that secures and preserves the parties' intents and purposes. At a minimum, an international sales agreement ought to address and clarify the following basic premises:

(a) Contract Price: Under the UCC a sales contract will not fail merely because a stated price is absent. A court easily would fix a reasonable price for the goods. In international trade, however, a contract for the sale of goods must state a price, particularly for tariff checks at points of departure and entry. Moreover, in many overseas countries price is a material term in sales contracts.

A stated price should have arithmetical clarity. The price may not be discriminatory because many overseas jurisdictions have laws against price discrimination. Further, the parties should identify and agree on any incidental costs. The international trader soon realizes, sadly, that official bribery is not uncommon overseas. Any payment that includes a bribe is illegal. A U.S. party ought to ensure that no portion of the stated price benefits a foreign government official. A bribe will contravene the U.S. Foreign Corrupt Practices Act.

(b) Quantity: Under the UCC an agreement for the sale of goods, other than output and requirement contracts, must state a quantity. In international trade quantity is a material term of the contract, particularly in non-exclusive dealings and transactions.

(c) Payment Method: The parties have to agree on a payment method or combination of methods, such as letters of credit, cash in advance, sight draft, cash against document, open account, and so on. As between new customers the payment should be prompt, secure, and in a preferred currency. A provision that protects the creditor against currency fluctuations is a good idea. ...

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