International trade deals demand correct and complete documentation. Novice exporters and importers are sometimes surprised by how many commercial, legal and transportation forms they have to fill out.
Commercial documents include the invoice, cargo control document, packing list, weight certificate, insurance certificate and the certificate of origin (critical proof for shipments in free trade areas). Depending on the transaction value, customs import and export declaration forms must be properly drawn.
Finance documents that banks require are the bill of exchange, letter of credit and drafts. These financial instruments can represent a freight delivery worth millions of dollars.
Topping the list of transportation documents is the bill of lading, the only trade document that enables the importing buyer to take title to the shipped goods. The bill of lading can also be used as collateral for loan financing. Other transportation documents are the truckers way bill and air way bill; these can replace the cargo control document mentioned under commercial documents above.
Role of Trade Documents
Trade documents directly represent the goods being shipped. Whether in electronic or hardcopy form, written records serve as the voice of exports when they exit from the place of shipment and describe imports when delivered to their destination.
Customs officials can delay, detain and even dispose of shipments with incomplete, inaccurate or improper documentation. After all, trade documents contain essential information that customs officers and workers from other government agencies depend on. Those government departments use that information to collect taxes, track trade statistics and check for dangerous goods.
Elements of a Trade Contract
The foundation for all trade documents is the international trade contract. Trade contracts are short-term arrangements necessary to accomplish exporting and importing transactions.
The importer and exporter finalize a trade deal by signing a trade contract that must have the following elements.
- Intent of both parties to enter into a trade contract
- Consideration which is money paid for a shipment
- Offer by exporter to sell goods
- Written clauses that detail contract terms and conditions
- Acceptance by importer to buy goods
- Legality of product and all parties involved in trade process
- Capacity of parties to enter into the legal contract.
An example of a party lacking capacity is an exporter who is drunk when signing the trade contract. Another example that would invalidate a trade contract is an importer who suffers from Alzheimer’s disease. Any party lacking capacity can argue “non est factum” (these are not my facts).
Valid Contract Requirements
For an international trade contract to be valid, there must be no:
- Duress from threat of physical violence
- Undue influence from verbal threats
- Mistakes that will void the contract
- Misrepresentation ranging from lies to fraud.
Discharging Trade Contract Responsibilities
Not all international trade contracts end with a satisfied importer and exporter. The list below describes different scenarios under which an international trade contract no longer applies.
- Performance: Happily, both the exporter and importer fulfill their contractual obligations
- Substitution: Person A has a contract with person B, but person C pays person B on behalf of person A
- Termination: Both exporter and importer agree to walk away from a contract
- Law: Legislation is passed that makes it impossible to fulfill contractual terms within delivery timelines.
Frustration refers to another scenario. A contract can be delayed by an act of God such as a hurricane or snowstorm, or a man-made even such as a riot or strike. While deliverables are delayed, the trade contract remains valid under an extended timeline.
Transfer of Trade Contract Rights
Most importers and exporters directly fulfil the requirements of the trade contract to which they are party. However, international traders can transfer their legal obligations under certain scenarios. Shown below is the plain language explanation for these legal terms.
- Vicarious performance: An importer hires an agent to do what the contract requires
- Assignment: A promisor writes a check to an assignor who assigns contractual duties to an assignee
- Novation: A third party substitutes for the original party to the contract.
Vicarious means performed in place of another. Assignment involves asking others to do one or more tasks. Novation means replacing with something new.
Sources for this Article
This article presents independent insights and comments based on a review of Dr. Harmeet Singh Kohli’s analysis titled International Trade – A Simple View to a Complex Process (Global Training Center, Inc).
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