4/19/2017 ICCintroducesnewInternationalCommercialTerms|F4CorporateandBusinessLaw|ACCAQualification|Students|ACCAGlobal

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ICC INTRODUCES NEW INTERNATIONAL

COMMERCIAL TERMS
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ThisarticlediscussesInternationalCommercialTermsorIncotermswhichareoftenfound
ininternationaltradecontracts

IncotermsisanabbreviationofInternationalCommercialTerms.Thesetermshavebeenpublishedby
theInternationalChamberofCommerce(ICC)since1936andhavebeensubjecttoreviewandupdating
sincethatdate.ThemostrecentupdateswereannouncedinParisbytheICCon16September2010.
AlthoughearlierversionsofIncotermsmaystillbeincorporatedintofuturecontractsifthepartiesagree,it
islikelythatmostcontractsmadenowwillrefertothislatesteditionofIncoterms.Inordertoavoidthe
possibilityofconfusion,contractsshouldreferspecificallytotheIncoterms2010ratherthanjust
Incoterms,ifthepartieswishthenewtermstoapply.Thiswillavoidanysubsequentdisputeastowhich
setofrulesapply.TheassumptionisthatthenewversionoftheICCtermswillapplytoF4(GLO).

TheIncotermsareoftentobefoundininternationalcontracts,andtheyseektoprovideacommonsetof
rulesforthemostfrequentlyusedinternationaltermsoftradewiththeaimofremovingconfusionover
theirinterpretation.Forexample,thetermssetoutexactlywhoisundertheobligationtotakecontrolof
and/orinsuregoodsataparticularpointintheshippingprocess.Thetermsalsodealwiththeobligation
fortheclearanceofthegoodsforexportorimport,andrequirementsonthepackingofitems.

CLASSESOFTERMS
Amongthechangesmadeinthe2010rulesisthereductionintheoverallnumberfrom13to11.Thisis
theresultoftheremovaloffourprevioustermsandtheinclusionoftwonewones.Ineffect,thisisa
replacementoffourpreviousrules,DAF,DES,DEQandDDU,bytwonewrulesthatmaybeused
irrespectiveoftheagreedmodeoftransport.ThesenewrulesareDAT(DeliveredatTerminal),andDAP
(DeliveredatPlace)(seebelowformoredetails).

Changeshavealsobeenmadetobetterdealwithcargosecurityandinsurance,andthelanguagehas
beenchangedtoreflectthemodernusageininternationaltrade.

Thenewruleshavebeenseparatedintotwoclassesratherthanthepreviousfourcategories.Thecurrent
twoclassesoftermsare:

(i)rulesforuseinrelationtoanymodeormodesoftransport
Thesecanbeusedincaseswhereeithermaritimetransportisnotinvolvedinthecarriageofthegoods,
orwheremaritimetransportisusedforonlypartofthecarriage.Thisfirstclassincludesthefollowing
sevenIncotermsthatcanbeusedirrespectiveofthemodeoftransportselectedandirrespectiveof
whetheroneormorethanonemodeoftransportisemployed:

EXWExWords
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4/19/2017 ICCintroducesnewInternationalCommercialTerms|F4CorporateandBusinessLaw|ACCAQualification|Students|ACCAGlobal
FCAFreeCarrier
CPTCarriagePaidTo
CIPCarriageandInsurancePaidTo
DATDeliveredatTerminal
DAPDeliveredatPlace
DDPDeliveredDutyPaid

Mostofthetermsretaintheirformermeanings,sonofurtherexplanationwillbeprovided.However,as
DATandDAParenewandreplacepreviousdeliveryterms,theyneedsome,ifbrief,explanation.

DATreplacesthemorespecificDEQ(DeliveredexQuay).Itrequiresthesellertopayforcarriagetothe
terminal,exceptforcostsrelatedtoimportclearance,andtoassumeallrisksuptothepointthatthe
goodsareunloadedattheterminal.Thesellerdeliverswhenthegoods,havingbeenunloadedfromthe
arrivingmeansoftransport,areplacedatthebuyer'sdisposalatanamedterminalatthenamedportor
placeofdestination.Asindicated,DATrequiresthesellertoclearthegoodsforexportwhereapplicable
butthesellerhasnoobligationtoclearthegoodsforimport,payanyimportdutyorcarryoutanyimport
customsformalities.

DAP(DeliveredatPlace)replacesDAF(DeliveredatFrontier),DES(DeliveredexShip)andDDU
(DeliveredDutyUnpaid).UnderDAP,asellerbearsallthecosts,otherthanimportclearancecostsand
risksinvolvedinbringingthegoodstothenameddestination.Consequently,thesellerassumesallrisks
andcostspriortothepointthatthegoodsarereadyforunloadingbythebuyerattheagreeddestination.

Itshouldbeemphasisedthatalthoughallthetermslistedapplywhenthereisnomaritimetransport,they
canbeusedincaseswhereashipisusedforpartonlyofthecarriage.

(ii)rulesforseaandinlandwaterwaytransport
Theserulesapplywherethepointofdeliveryandtheplacetowhichthegoodsarecarriedtothebuyer
arebothports.Therearefoursubstantivesrules:

FASFreeAlongsideShip
FOBFreeonBoard
CFRCostandFreight
CIFCostInsuranceandFreight

Noneoftheseruleshasbeenchangedinpractice,althoughinrelationtothelastthreeFOB,CFRand
CIFreferencetotheship'srailasthepointofdeliveryhasnowbeendeletedandthishasbeen
replacedwiththegoodsbeingdeliveredwhentheyareonboardthevessel.Thisisclearlydoneinthe
pursuitofupdatinglanguageandastheICCsownintroductiontothenewrulesstates:Thismoreclosely
reflectsmoderncommercialrealityandavoidstheratherdatedimageoftheriskswingingtoandfro
acrossanimaginaryperpendicularline.

SPHEREOFAPPLICATION
Afurtherchangeandrecognitionofexistingpracticeisthatthenewrulesapplytodomesticaswellas
internationaltrade,whereaspreviousIncotermsappliedtointernationalsalecontracts.Asaresult,the
newrulesstatethattheobligationtocomplywithexport/importformalitiesexistsonlywhereapplicable.
Thisalterationisinrecognitionofthefactthatsometradeblocs,suchastheEuropeanUnion,have
minimisedifnotremovedthesignificanceofborderformalities.Itisalsoexpectedthatthisparticular
alterationshouldleadtogreateruseoftheIncotermruleswithintheUS.

SALEOFGOODSINTRANSIT
Reflectingthefactthatcommoditiesmaybesoldseveraltimesoverduringtransit,throughastringofsale
contracts,thenewruleshavebeenamendedtoindicatethatinrealityapurchaser/sellerinthemiddleof
thestringofcontractsdoesnotactuallyshipthecommodities,astheyarealreadyonboardwhenthey
acquiretitleoverthem.Consequently,underthenewtherules,onlythefirstsellerwillberesponsiblefor
shippingthegoodsandsubsequentsellerswillbeundertheobligationtoprocuregoodsshipped.Thisis
notamajorchangebutitdoestidyuptherules.

SECURITY
Giventhecontextofuncertaintyregardingpotentialterrorismandtheneedforheightenedsecurity,many
countrieshaveintroducedsecuritychecksinrelationtogoodscrossingtheirboundaries.Thenew
Incotermrulesnowrequirebothsellersandbuyerstoprovidesufficientinformationtooneanothersothat
export/importclearancecanbeobtained.

TERMINALHANDLINGCHARGES
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Thenewruleslooktoclarifyresponsibilityforcostsarisingattheendofthejourney.Undertheold
IncotermsrulesCPT,CIP,CFR,CIF,DAT,DAP,andDDP,thesellerwasrequiredtomake
arrangementsforthecarriageofthegoodstotheagreeddestinationbutitwasactuallythebuyerwho
actuallypaidthecosts,asthesewereincludedinthetotalsellingprice.Thisgaverisetoproblemswhere
thecarrierorterminaloperatorchargedfurtherhandlingcoststothebuyer/receiverofthegoods.The
newIncotermsrulesseektoavoidthiseventualitybyclearlyallocatingsuchcostsbetweentheparties.

ELECTRONICDOCUMENTATION
Thepreviousrulesprovidedfortheuseofelectronicdatainterchange,wherethepartieshadagreedits
use.Thenewrulesprovidefortheuseofpapercommunicationsorequivalentelectronicrecordor
procedurewhereagreedorcustomary,withcustomaryindicatingrecognitionofcurrentpracticeinthis
regard.

CONCLUSION
Incotermsareacoreconstituentofinternationalcontractsandhavefrequentlyformedthebasisfor
questionsintheF4Globalexam.Althoughinthemannerofanupdatingexercise,thenewIncoterms
2010dointroducesignificantnewrulesforstudentsoftheF4Globalsyllabustotakeintoconsiderationin
theirpreparationforfutureexams.

WrittenbyamemberoftheF4examiningteam

Lastupdated:17Feb2016

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