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Chapter 31

BU231 Chapter Notes - Chapter 31: Export Subsidy, Foreign Exchange Risk, Unidroit

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Valerie Irie

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BU231 Chapter 31 International Business Transactions
Law and International Business
-Foreign trade the buying and selling of goods and services between parties from different countries
-Foreign presence placing representatives of a business in foreign markets
-Foreign investment conducting operations in a foreign market
-Private law the law that governs transactions between private parties, such as a seller and a buyer of
-Public law law governing the relationship between private individuals and the state
-Public international law law involving relations between states
-Non-governmental organizations voluntary, non-profit associations of private entities working to
influence policy, raise awareness, and affect change, such as the International Chamber of Commerce
-Super-governmental organizations non-profit associations of governments from around the world
working to find common solutions to international issues
Foreign Trade
Export/Import Contracts
-The contract between a supplier and customer constitutes the essence of the transaction
The Contract of Sale
-In addition to the basic agreement for the sale of the goods, the parties normally arrange for the
transportation of the goods, for their insurance during shipment, and, frequently, or the financing of the
-Expert houses/freight forwarders specialist firms that make the arrangements for shipment,
insurance, and financing in export saes
The Proper Law of the Contract
-Several contracts make up the entire transaction and each one might be governed by a different law
-Proper law of the contract the law of the country or jurisdiction by which the provisions of a contract
are to be interpreted and its effect determined
-Conflict of laws/private international law the principles of law that apply to resolve questions
concerned with private relationships that are affected by the laws of two or more countries
-Where the parties do not expressly state the proper law, the court will attempt to determine the
intention of the parties first by considering the contract as whole in light of the surrounding
Contractual Terms
-Incoterms a set of standard contractual terms adopted by the International Chamber of Commerce
-UNIDROIT the International Institute for the Unification of Private Law, harmonizes laws and has 61
member states, including Canada
-UNCITRAL United Nations Commission on International Trade Law furthers harmonization and
unification in international trade through conventions, model laws, and guidelines
-OECD The Organisation for Economic Co-operation and Development has 30 member countries
including Canada, and promotes world trade and sustainable economic growth by setting standards for
best practice

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BU231 Chapter 31 International Business Transactions
The Documentation
-The export sale normally requires at least four documents:
-the contract of sale
-the bill of lading
-the insurance policy or certificate
-the invoice
Shipment and Insurance
-Transportation arrangements are an essential element of an export sale
-Usually the goods will be insured against loss or damage during transit, and either the buyer or the
seller assumes responsibility for arranging insurance
-The contract price reflects whether it is the seller or the buyer who arranges and pays for shipment and
insurance, and up to which stage of the journey
-Common types of arrangements for shipping:
-EXW = ex works
-FOB = free on board
-CIF = cost, insurance, and freight
-DDP = delivery duty paid
-In EXW, the seller’s responsibility is only to make the goods available to the buyer at the seller’s own
works or warehouse
-Under a FOB, the buyer arranges shipment, and the seller’s obligation is to deliver the goods to the
carrier named by the buyer
-In a CIF, the seller assumes responsibility for shipping the goods to the country of destination
-In a DDP, the seller bears the risks and costs of transporting the goods to an agreed destination and
sometimes even paying the import duties
-The currency the price is stated in and paid in must be the same
-Exchange controls restrictions on the conversion or export of currency
-Foreign exchange risk management methods of reducing the risk involved in currency fluctuations
-Collection arrangement an arrangement whereby the seller employs the services of its bank to collect
payment by depositing the documents with the bank and receiving credit for the price
-Letter of credit a document that the buyer of goods obtains from the bank and uses to pay the seller
-Countertrade a form of barter, under which a seller agrees to accept payment in goods produced or
procured by the buyer
Export of Services
-Date, legal or financial advice, or technological expertise may be supplied to customers in other
Intellectual Property
-Protection must be sought in the target country
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