Francisco A. Laguna & Wojciech Kornacki
The U.N. Convention on Contracts for the International Sale of Goods standardizes international purchase laws for international buyers and sellers. This is a critical breakthrough because, previously, international businessmen often experienced uncertainty as to which regulations were applicable which, in turn, caused unnecessary delays and additional expenditures. While the Convention focuses strictly on goods, and not services, it offers timely answers to international businessmen who conduct business in countries which become Parties to the Convention.
According to the United Nations, thus far 80 States have ratified the Convention including the United States. In addition, another 18 States have signed it. States that have signed U.N. Convention on Contracts for the International Sale of Goods have to ratify it to be bound by it. This means that about 2/3 of all international trade transactions around the world are covered by this Convention. The primary purpose of the Convention is to assist international buyers and sellers of commodities and raw materials by creating greater predictability and reducing costs of doing business.
In accordance its Article 1, the Convention covers international sales contracts under two circumstances. First, both parties (the seller and the buyer) must be located in Contracting States. For example, a transaction between an American businessman and a Chinese businesswoman for the sale of commodities would be covered under this Convention. The second instance is when private international law results in the application of the law of a Contracting State, of which now the Convention is a part of.
The Convention seeks to address and resolve the following issues listed below, making it possible to reduce transactional costs and delays:
(1) Interpretation of the parties’ agreement;
(2) Modifications to international sales contracts;
(3) Passing of the risk in the international goods sold;
(4) The seller’s remedies for breach of contract by buyer;
(5) Anticipatory Breach;
(6) Exemption from liability by force majeure; and
(7) Obligations to preserve goods that are to be returned to the other party.
What are goods?
The Convention does not define goods; the drafters left the task of defining goods to domestic courts. Previously, courts have defined goods as tangible and moveable items. Raw materials or natural resources would certainly fall within this category. On the other hand, intellectual property rights and goodwill are not covered under the Convention.
If you have questions about international trade issues, or want to find out what are the benefits or utilizing the convention, contact TransLegal. We are ready to brief you on different considerations involving international transactions under Convention.