Commercial activities & types of contracts

Commercial activities & types of contracts. I would like to start speaking on this topic with reminding that the foreign trade is on of the 5 forms of international business (together with currency transactions, employing foreign assets, foreign investments & international services). & it is considered to be the most frequent, because nowadays almost every firm is involved in the international trade (while they are exchanging the goods, services, knowledge etc).

Foreign trade comprises three main activities: - importing (buying goods from foreign Sellers) - exporting (selling goods to foreign Buyers) - re-exporting (buying goods from foreign Sellers & selling them to foreign Buyers without processing in one’s own country) All commercial activities in foreign trade may be divided into: - basic activities - auxiliary activities Basic ones associated with the conclusion of foreign trade contract for the exchange of goods.

Auxiliary ones ensuring their successful performance, I mean carriage of goods, insurance, banking operations (financing the deals, settlement of payments between the Sellers & the Buyers, guaranteeing the strict observance of their mutual liabilities). Conclusion of agency agreements, agreements with the Suppliers for export goods & with Importers for the purchase of goods, agreements with advertising

agencies & firms dealing with the market research & with the organizations helping to achieve the targets set for foreign trade also refer to auxiliary activities. There can be 10 or even more auxiliary operations to on basic. Agreements & contracts can be concluded either in writing form or verbal. But all the same the first step in concluding any types of contracts is an offer.

An offer (or quotation) is a statement by Sellers (usually in written form) expressing their wish to sell the goods. But it’s not a legal document, I mean if the Sellers for this or that reasons decide not to sell, the Buyers have no legal right. Offers (quotations) should include the following information: - the descriptions of the goods offered (the quality, the quantity) - details of prices, discounts & terms of payment

- the date or the time & place of delivery There can be different kinds of offers. - voluntary (free) offers - firm offers A voluntary offer is the one which is not asked for. Voluntary offers give information about the offered & the company itself, state the period for which they are valid & often enclose different brochures, catalogs, price lists & other advertising matter, & offer to send free samples, goods on approval, & to grant special discounts on orders

received within the indicated period upon return of a detachable form or card (often prepared). A firm offer is made when a seller promises to sell goods at a state price, usually within a stated period of time. According to English or American laws, the Sellers making a firm offer have the right to withdraw it at any time before it has been accepted. In Russia the Sellers can’t withdraw it or change the terms offered before the stated time.

But in practice no reputable seller would risk his reputation by withdrawing his offer before the stated time. While concluding contracts & agreements we can face the different formalities. For example agreements & contracts concluding abroad are to be signed by the Trade Representative or his Deputy (first signature) & by the official of the Trade Representation specially authorized to sign agreements & contracts (second signature).

The names of persons entitled to sign documents & contracts on behalf of the export & import associations abroad are published in the official journal of the Ministry of Foreign Economic Relations called “Foreign Trade”. Agreements & contracts concluding in the country are to be signed by Director General of the foreign trade association or his deputies (first signature) & by directors

of the firms or their deputies (second signature). Sometimes senior engineers of the firms are legally authorized to sign these documents. Now I would like to speak about different types of contracts. 1. contracts for construction works 2. lease 3. contracts of sale - turnkey contracts - large-scale contracts on a compensation basis - barter deals - compensatory deals 4. license agreements

In international trade contracts for construction works, lease & contracts of sale are most frequent among a variety of basic deals. License contracts stand apart from all the above contracts, because they don’t deal with selling & buying physical goods, but with the sale & purchase of ideas, scientific-technical knowledge in the form of licenses, patents & know-how. As a rule there are practically no standard license agreements.

Each license agreement is more or less unique, I mean has its own specific individual characteristic. License trade emerged much later than goods trade at the time when capitalist economy reached a high level of development, which was accompanied by growing division of labor not only in the field of industrial production, but also in scientific research, project & design work & its industrial application. Trade of scientific-technical achievements on the basis of license agreements appeared as far back

as in the XVIII century. During the second half of the XIX century license trade was mainly practiced in the countries with large local markets. & it was until the end of the XIX century. In the beginning of the XX century it started quickly develop internationally. After World War II license trade flourished in all industrially developed capitalist countries.

In Russia license trade started in the early sixties when a special firm called “Licensetorg” was set up, & it has developed fast ever since. Speaking about license we should differentiate between sale of license itself & sale of patent. The patent issued for the invention gives its owner, for the period of time of it being in force, the right to produce, use or sell the products on the monopoly basis of the invention or specific methods of their production.

The owner of a patent can transfer complete ownership to another person, & it is the sale of patent on the basis of patent agreement. But if the owner of a patent retains the right for invention & only permits to use his right for a certain period of time – it is the sale of license. So in other words the license just gives its owner the right to use invention, scientific & technical achievements etc for a certain period of time, without giving rights for ownership.

Licenses are sold on the basis of license agreement. A license agreement is the one according to which the owner of the scientific & technical achievements, inventions, know-how, industrial samples, trademarks as well as scientific-technical & other knowledge associated with them (the so called licensor) transfers the right to his counterpart (the so called licensee) &/or permits him in consideration of payment to use them within the certain period of

time. International license agreements can be classified according to different characteristics: - their subject - the volume of rights transferred - the methods of safeguarding The subject of a license agreement can be: - inventions - industrial samples - trademarks - know-how - scientific-technical & other knowledge associated with them According to the volume of the rights transferred there are three types of licenses:

1. simple (standard, non-exclusive) 2. non-standard (exclusive) 3. full Simple licenses when the licensor permits the licensee to use the subject of the license agreement, retaining the right to use it himself or to transfer licenses on similar conditions to any other persons (firms) concerned. Non-standard licenses when the licensor gives the licensee the exclusive (monopoly) right to use the subject of the license agreement on the condition specified & limited geographically.

In this case the licensor has no right to use the license in the licensee’s country himself or to sell it to third persons (firms) which excludes any competition on the market of the licensee’s country. In case of an exclusive license the agreement may contain the following clauses: - a different time limit on the use of the license as compared with the validity time of patent - limitations of the fields of the license application - the limited rights of the license to produce the goods himself - an improvement

& alteration clause - an advertising clause Full license when the licensor gives the licensee the monopoly right to use the subject of the license within the certain period of time. The licensor remains the owner of a patent & can break the license agreement in certain circumstances at his opinion & can use it upon the expiration of the term of the license agreement. But while it is in force, the licensor has no right to use it himself or sell similar licenses to other

persons (firms). Also there can be various modes of payment under license agreements: 1. by periodic installments on a royalty basis 2. by periodic installments on a royalty basis along with the first payment at the time of the conclusion of the license agreement (at the rate of 5-25 % of its price) 3. by a lump sum (fixed sum) with the distribution of payments within the validity period or without, I mean a one-time payment or by installments.

This mode of payment is usually practiced in case of accompanying licenses, when they are sold in addition to the contract of sale of complete equipment or turnkey factory construction As it was mentioned above there are also auxiliary contracts & now I would like to say a few words about them. To ensure fulfillment of the basic contracts successfully & profitably, a number of auxiliary agreements (contracts) are to be concluded: -

Marine Insurance Policies or Certificates - Charter Parties (Voyage Charter Party, Time Charter Party, Demise Charter or Bareboat Charter Party) - Agency & Distributorship agreements etc. & the last thing I would like to say is that apart from marketing carried on regularly by special marketing departments

at manufacturing works or branch ministries, which helps plan foreign trade, foreign trade activities proper comprise several stages: 1. market research work (analysis of the market conditions) 2. choosing proper methods of trade on this particular market 3. planning the foreign trade operation 4. carrying on a publicity campaign 5. preparations & conclusion of a contract of sale with foreign counterpart 6. fulfillment of contract obligations.