Commercial activities and types of contracts

Commercial activities and types of contracts Foreign trade comprises three main activities: a) Importing - buying goods from foreign Sellers; b) exporting - selling goods to foreign Buyers; c) re-exporting - buying goods from foreign Sellers and selling them to foreign Buyers without processing in one`s own country. All commercial activities in foreign trade may be divided into: a) basic ones - associated with the

conclusion of foreign trade contracts for the exchange of goods; b) auxiliary ones - ensuring their successful performance, that is associated with carriage of goods, their insurance, banking operations (financing the deals, settlement of payments between the Sellers and the Buers, guaranteeing the strict observance of their mutual liabilities) Customs and other activities. To the auxiliary activities also refer

Conclusion of agency agreements, agreements with the Suppliers for export goods and with Importers for the purchase of goods, agreements with advertising agencies and firms dealing with the market research and agreements with other organizations helping to achieve the targets set for foreign trade. There may be about 10 or more auxiliary operations to one basic. In accordance with the world practice, contracts of sale and other agreements may be concluded

either verbally or in writing. The laws of Russia do not recognize the validity of any agreement concluded verbally by the Trade Representation abroad or by export or import organization in this country. According to Russian law contracts must always be made in the form of duly signed documents containing the terms of an agreement between two firms or associations called counterparts (or parties) to supply goods or services as a rule at a fixed price. An offer. (a quotation) is a statement by the

Sellers usually in written form expressing their wish to sell the goods. But it is not a legal document, i.e. if the Sellers for this or that reason decide not to sell, the Buyers have no legal remedy. An offer is only the first step in, a contract. Offers (quotations) will as a rule include the following information: a) the description 0f the goods offered (their quality, quantity), b) details of prices, discounts and terms of payment, c) the date

or the time and place of delivery. There may be different kinds of offers. Sometimes the Sellers may offer their goods to their regular customers without waiting for an enquiry or they may be forced to take the initiative under present competitive conditions and to send their quotation to those who may be interested in their goods. These are voluntary offers of sometimes they are called free offers.

They were formerly called offers without obligation. In this case there must be an indication in the offer that it is made subject to the goods being unsold (available) when the order is received. The opening phrases in voluntary offers may be: “We think you will be interested in our quotation for the goods” or “We have pleasure in 2 enclosing our latest cata-logue (or the price-list of our products)”. Then there are firm offers.

A firm offer is a promise to supply goods on the terms stated at a stated price and within a stated period of time. This promise may, be expressed in a letter in the following words: “We make you a firm offer for delivery by the middle of May at the price quoted” or in some other qualifying words like: “The offer is subject to acceptance within fourteen days,” or “The offer is open for acceptance until the fifteenth of January”. According to Russian law, the

Sellers making a firm offer cannot withdraw it or change the terms offered before the stated time. According to .English and American laws, the Sellers making a firm offer have the right, to withdraw it at any time before it has been accepted. In practice, however, no reputable seller would risk his reputation by withdrawing his offer before the stated time. Agreements and contracts concluded by the Russian

Trade Representations abroad are to be signed by the Trade Representative or his Deputy (first signature) and by an official of the Trade Representation specially authorized to sign agreements and contracts (second signature). The names of persons entitled to sign documents and contracts on behalf of the export or import associations abroad are published in the official journal of the

Ministry of Foreign Economic Relations Called «Foreign Trade». Agreements and contracts made in our country are to be signed by General Director of the foreign trade association or his deputies (first signature) and by directors of firms or their deputies (second signa-ture). Sometimes senior engineers of the firms are legally authorized to sign these documents. In international trade contracts of sale, contracts for construction

work (very often for the delivery, erection and commissioning of the equipment for industrial enterprises) and lease are most frequent among a variety of basic deals. Contracts of sale include turn-key contracts and large-scale contracts on a compensation basis. There may also be barter deals and compensatory deals. Normal dealings in international trade are carried out by contracts of sale where the sale of goods

means an exchange of goods for money. But if the contract provides for an exchange of goods for goods or ser-vices, it is not a contract of sale in the legal sense, but it is a barter. In American law, however, a contract of barter is also a contract of sale. The contract of barter is assimilated to the contract of sale, as far as the terms implied by the law into the contract are concerned. The property in the goods, supplied in a barter by each party to the

other, passes when the parties intend it to pass. A written contract of sale is made out in the form of a document signed both by the Buyers and the Sellers. When there is no necessity of introducing special terms and conditions into the contract of sale, business people use standard forms of contracts containing the following articles: 1. Naming of the Parties 2. Subject of the contract and volume of delivery 3.

Prices and the total value of the contract (including terms of delivery) 4. Time (dates) of delivery 5. Terms of payment 6. Transportation of goods 7. The Sellers’ guarantees (the quality of goods) 8. Sanctions and compensation for damage 9. Insurance 10. Force majeure circumstances 11. Arbitration 12. General provisions Also, there may be standard General

Conditions which form an integral part of the contract and are either printed on the reverse side of the contract or at the foot of the face of the contract or attached to it. In the case of a contract for sophisticated, machinery and equipment there may be, other classes: technical conditions, test and inspection conditions, requirement to technical documentation, supervision of erection and putting the machinery into operation (commissioning), and sending specialists for the pur-pose,

training of the Buyers` specialist, the Sellers` obligations for technical servicing and the like. These clauses may be included in the contract itself or in the Appendices to the contract which are an integral part of it. When detailed special terms and conditions are introduced into the contract or the agreement, it is customary to draw up an individual contract or agreement in each; particular case (e.g. a turnkey contract,

a licence agreement). Licence agreements stand apart from all the above contracts because they do not deal with selling and buying physical goods. They deal with the safe and purchase of ideas, scientific-technical knowledge in the form of licences, patents and know-how. As a rule there are practically no standard licence agreements. Each licence agreement is more or less unique in itself, because of its own specific individual characteristics.

To increase the effectiveness of production, we should make rational use of the advantages of international division or labour and of foreign economic ties. Licence 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 labour not only in the field of industrial production, but also in scientific research, project and design work and its industrial application.

Trade of scientific-technical achievements on the basis of licence agreements appeared as far back as in the XVIII century. During the second half of the XIX century licence trade was mainly practiced within countries with large local markets. And it was not until the end of the XIX century and the beginning of the XIX century that it started to quickly develop internationally.

The fast development of international trade in licences testifies that their import saves a lot of lime, money and labour on one's own research and design work. After World War II licence trade flourished. The analysis of international licence trade shows that the early 50`s (fifties) saw a continuous and fast growth of licence trade in all industrially developed capitalist countries. It also shows that it considerably changed geographically, first of all because

East European countries began practising it; and secondly, because the developing countries of Asia, Africa and Latin America started importing licences. Licence trade in the Soviet Union started in the early sixties when a special firm called “Licensintorg” was set up, and it has developed fast ever since. 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. If the patent owner in consideration of payment transfers the complete ownership of the patent on the invention to another person, i.e. the full rights to use his invention, then it is the sale of pat-ent on the basis of a patent agreement. If the patent owner retains the right to ownership of the invention and only permits in consideration of payment to use his right for a certain period of time, then it

is the sale of a licence on the use of the invention on the basis of a licence agreement.A licence agreement is the one according to which the owner of the scientific and technical achievements, inventions, know-how, industrial samples trademarks as well as scientific-technical and other knowledge associated with them (the so called licenser) transfers the right to and/or permits his counterpart (the so called licensee) in consideration of payment to use them within the time stipulated or for a

certain period of time. Under licence agreements export (import) scientific-technical achievements may be made both in-dependently and along with the sale of goods (equipment, machinery, instruments, raw materials, components and other products) required to realize scientific-technical achievements for industrial (commercial) use. In realization of traditional contracts of sale concluded as a rule for a relatively short period of time the Sellers does not limit the right of the

Buyer to dispose of the goods bought as he likes. The Buyer as the owner of the goods may resell them to another country or even destroy them. Under the licence agreement the licenser is strictly limited territorial, i.e. cannot sell the licence to other countries. In most cases the licence agreement, is about scientific-technical cooperation for a long period of time, and mutual exchange of technical information may be subject to payment or free

of charge. International licence agreements may be classified according to their subject, according to the vol-ume of rights transferred and according to the methods of safeguarding the subject of the licence agree-ments. The subject of the licence agreement may be inventions, industrial samples, the right to use them and trademarks, know-how and other knowledge associated with them and required to realize the aims of the licence agreements. The licence agreements may be classified accordingly.

According to the volume of the rights transferred there are three types of licences: I. SIMPLE (STANDARD, NON-EXCLUSIVE) licences when the licenser permits the licensee on certain conditions to use the subject of the licence agreement, retaining the right to use it himself or to transfer licences on similar conditions to any other persons (firms) concerned. II. NON-STANDARD (EXCLUSIVE) licences when the licenser gives the licensee the exclusive (monopoly)

right to use the subject of the licence agreement on the conditions specified and limited geo-graphically. In this case the licenser has no right to use the licence 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 licence the agreement may contain the following clauses: 1) a different time limit on the use of the licence as compared with the validity time of the pat-ent 2)

limitation of the fields of the licence application 3) the limited right of the licensee to produce the goods himself 4) an improvement and alteration clause 5) an advertisement clause III. FULL licences when the licensor gives the licensee the monopoly right to use the subject of the licence within the period of time specified. The licenser remains the owner of the patent and can break the licence agreement in certain circumstances at his option and can use it upon the expiration of the

term of the licence agreement. But while it is in force, the licensor has no right to use it himself or sell similar li-cences to other persons (firms). There may be various modes of payment under licence agreements: 1) by periodic instalments on a royalty basis 2) by periodic instalments on a royally basis along with the first payment at the time of the conclusion of the licence agreement (al the rate of 5-25 per cent

of its price) 3) by a lump sum (a fixed sum) with the distribution of payments within the validity period or without it, i.e. a one-time payment or by instalments. This mode of payment is usually practised in case of accompanying licences, when they are sold in addition to the contract for the sale of complete equipment or turnkey factory construction. British sell licences in the field of processing industries, in chemical industry in particular, as

well as in general engineering, instrument and electro-technical industries. To ensure the fulfilment of the above basic contracts successfully and profitably, a number of auxiliary agreements (contracts) are to be concluded: Marine Insurance Policies, Charter Parties, Agency and Distributorship agreements and so on. Apart from marketing carried on by special marketing departments at manufacturing works, which helps

plan foreign trade, foreign trade activities comprise several stages: 1) 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) preparation and conclusion of a contract of sale with a foreign counterpart; 6) fulfilment of contract obligations.