INCOTERMS (International Commercial Terms) are uniform regulations published by ICC which seeks to define the content of commonly used commercial terms on consignment and delivery methods of the goods pursuant to International Trade Law.
INCOTERMS is an abbreviation for, “ICC rules for the use of domestic and international trade terms”
- Scope of Incoterms Rules
Incoterms mainly seek to determine the rudiments of consignment and delivery methods at sale contracts in international commerce. Having referenced with the INCOTERMS, parties will reveal an agreement on the issues of;
- Delivery address of goods,
- Which party will be authorized and responsible for conducting import and export transactions,
- At which point, liability of vendor on potential damages would transfer to buyer
- In which manner, parties will share costs of carriage
- Obligations regarding the documents that required to submit,
- Nuts and bolts on insurance of good
- Purpose of Incoterms Rules
One of the most important purposes which stand behind the incoterms rules is to provide uniformity for terms which has commonly used at international trade contracts. By providing uniformity to delivery methods, it is aimed to prevent possible misconceptions caused by varied interpretations of parties related to terminology at cross border sale contracts. Moreover, interruption of international sale transactions caused by varying interpretation of parties is aimed to be hindered. International sale contracts are agreements which draw up between parties which commercial relationship take place on long distance and subject to different law systems so this characteristic of international commercial contract may damage the velocity and trust necessity required by international commerce. In furtherance of aforementioned prominent problems of international commerce, incoterms are regulated in order to provide the uniformity of the international contract sale terms, with the intention of preventing problems caused by interpretation differences.
- Historical Development Process
In trade law history, commercial terms have first used in contracts at the end of the 18th century in UK. This period encouraged standardizing the international commerce contract terms by harmonizing them and solely draws attention the necessity of uniformity of international commerce terms. Despite the stated fact; varying interpretations of these terms between states and business life branches, have decelerated the processing operation back then. Under these circumstances, ICC published the first study about collection of frequently used commercial terms in 1923. This first study endeavored to provide uniformity on international commercial terms and was limited to six rules that applied in 13 states. In furtherance of widening the range of application, this collection followed by second collection which published in 1928. Second collection was seeking to collect commercial terms which are used in more than 30 states. With having published these first studies, ICC have manifested the significance of dissolving the inconsistency away in interpretation of commercial terms and Incoterms have published in 1936 for the first time. Regarding with the requirements of evolvement in business life, Incoterms updated in 1953, 1967, 1976, 1980, 2000 and finally INCOTERMS 2010 is published at 1st of January, 2010.
- Issues Which are not Deemed In Scope of Incoterms
- Transfer of Ownership
INCOTERMS rules do not involve any regulations directed to essence about the moment of transfer of ownership. Transfer of ownership excluded from CISG since impossibility for determining unification it among international platform.
- Payment Methods
INCOTERMS does not involve any regulation that states the payment methods in sale contract. Close link between payment methods and economy policy and banking system of buyer’s state is considered underlying reason of this decision.
- Contract Carriage
Relations between carrier and parties of sale contract and rudiments of freight contract are excluded from INCOTERMS.
- Resolution of Disputes
International sale contracts usually contain regulations about settlement of possible disputes. Dispute settlement topic is subjected to different regulations due to its importance and possible disputes arises from execution of contract are aimed to resolve thereby suggesting the parties placing an arbitration clause at sale contract.
- Alternative Terms
Parties are allowed to modify an Incoterms rule at sale contract. However, since these are not globally known and uniform terms, they are not accepted as the commercial usage that needed to know by everyone interested at international commercial.
- Lex Mercatoria Chacteristics of Incoterms
There is a general consensus among doctrine on the issue of whether INCOTERMS should be deemed as one of the sources of Lex Mercatoria Theory -which introduces general principles, provisions, commercial usages and practices applying to sale contracts-. Controlling idea on this issue is; Incoterms should be deemed one of the commercial practices which should have general recognition by working in international commercial. Pursuant to stated reasons, Incoterms can be applied as part of the contract with the scope of 9/2 regulation of CISG, even if parties did not have exclusive reference to Incoterms at contract of sale.
- Relationship Between Incoterms and CISG
CISG (United Nations Convention on Contracts for the International Sale of Goods) is a prominent regulation which currently aims to regulate ınternational sale of goods. Notwithstanding the substantial role of Incoterms on International Commerce, these rules excluded by CISG. Exclusion of Incoterms rules from CISG has been harshly criticized by some academics with reason of having intentional deficit on CISG. Despite the stated criticism, controlling idea on this issue consider the exclusion is an intentional due to the provide space for ICC ın order to more effective regulation by ICC.
International commercial practice might vary solely depending on geography and time. Under these circumstances it is believed that, regulating Incoterms in a stable convention might cause problems regarding with the frequent amendment requirements of international commerce and because of stated fact Incoterms does not have suitable character for regulating in a convention. Additively, maintaining incoterm’s independent character can provide more choices for the parties of sales contracts.
Also it is possible to underline the relationship between Incoterms and CISG regarding with the liberty of contract. According to article 6 of CISG it is possible to refer Incoterms by parties regarding with liberty of contract. Article 6 of CISG “The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves.” In this perspective it can be claimed that CISG maintain the liberty of application of Incoterms at the same time.
