The following article was prepared by Mike Taylor, C.P.M. for distribution to NAPM affiliate newsletters. 

May 2003

International Trade is Different!

As our Supply Chain expands to circle the globe, we need to keep in mind that we are crossing legal borders. The Uniform Commercial Code (UCC), which is a large part of U.S. law governing transactions between buyers and sellers, does not apply once our contract crosses the border and leaves the United States.

As a result, many contract terms, which we take for granted, have to be reconsidered. When we contact a distributor in Europe, Asia, Canada and even Mexico, stop and think about each detail of the purchase. Obvious issues that should be considered include the payment currency, exchange rate, payment method and unit of issue (kilos vs. pounds). Less obvious issues might include tariffs, duty, taxes and delivery terms. The more scary examples of issues to consider include; what court has jurisdiction if there is a lawsuit, does the buyer have the "right to cover", can acceptance be revoked and can the warranty be enforced?

Here is a typical transaction:

You receive a great quotation on some electrical equipment that your company needs. 
The quote is from a company in Taiwan. 
They quoted the price in Taiwan Dollars
Is the price really lower? 
Is the contractor asking for payment in Taiwan Dollars or U.S. dollars? 
Can my accounts payable department pay the bill in Taiwan Dollars?
Will I need a letter of credit? (What the heck is that and how do I get one?) 
What is the current exchange rate? 
What will the exchange rate be when I have to pay the invoice?
The quoted freight term is FAS San Francisco. What does that mean? 
If I use a credit card to pay the invoice, that takes care of my problem with paying in Taiwan Dollars, but what will the bank charge for the transaction?
When will the back convert the payment and what exchange rate will the bank use? 
What happens if there is a delay in production and the exchange rate continues to change (in the supplier's favor) during the delay? Do we have to pay the higher charge? 
If I don't want to pay the price increase what are my legal options?
Who's terms apply? Can I even read their terms?
Which of my terms reference U.S. laws that probably don't apply to a foreign company?
Which court would rule on the case? 
Do I need a lawyer who speaks Taiwanese?
Can the supplier sue me for not accepting the higher price? 
Do I have the right to cover, reprocure or revoke acceptance? 
What rights do I have anyhow?

International Trade organizations are beginning to resolve these types of issues and publish guidelines. Treaties and agreements between countries are being issued. Here is one reference source that would be a good place to start.

The ICC (International Chamber of Commerce) is one organization that claims to be "the voice of world business championing the global economy as a force for economic growth, job creation and prosperity". [Their words not mine]

Here is a link to ICC definitions of international shipping terms. (INCOTERMS)


Wall Chart 

It may not be an issue for you in the job you have today, but what about tomorrow? Will you want to know how to purchase something from a foreign country?

We have asked Helen Pohlig, a nationally known seminar leader on contracting legal issues to compare and contrast difference between domestic and international contracting. This workshop will start with the basics by exploring the differences between and among goods and services contracts, domestic and international, and will highlight some of the particularly crucial concerns regarding each type of contract.

Ms Pohlig will give us the benefit of her insight in a workshop at the 60th annual Pacific Northwest Purchasing Conference on October 10, 2003 in Kennewick Washington. Read more about the conference programs and make plans to attend.

MLTWEB is assembled and maintained by Michael L. Taylor, C.P.M. 
Materials and articles prepared by Mike may be shared for purchasing education provided that this source is cited and no fee is charged. The rights for any other use are withheld.
Copyright;  Michael L. Taylor, C.P.M.
Last Updated: 01/18/2013