Understanding the CISG, UNIDROIT Principles, and INCOTERMS in International Trade

Posted on Jan 10, 2025 in Law & Jurisprudence

Convention on Contracts for the International Sale of Goods (CISG)

The Convention on Contracts for the International Sale of Goods (CISG) does not take into account the nationality or the merchant status of the parties. It mainly regulates how the contract is formed and the rights and duties of the buyer and seller. It is recommended to complement it with other instruments such as the UNIDROIT Principles. The CISG is a project created by the United Nations that acts like the “glue” that tries to unify commercial law internationally. Its goal is to universalize sales rules. The CISG focuses on regulating international trade between countries, taking into account their differences to assure commercial exchanges are done safer, respecting each party’s interests and lowering the costs of its transactions.

Contracts Covered

  • Sales of goods
  • Some supply contracts

Elements of Supply Contracts:

  • The supplier manufactures or makes the goods.
  • The buyer does not give substantial material for the manufacturing process.

Exemptions

  • Goods bought for personal, family, or household use
  • Auction
  • Stocks, shares, investment securities, negotiable instruments, or money
  • Ships, vessels, hovercraft, or aircraft
  • Electricity

Geographic Requirement

The parties must have their business establishments in different countries or states:

  • Directly: The states where the establishments are located have previously ratified the Convention.
  • Indirectly: One or both of the states have not ratified, but the choice of law made by the parties makes the CISG apply.

Applies to transactions that occurred after April 11th, 1980.

Structure

  • Sphere of application
  • Formation of the contract
  • Obligations of the seller or buyer
  • Delivery of the goods and handing over of documents
  • Remedies for breach of contract
  • Payment of the price
  • Passing of risk
  • Exemptions
  • Effects of avoidance

UNIDROIT Principles

The UNIDROIT Principles are a set of rules for international contracts. They try to make international transactions uniform. They apply to any international contract if the parties choose to use them. Nationality or merchant status does not matter.

Exemption: The transaction was made for personal, family, or household use.

INCOTERMS

The CISG and the INCOTERMS (Passing of Risk)

  • Option 1: The parties choose an INCOTERM: This excludes the use of the CISG, referring to the passing risk dispositions.
  • Option 2: The parties remain silent: The CISG offers a “complementary set of rules”.

INCOTERMS in a Contract

  • Depends on the type of good (nature and value)
  • Type of transportation
  • Must specify the place or destination where the goods must be placed (e.g., “FOB Sociedad Portuaria de Cartagena-Colombia, Ship CSAV RECIFE NW328A, Incoterms 2010”).

Sales Contract

The INCOTERM must be the same in the sales contract and in other documents that reflect the transaction.

International Sales of Goods Contract

Governing Law Clause: CISG + UNIDROIT Principles (as a complement) or state law (e.g., Colombian law).

Documents

  • Commercial invoice
  • Transportation documents: Waybill or BL (Bill of Lading)
  • Import and export declaration
  • Customs documents
  • Certificate of origin