GBMP 507: International Trade Law

Submitted on December 2nd 2013

GBMP 507: International Trade Law

Contents
INTRODUCTION ............................................................................................................................................. 2 About the Industry: ................................................................................................................................... 2 CONTRACT DETAILS....................................................................................................................................... 3 Elements of the contract which need to be included: .............................................................................. 3 Indemnification: ........................................................................................................................................ 7 Order Processing and Returns: ................................................................................................................. 8 Term and Termination .............................................................................................................................. 9 Obligations on Termination ...................................................................................................................... 9 Notices .................................................................................................................................................... 11 No waiver ................................................................................................................................................ 11 Entirety of Agreement ............................................................................................................................ 11 Severability.............................................................................................................................................. 11 Trade Laws, Tariffs & Quotas ...................................................................................................................... 12 Transportation considerations.................................................................................................................... 13 Health considerations ................................................................................................................................. 13 SUMMARY ............................................................................................................................................... 14 BIBLIOGRAPHY ............................................................................................................................................ 14

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GBMP 507: International Trade Law

INTRODUCTION
This report is based on a contract signed between a customer and a Toy manufacturing company. In this case the customer, USA is importing toys from China. The report covers all the different elements of contract including the trade measures, market price and description of goods, trade agreements and about the method of payment. In order to import toys from China, there are several factors that need to taken into consideration. The different factors include regulations followed in China, detailed information regarding the Chinese market, finding a reliable Chinese agent to find the products, direct communication and visit of industries, understanding the import rules for USA and choosing the type of contract.

About the Industry:

Toy industry is a successful and rapidly progressing industry; this is due to the reason that toys are used both by children and pets. The demand is due to the reason that the usage of toys is considered as training for kids and for pets. China is a leading producer of toys. It produces about 75% of the total toys made worldwide. Chinese toy market can be divided mainly into 4 categories which includes both the traditional and high tech toys. There is an average annual growth of 21% for the sales of toys in China. (China's toy market) The demand for the toys increased with the increase in customers income and quality of life. The main factors affecting

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the demand for toys are the local cost of productions, changes in the exchange rate and product quality.

CONTRACT DETAILS
A contract is an agreement between two or more parties which describes all the criteria and legal liabilities that needs to be followed for a smooth flow of tasks/operations between the parties. Legal advice should be taken into consideration before entering into any form of contracts, since attorneys can provide clear information regarding the contract. (chron) The different elements mentioned in the contract between USA and the Chinese companies is terms and conditions, trade laws and tariffs, product details, right granted, payment, marketing policies, distributers duties, policies for the sale, advertising policies, warranty policies, Indemnification, Order processing and returns, financial policies, manufacturers details, relation between the parties, termination details and notice, health considerations, transportations and severability.

Elements of the contract which need to be included:

1. Offer and acceptance 2. Legal Purpose/Objective 3. Mutuality of Obligation also known as the meeting of the minds 4. Consideration 5. Competent Parties

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The terms and conditions specified in the contract specify that the distributer has to pay the supplier with the letter of credit to ensure safety of the importer, in order to obtain the products. The rights to be included in the contract also describes about the rights that have been granted by the manufacturer to the distributor. The importer should choose a reliable local agent in order to get the details regarding the supplying company, the local agent should be well aware of the market both locally and globally. It is implied that the agent is responsible for safe, hassle free transaction between the exporter and the importer. The contract with the agent should be principal. It is essential to have an agreement between the agent and the importer. All the terms and conditions should be clearly defined to avoid any disputes. The product details should be mentioned in the contract is related to the product sold and the different product accessories and services provided by the supplier/importer. It also shows the quality of the product and the amount of products imported, different quality and safety certifications sanctioned for the product. The agreement should specify the certain date on which the products will be transferred and delivered to the importer. Venue clause should be included in the contract which specifies that the choice of venue is very important as it decides the geographical location where all the disputes will be settled. The contract should also include reimbursement/return/ cancellation clauses. For example, the products are considered to be received when they are delivered to the address specified during the contract. The distributer has the right to inspect the goods upon delivery and to notify the manufacturer within 7 days in order to obtain the claim for reimbursement.

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GBMP 507: International Trade Law

The terms of sales are all about the different essential terms that the both parties agreed upon the signing of agreement. The manufacturer is supposed to sell the products on the agreed price and no changes can be made after signing the contract without giving a 30days prior notice to the distributor. In this way the importer is saved from sudden price change. Any risk of loss due to damage caused during the transportation shall be the responsibility of the importer after the shipment from the supplier. Incoterm used EXW, when goods have been presented to the carrier chosen by the importer, the exporter is no longer responsible for the goods. Payment details in the contract, gives the method of payment chosen by the importer to pay the supplier. The payment clause specifies that the products will be shipped on time when the payments are done in time. The letter of credit is the best method for payment as it ensures that the payment will be received. A letter of credit is a document given by bank which assures payment to the manufacturer, provided all the required documents are shown to the bank. The different documents that are required are bill of exchange, bill of lading, invoice, official and insurance documents. It reduces the production risk; i.e. the risks due to cancel or changes in order of the buyer. The payment is made in US dollars as it is considered as the world currency.

Marketing Policies mentioned in the agreement shows that the importer will maintain the inventories of the manufacturers product at all times and will help in promoting the suppliers product through all the available channels of distribution. The importer will try their best in order to selling the products and make a good market and reputation for the manufacturer. The importer may sell the products to a third party like a wholesaler or a retailer. The total risk of collection from dealers/retailers/wholesalers is taken by the importer. The importer are
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GBMP 507: International Trade Law

allowed to sign agreements with the dealers/retailers/wholesalers in order to deal with the different aspects of sales. The agreement also makes sure that the Manufacturer is not responsible for any unpaid invoices by dealers. The contract also contains the different duties of the importer which says that they are responsible for maintaining the business in their locality, which includes maintaining proper showroom for the manufacturers products. The importer is also responsible for the maintenance of the manufacturers products.

The Sales policies mentioned in the contract should ensure that the manufacturer is allowed to establish sales quotas in accordance with their past sales and market potential. The distributer also agrees to employ sales persons to attain such quotas for the manufacturer. The sale policies should ensure that the manufacturer will provide proper merchandising assistance to the importer via advertisements and field sales training and assistance. The contract should also contain the different advertisement policies that are to be followed for the promotion of the product. The importer mainly deals with the manufacturer as well as its dealers for the effective marketing and advertising of the manufacturers products within the territory. The importer then negotiates at its expense to meet and participate in the process, thereby complying with the terms and conditions of such promotions and marketing campaigns as described by the manufacturer. The manufacturer may also establish such offers to the importer for a longer period of time based on their performance. Also, the contract is written and approved by the manufacturer in advance in such that a way that no factors could prevent the importer from advertising or marketing separately the manufacturers products within the territory.
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GBMP 507: International Trade Law

Warranty policies are an integral part of the contract as it provides an easy flow of materials between the manufacturer and importer. If any of the products were found out to be defective by the manufacturers at the time of the sale, it is the duty of the manufacturer to make a proper adjustment in the original sales of the product or by replacing it with a non-defective product. They should also give proper information to the importer with regards to the manufacturers limited warranty which will be extended to the end-user of the products. However, it should be seen that the manufacturer offers no sorts of warranty to its customers or its distributors, which could be either implied or expressed or without limitation. It also includes its fitness for a specific purpose.

Indemnification:
If any defects arise in the quality of the manufacturers products at the time of the sale, the manufacturer then agrees to give protection to the importer and the importer will be free from any loss or charges arising out of the damages brought by the products, given that the importer issues an immediate notice to the manufacturer and collaborates fully with the manufacturer in the handling of the products. If the situation is such that the negligence is from the importers side, then they will agree to protect the manufacturer and make him free of charges or fines arising out of the damages brought by the importers fault. This could be through their negligence or misuse from the distributors agents, employees or technicians in the installation. In such a situation, importer takes full charge of the situation.

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GBMP 507: International Trade Law

Order Processing and Returns:

The manufacturer will use its best efforts to fill the orders of the importer based on its acceptance, but it reserves the right to allocate its inventories that are available among the various distributors and its basically their end users at their own discretion. The manufacturer should be not be obliged to accept any of their returned products by the importer , except for events where the manufacturers products are defective at the time of sale s of the defective products to the importer. Financial policies are a key part of any contract. Here in this contract, the importer acknowledges the importance of its financial conditions to the manufacturer and clearly expresses that it will undertake the following conditions: It should maintain and employ its connection with the business of the importer and the operations under this agreement such as net worth and working capital must be necessary to enforce the importer to properly carry out and perform all of their duties and responsibilities under the agreement. The importer must pay all amounts due to the manufacture in accordance with the terms and conditions as given in the contract. Provide the manufacturer with financial statements and records that the manufacturer may require for its credit purposes. Provide a detailed account of the various transactions between the importer and the manufacturer, upon the manufacturers request. It should also account the amount due to the manufacturer.

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GBMP 507: International Trade Law

Even in spite of these conditions, even if the importer fails to perform their duties, i.e. disregarding the duty to properly conduct the rules as described in the policy, the manufacturer has the right to suspend the contract.

Term and Termination

Another important aspect is the clause that describes the term and the termination date. It should contain the clause for mentioning the commencing date of the transaction as well as the closing date. Also, at the end of the term, the agreement can be continued until it has been terminated by any of the parties by issuing a notice prior to 30 days. The manufacturer can terminate at any time by issuing a notice to the importer in not less than ninety days. Some of the conditions for termination are:

Failure of the importer to perform the duties

The importer has done its business in its own regard, without the consent of the manufacturer.

Failure in the part of the importer to fulfill the objectives.

The importer has taken part in unlawful activities that will hamper the flow of goods.

Obligations on Termination
On the termination of the agreement, the importer shall fail to be an authorized importer to the manufacturer. All the amounts owing by importer to manufacturer, without withstanding
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GBMP 507: International Trade Law

the terms of the contract, would become suddenly due and accounts payable. Some of the effects are:

The orders that are not shipped shall become cancelled without liability to either party.

On free of encumbrances, the importer will resell and deliver to the manufacturer products that bear the manufacturers name in such a way that the manufacturer shall elect to repurchase, on a mutually understandable price, but definitely not on prices that are higher than the standard rates. The manufacturer is not really obliged to pay the importer for any item that is provided free of charge.

In events of termination, policies such as compensation, damages or reimbursement for the loss of profits of the expected sales shall not be made liable to both parties.

Hence, on an overall basis, both parties must acknowledge the fact that at any point termination is feasible and should not be ruled out. It should be treated like business and both parties should respect each others policies.

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GBMP 507: International Trade Law

Notices
Any notices that the agreements needs should be in writing and electronic contracts must be avoided. It should be then delivered to each of the concerned party either by personal delivery or through the various acknowledged services such as Federal Express, DHL etc. If to Manufacturer: ______________________________________________________. (Name & Address) If to Distributor: ________________________________________________________. (Name & Address)

No waiver
If any of the party involved fails to exercise their rights, as provided by the contract then it cannot be deemed as a waiver to which the party is entitled.

Entirety of Agreement
The terms and conditions that have been constructed prior to this statement have been recognized as the final understanding and it surpasses any previous agreements with respect to the subject matter. Thereafter, no oral or written subsets could be introduced to this contract and no changes could be introduced except in writing and should be signed by both parties.

Severability
If any terms as prescribed in this agreement have been found to be illegal or invalid, then the agreement will be considered as invalid and would be enforced upon.

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GBMP 507: International Trade Law

Trade Laws, Tariffs & Quotas

There are certain laws and tariffs that are mentioned in the agreement. The imported materials entering the USA should be cleared by the customs. The seller has to provide documents like bill of lading, invoice and packing list during this process. The import duty rate for importing toys into United States ranges between 0 - 7.2%. Tariffs play an important role in the trade policy and economic growth of a country. The process of importing should comply with the required compliance. A governing law clause makes it possible for the parties to specify laws which will influence the interpretations of agreement or for settling disputes. (clause hound). The governing law followed will be in favor of the provincial and federal laws of US. Different laws, duties and regulations that are related to products imported to US are import duties, GSP, Labeling and marketing regulations, and product standards anti-dumping actions. There are no foreign exchange controls over the import payments in US. Import duties are the feed applicable to all the goods imported to US. General System of preference or GSP is the duty free importation of a wide range of products from beneficiary developing countries. According to the Consumer Product Safety Act, all the toys must obey the uniform safety standard set by International Council of Toy Industries. All the imports are required to be covered by an import license. (Customer guideline) The dispute settlement method is done by Arbitration institution. The arbitration will be done by the Association for International Arbitration (AIA), it is an organization established to resolve the different trade disputes this ensures neutral, unbiased and enforceable arbitration. The import quota is the limitation on the quantity of products imported into a country. This is done in order to support the selling of domestic products. The Quota information are issued by the HQ Quota Branch in the country.

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GBMP 507: International Trade Law

Transportation considerations
The method of transportation is sea transport as it is considered as easy for transporting bulk items and it is really cheap especially for large shipment weight and volumes. For this the importer and exporter need to finish the following documentation. Bill of lading Ship manifest Packing list Commercial invoice Certificate of origin

Health considerations
The third party verification company carries out the inspection and verification for the products. The checking ensures that the products are safe and does not contain any harmful substances in it. Container Loading Check or CLC is performed in order to check the quality of the products ordered. The safety, packaging and the cleanliness of the products will be checked by an appointed agency. The products should follow the Consumer Product Safety Act. Failing to do so will result in ban of the product in the USA.

The manufacturers name must not be used by the importer for their selfish reasons. I.e. the manufacturer should not exhibit the right to use the trademark or trade name which is solely
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GBMP 507: International Trade Law

enjoyed by the manufacturer. However, with specific rights purchased from the manufacturer, they can employ it for using in instances such as logos or trademarks in advertising campaigns or on stationary or business cards.

SUMMARY
The report shows different elements of contract present in an agreement signed between a Chinese and U.S Company. The trade between the United States and China is essential for both countries as it can increase their standard of living. The agreement helps both the supplier and the distributer to have a smooth trade and cancels out the possibility of any trade disputes.

BIBLIOGRAPHY
(n.d.). Retrieved from chron: http://smallbusiness.chron.com/importance-contracts-business-906.html (n.d.). Retrieved from clause hound: http://clausehound.com/generally-used-clauses/disputeresolution/litigation/governing-law/ (n.d.). Retrieved from Customer guideline: http://www.wsgl.biz/en/support/rule/usa.htm (n.d.). Retrieved from nafta: https://www.nafta-sec-alena.org/Default.aspx?tabid=88&language=en-US China's toy market. (n.d.). Retrieved from http://china-trade-research.hktdc.com/businessnews/article/China-Consumer-Market/China-s-toy-market/ccm/en/1/1X000000/1X002MRF.htm

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