Exporting to the United States – A Team Canada Inc Publication

4.6 The essentials of export contracts

Export contracts, because they're drawn up between companies from countries often having different business laws, regulations and attitudes, are more likely to cause disputes than straightforward domestic contracts. This can be true even when the countries have as much in common as Canada and the United States. You should therefore make your export contracts as clear, precise and comprehensive as is reasonably possible.

To provide a common terminology for international shipping and minimize misunderstandings over contract terms, the International Chamber of Commerce has developed a set of terms known as Incoterms. These are the basic terms used in international sales contracts, and you can learn more about them at the Incoterms 2000 Web site or in the Glossary of International Trade Terms in Appendix A.

The basic provision of a contract for the sale of goods is that you, the seller, will transfer ownership of the goods to your buyer in return for payment. The rest of your export contract specifies the terms and conditions for doing this, and at the minimum should describe:

• who is party to the contract;
• the contract's validity conditions;
• the goods you will provide;
• the purchase price of the goods and the terms for payment, inspection and delivery of the goods;
• where transfer of title to the goods takes place;
• any warranty and/or maintenance terms and conditions;
• who is responsible for obtaining import or export licenses;
• who is responsible for paying taxes;
• any contract performance security requirements, such as bank letters of guarantee;
• what to do if your buyer defaults or cancels;
• the provisions for independent mediation or arbitration to resolve disputes, and whether this would take place in the United States or Canada; and
• the contract completion date.

If the contract involves the licensing of proprietary information or technology, be very sure that it's precise about the licensee's rights. Vagueness about these rights can create serious problems and can lead to the loss of your intellectual property. If the licensee uses your technology to create other technologies, for example, this can severely undermine the value of your asset.

Also – and this would seem obvious, but it's sometimes overlooked – be sure that all parties to the contract have signed it. For instance, if you're working through a representative, be sure that the actual buyer signs the contract. The representative's signature is not necessarily enough, because without the buyer's signature, there is no written evidence that the buyer owes you money. Last but certainly not least, have the contract examined by a lawyer familiar with the U.S. export market. The Step-by-Step Guide to Exporting has an overview of international contracts in Chapter 8, "The Legal Side of International Trade".

If you've opened the door to an international opportunity, the Canadian Commercial Corporation can help you close the sale – on your terms. From building an advantageous offer to strengthening your negotiations with the full weight of the Government of Canada, they work actively with you to secure the best possible deal.

Proposal Preparation Service – Tap into the expertise of Canada's export contracting agency and build a proposal that will result in a profitable win. CCC offers you a complete bid or proposal review to ensure favourable payment milestones, clear terms of acceptance, dispute resolution mechanism availability, and overall acceptability of terms and conditions – all aimed at making your proposal a contract you can live with when you close the deal.

Contract Structuring and Negotiation Service – International contracts can be enormously complex – and demanding. If you're concerned about making sure you're well-positioned to succeed, CCC's contracting experts can help, giving everything from advice on contract structure and negotiation strategies to rolling up their sleeves and working with you at the table to get the terms you need to succeed.

Contract Management Service – This service includes Contract monitoring and administration, Foreign Exchange, and Receivables discounting and can free your company from the administrative burden that sometimes comes with international contracts. At the same time, their experts will help you reduce payment lead times and stabilize liquidity flows while minimizing the risk of non-payment.

International Prime Contractor Solution – Acting as International Prime Contractor, CCC can significantly boost your credibility and clout by underwriting your deal with a performance guarantee signed by the Government of Canada. Take advantage of this unique service and watch the doors to international markets open up.

Contracts for the sale of services diverge in some respects from contracts for the sale of goods. You'll find an overview of service contracts in Chapter 8 of the Step-by-Step Guide to Exporting, under the heading "Contracts for the sale of services."