Kevin Kilgour of Hesketh Henry describes the new ICC Rules for international contracts.

INCOTERMS 2000 came into being on 1 January 2000 and are important for both importers and exporters.

INCOTERMS 2000 represent the latest revision of the ICC Rules for interpreting terms used in international contracts for sale of goods. For many decades the ICC Rules have facilitated the conduct of worldwide trade. They are updated regularly to keep pace with developments in international trade practice.

The latest revision sees a number of changes to the 1990 revision.

The major changes include:

a. under FAS (Free Along Side), the seller now has also to clear the goods for export. That includes paying for customs formalities, as well as all duties and other taxes payable on export. Previous INCOTERMS place this obligation on the buyer, so the position has been reversed;

b. under DEQ (Delivered Ex Quay), the buyer now has to clear the goods for import and to pay for all customs formalities, as well as all duties and other taxes payable on import. Again, that is a reversal of the previous position;

c. taking delivery where FCA (Free Carrier) is used has been simplified. Under the new rules, when the seller's premises are named in the contract as the place of delivery, delivery is complete when the goods are lodged on the buyer's collecting vessel. Otherwise, delivery is complete when they are placed unloaded at the buyer's disposal.

You may need to insist upon applying the 1990 revision if any of these changes pose problems. INCOTERMS can often be misunderstood despite their longstanding and worldwide recognition. The consequences of using INCOTERMS which you misunderstand can lead to most unsatisfactory situations.

You need to be aware of and appreciate:

a. the ICC Rules will not spell out all the rights and obligations between the parties to the sale contract. Again, they only concern themselves with the particular aspects of delivery, e.g. who is responsible for transport documents, the delivery mode and point, when risk passes and how the cost of delivery is to be shared. They are not concerned with such things as description or quality of goods, retention of title, the timing and method of payment or choice of law;

b. the means of transport will dictate which terms apply. For example, the terms FAS, FOB, CFR, CIF, DES and DEQ will only be relevant if a shipment is by sea, as they necessarily require bills of lading, which are not used with other forms of transport;

c. INCOTERMS only apply to the sale of tangibles, not intangibles;

d. INCOTERMS only apply to the delivery of goods, not their carriage of goods or any other aspect of an international sale of goods;

e. INCOTERMS only cover international contracts for the sale of goods, not domestic contracts;

f. using INCOTERMS will avoid differing trading practices in different countries, including differing interpretations of non-standard trading terms used in their contracts;

g. the need to specify clearly in contracts that it is INCOTERMS 2000 (or some other earlier version) that applies, so the parties know precisely what their rights and obligations are. A reference to CIF, without further details, will cause problems, because the difference between revisions can be significant. You need to insert the words "(INCOTERMS 2000)" after any such reference.

INCOTERMS 2000 respond to the needs of the worldwide trading community. Their recent revision keeps them up to date with international trade practices. Their greatest value, however, is in the hands of those who understand and use them properly.

Copyright The Lawlink Group Ltd 2001

Every effort has been made to ensure that this information is accurate. However, it is general introductory information only. It does not constitute legal advice and should not be relied on as such. Specialist legal advice should be sought in particular matters.


Kevin Kilgour is a partner with Auckland Lawlink firm Hesketh Henry. His principal areas of practice are in commercial and corporate law and intellectual property. Much of his practice is devoted to advising overseas corporates undertaking business in New Zealand.

Web site: Hesketh Henry

Email: kevin.kilgour@heskethhenry.co.nz

April 2001