Foreign economic activity of enterprises is a sphere of economic activity connected with international industrial and scientific and technical cooperation, export and import of goods and enterprises’ entrance into world market.
In order to enjoy foreign economic connections one needs the following:
- state registration of the enterprise at the place of location (statutory documents: articles of association and agreement, as well as a certificate of state registration);
- to register in tax agency at the place of the company’s registration;
- to obtain a stamp and a seal in accordance with the established procedure;
- to register in the state register of the Republic of Belarus;
- to open ruble or currency account in any joint stock commercial bank of the Republic of Belarus.
In order to determine the economic efficiency of prospective commercial transaction the following provisions should be observed:
- an export-import transaction is based on the principles of full self-sufficiency (including the hard currency cash flow) and self-funding, that means based on self-support principles;
- amount of the prospective transaction is established based on the resources the enterprise possesses: material, financial and intellectual;
- a commercial transaction shall be preceded by detailed marketing, feasibility report; multiple options for the possible commercial transactions shall be assessed and considered;
- organization of the commercial transaction shall be carried out with the observance of the legal acts (international ones, CIS, laws, edicts, decisions of relevant bodies of the Republic of Belarus, bilateral governmental agreements);
- a mandatory condition for any transaction shall be the full knowledge of the taxation system, system for currency conversion, level of world and internal prices, as well as the experience in conducting foreign economic transactions;
- persons directly carrying out the commercial transactions with foreign partners shall speak a foreign language (English is desirable) and know the general rules for negotiating.
The President, the Council of Republic, the House of Representatives and the Council of Ministers are the highest bodies of state power in the sphere of foreign economic activity. The Council of Ministers of the Republic of Belarus is the highest executive and administrative body in the republic.
The first comprehensive act of the Republic of Belarus regulating the foreign economic activity was the Law of the Republic of Belarus “On the Basis of Foreign Economic Activity” adopted on October 25, 1990. Since June 15, 2005 the Law of the Republic of Belarus of November 2004 No. 347-Z “On State Regulation of Foreign Trade” entered into force.
The state regulation of foreign trade in the Republic of Belarus is carried out by the President of the Republic of Belarus, National Assembly of the Republic of Belarus, Government and other authorized state bodies of the Republic in accordance with the Law “On State Regulation of Foreign Trade”, other acts of legislation of the Republic of Belarus and rules of international law valid for the Republic of Belarus.
Coordination of the work of the state bodies of the Republic of Belarus in developing of proposals in regard to formation of the state foreign trade policy of the Republic of Belarus, regulation of foreign trade of its participants and conclusion of international treaties of the Republic of Belarus in the sphere of foreign trade is carried out by the Government of the Republic of Belarus and the authorized state bodies within their competence, unless the President of the Republic of Belarus establishes otherwise.
The main method to regulate the foreign trade of goods applied with a view to protect the internal market of the Republic of Belarus is the customs and tariff regulation.
A serious step towards improvement of foreign trade was made by adopting the Edict of the President of the Republic of Belarus of March 27, 2008 No. 178 “On Order of Conducting and Control of Foreign Trade Transactions”.
The Edict established a rather strict framework in relation to settlements under the foreign trade contracts. It also established that economic sanctions are applied in relation to legal persons and individual entrepreneurs in the Republic of Belarus for violations in the sphere of foreign trade.
Measures to protect economic interests of the Republic of Belarus when carrying out the foreign trade of goods are determined in the Law of the Republic of Belarus of November 25, 2004 No. 346-Z “On Measures to Protect Economic Interests of the Republic of Belarus in Foreign Trade of Goods”.
One of the fundamental international documents governing the foreign trade is the UN Convention of April 11, 1980 on Contracts for the International Sale of Goods – an international document eliminating deviations in national legislation regulating international sale of goods.
The provisions of the Convention regulate the conclusion of international sale contracts, rights and duties of the contractual parties for non-fulfillment or improper fulfillment of the contractual obligations. Provisions of the Convention do not cover the context of the contract and the matter of the ownership of the sold goods. (The Convention is in force for the Republic of Belarus since November 1, 1990).
The general sections of the contract are as a rule the following: contracting parties; subject of the contract; delivery term; price and total cost of the contract; quantity; basic shipment terms; quality of goods; payment conditions; package and marking; acceptance; insurance; complains; force-majeur; sanctions; dispute settlement; other contractual terms.
In a number of cases some sections of the contract are combined. It depends on the extent of specification of contractual relations of the partners.
The contract starts with the document title “Contract”, its number, city, date of signing, then the parties to the contract are determined, i.e. the name of the firm, organization, its location, country, legal address, office and last name of the director who signs the contract.
The text of the contract shall start with the preamble where the full legal name of the parties concluding the contract is stated, indicating which party is a buyer and which is a seller (export-importer, licensee-licenser, leaser-leasee, agent, etc.).
This section usually determines the type of the transaction (sale and purchase, rent, barter, know-how transfer, etc.). Name of goods, specification and their range are mentioned. When a number of different goods are delivered, they are listed in specification that is stated as an integrated part of the contract.
Delivery term is a moment when the seller shall transfer the goods to the buyer. The contract usually determines a calendar day of delivery, or a period within which the goods shall be delivered (during which, not later which, etc., quarterly).
The date of delivery is the date the goods are given to the buyer. It may be: the date of a transport document of the organization that has accepted the goods for carriage; the date of receipt issued by a transportation and forwarding company; date of warehouse certificate (if the buyer was late with the tonnage facilities and the seller used the right to give the goods away to the warehouse) or the date when the act of acceptance is signed.
Under the rules of international trade the term “immediately” means the delivery of goods any time during the period not more than two weeks.
In connection with the licensing and establishing quotas for some goods the clause may be appropriate: “…the goods are delivered as far as they are ready to be shipped and after the export license from the authorized bodies is obtained.”
The date of delivery is the date of the bill of lading. Pre-term or partial delivery; re-load and shipment on the board are permitted. When making payments in the form of a letter of credit, the abovementioned condition shall be included into the text of the letter of credit.
Contracts usually provide the price per one item of the goods, and the total sum of the contract is mentioned.
The prices of the contracts are expressed in certain currencies (price currency). However, other currency may be chosen for making the payment under the contract (payment currency). One should remember that all settlements of Belarusian organizations under foreign trade transactions shall be made in foreign currencies.
International settlements are made in hard currency, as a rule.
Basic terms of delivery are a set of trading customs for sale of goods; they determine the obligations of the parties to deliver the goods and establish the moment when the property right for the goods is transferred from the seller to the buyer. In other words, the basic terms determine what expenses are borne by the parties for the goods transportation from the exporter to the importer. The basic terms are exercised in accordance with the Incoterms-2000.
There are different ways to determine the quality of goods under: the standard, specification mentioned in the contracts, under the sample, description, preliminary examination, under the content of certain substances in the goods, product yield, fair average quality, method of the goods “as they are”.
Every contract shall contain the guarantees of the sellers in relation to the physical features, technical characteristics of the goods and their quality. Seller’s liability for observing the guarantees is as well provided.
The buyer, who receives the goods of bad quality, unless their defects were mentioned in the contracts, may at his will may demand the following:
- the replacement of the goods with the same or similar goods of good quality;
- the reduction of the price proportionally to the goods’ quality;
- the elimination of the defects at no cost;
- the elimination of the defects at his own expenses and to claim the reimbursement of the expenses from the seller;
- the termination of the contract with reimbursement of damages.
While determining the payment conditions the parties are governed by the publication of the International Chamber of Commerce “Unified Rules for Collation” and “Unified Rules and Customs for Documentary Letter-of-Credit”.
The most beneficial form of payment for the exporter is an irrevocable documentary letter of credit that is a hard payment obligation of a bank that has opened it (issuer) in favor of the exporter and the obligation is independent from the foreign trade contract the letter of credit is based upon.
For the Belarusian importer the collection with the payment after the bank of the importer receives the documents is advantageous.
The type of package is determined by the basic commercial terms. When using FOB, CIF and other terms providing carriage by sea, the seller shall provide the sea package for cargo; when using other terms – package for land carriage. Special requirements to the package are laid down in the contracts.
Cargo marking is made in accordance with the generally accepted international rules and special requirements of the buyers.
It should be mentioned that in connection with the international trade practice the seller shall ship the goods in the package applied for goods export in his country, unless the contract clearly stipulates special provisions in relation to the package.
Putting warning marking for payment is a duty of the seller regardless of the whether it is stipulated in the contract or not.
Acceptance. The contract shall stipulate a number of acceptance conditions:
- Type of acceptance. It can be provisional or final.
- Place of acceptance. Usually it is determined in the contract (an enterprise premises, warehouse, port, station).
- Term for acceptance. The terms for acceptance of the quality and quantity usually are not the same. The check of quality shall be fulfilled by the buyer immediately after the goods are delivered; the quality is checked during longer period of time.
- Check of quantity. The buyer does not have to accept the goods in greater or lesser amount compared to the amount stipulated in the contract. He can pay the amount provided in the contract and refuse to pay for the rest. The check of the quantity in order to determine the sum of the payment is made in accordance with the loaded or unloaded weight.
- Acceptance of the quality. It is fulfilled based on the document confirming the conformity of the shipped goods to the contractual terms, or by holding an analysis, comparison with the specimen, examination, etc. Usually the contract set forth the limits for quality deviations of the goods from the quality stipulated in the contract the buyer has to accept;
- Acceptance method. Usually selection method or the method of checking all the goods is used.
At the course of the sales contracts execution the transportation risks of the goods are insured. Usually the cargo is issued in favor of the buyers or goods recipients to 110% of the goods’ cost. The contract mentions the types of insurance or lists the risks the goods shall be insured against.
The claims made by the buyer to the seller in connection with incompliance of quality or quantity of the goods to the contractual terms may be submitted only in relation to the matters not being the subject of the goods’ acceptance or when the documents submitted by the seller do not comply with the actual information. It should be mentioned that the submission of the claim cannot be a motive for the buyer’s refuse of this delivery or next consignment deliveries. The seller has the right to check the soundness of the claim by examining the goods, consider the claim and inform about his decision in the established period of time. If there is no reply under the subject matter, the claim is considered recognized by the seller and the buyer has the right to turn to the arbitration (the arbitration expenses are borne by the seller).
All foreign trade contracts contain a clause about force-majeur. It allows a delay of obligation fulfillment or frees the parties from the obligations if there are circumstances not depending on the parties. Usually the seller tries to mentions as many certain force-majeur circumstances in the contract as possible. The term during which the parties have the right to refuse to fulfill the obligations is as well provided in the contract.
In majority of cases the contract provide material responsibility of the parties for non-fulfillment or improper fulfillment of the obligations. Such material responsibility may be provided in the form of a fine or damage reimbursement. The buyer is usually fined for violating payment obligations.
The contract may provide damage reimbursement for the material damage caused by violation of the contractual obligations. The damages are the expenses, loss or damage of property and lost profits. In some contracts the parties establish a deadline for delivery delay after which the buyer gets the right to refuse to fulfill the contract and to collect the fine or the losses from the supplier.
Usually the parties try to settle their disagreements by negotiating. However, the contracts always provide the dispute settlement in arbitration the decision of which is final and cannot be appealed, unless the disputes are settled by negotiating.