Engaging in international business around the globe requires more than a general awareness of import and export regulations, or knowing how to route a shipment from point A to point B. The complexity of global transactions today, involves multiple partners, different laws and regulatory constraints and ever-increasing trade restrictions may impact your global relationships.
Nothing is more frustrating than a transaction that goes astray and leaves everyone pointing to the other on who dropped the ball. Enter the global contract – that necessary agreement between two or more parties in different countries that legally bind each other to perform, or not, specific actions.
As trade complexity fluctuates, have you reviewed your contracts for 2020 and beyond? While your firm may already have an agreement in place, now’s the time to review and update your contracts to reflect the changing environment. Here’s our top five contract “must-haves” to help reduce risk and increase global trade compliance in supply chains.
Top Five Elements of a Global Contract for 2020
1. Update Your Incoterms
Incoterms 2020 have just been released and all contracts should be updated to reflect the new and modified terms that allocate risks of loss and shipping costs among the parties. There are new Incoterms, discontinued Incoterms, and modified existing Incoterms. It’s highly recommended that all negotiated import and export transactions should be covered by a contractual agreement stating the Incoterm followed by a named port or place, with the words “Incoterms 2020”. This will reduce risk in the transaction for firms still working with earlier versions of released incoterms that may cause confusion on which Incoterms were utilized.
2. Outline Expectations for Forced Labor Requirements
The U.S. Customs and Border Protection (CBP) agency has moved forced labor to the forefront of trade enforcement activities and is clearly poised to detain, delay or seize imported merchandise potentially in violation of forced labor regulations. Its important importers verify the origin of their merchandise, which requires the cooperation of the suppliers who have multiple source streams for the products they sell. Ensuring key policy language on the adoption, enforcement and auditing of such procedures protecting against the use of forced labor is incorporated to protect against potential CBP violations and Customs’ detention of suspicious merchandise.
3. Agricultural Security
With the new Customs – Trade Partnership against Terrorism (CTPAT) criteria formally released and set to be in place January 2020, companies need to reconsider how to address the changing role of cargo security within contracts. With the US agricultural industry facing loss of billions of dollars of crops, ensuring US imports are pest and bug-free is now critical which means that if you continue to use wooden pallets and packing in international commerce, you must test these wood products against the Wood Packaging Material standard, stamp them to verify they have been tested, and store them in dry secure places so that they do not invite insect infestation.
At the recent CTPAT conference, a customs representative shouted: “Go to plastic pallets”. Contract language must clearly state the importer’s expectations on how the supplier is to safeguard articles of conveyance when not in use, and train key personnel on how to spot pest invasions and take steps to reduce the possibility that they’ll move into the USA via their freight.
4. Responsibility for Additional Tariffs
With the Section 301 tariffs heating up, and the pending move against the EU which may end up with the imposition of 100 percent tariffs on EU-origin products that have nothing to do with the underlying trade policy disputes, who bears the costs when the importer can’t or won’t complete the import transaction? Outlining which party will take responsibility for a shipment’s escalated price due to the additional tariffs, and/or manage the return if the shipment is refused is critical, given the changing tariff wars.
5. Right to Terminate
We are already seeing certain industries move their supply chains to new origin points to legally avoid the increased 301 tariffs, antidumping and countervailing duties and other US import restrictions. Can your supply chain be next? And if so, how quickly can an importer abandon an existing supplier and move to a new origin country to manage 301 tariff impact? Review your contractual agreements and understand what action can be taken should tariffs shift and impact your imported product’s cost.
International trade is complex enough. Updating your contracts now will help to alleviate misunderstandings and disputes in a time of changing rules and regulations