Contract

Lesson 1.

Commercial activities and types of contracts

Foreign trade comprises three main activities: importing (i.e. buying goods from foreign Sellers), exporting (i.e. selling goods to foreign Buyers) and re-exporting (i.e. buying goods from foreign Sellers and selling them to foreign Buyers without processing in one’s own country).

All commercial activities in foreign trade may be divided into basic ones associated with the conclusion of foreign trade contracts for the exchange of goods and auxiliary ones ensuring their successful performance, i.e. associated with carriage of goods, their insurance, banking operations (financing the deals, settlement of payments between the Sellers and the Buyers, guaranteeing the strict observance of their mutual liabilities), as well as Customs and other activities. Conclusion of agency agreements, agreements with the Suppliers for the export of goods and with Importers for the purchase of goods, agreements with advertising agencies and firms dealing with the market research and with other organizations helping to achieve the targets set for for­eign trade also refer to auxiliary activities.

There may be about 10 or more auxiliary operations to one basic.

In accordance with commercial usage existing in capitalist countries, contracts of sale and other agreements may be concluded either verbally or in writing.

The laws of Russia do not recognize the validity of any agree­ment concluded verbally by the Trade Representation of Russia abroad or by export or import organization in this country. According to Russian law contracts must always be made in the form of duly signed documents containing the terms of an agreement between two firms or associations called counterparts (or parties) to supply goods or services as a rule at a fixed price.

Agreements and contracts concluded by Russian Trade Rep­resentations are to be signed by the Trade Representative or his Deputy (first signature) and by an official of the Trade Representation specially authorized to sign agreements and contracts (second signature). The names of persons entitled to sign documents and contracts on behalf of the export or import associations abroad are published in the official journal of the Ministry of Foreign Economic Relations called "Foreign Trade".

Agreements and contracts made in our country are to be signed by Director General of the foreign trade association or his deputies (first signature) and by directors of firms or their deputies (second signature). Sometimes senior engineers of the firms are legally authorized to sign these documents.

In international trade contracts of sale, contracts for construction work (very often for the delivery, erection and commissioning of the equipment for industrial enterprises) and lease are most frequent among a variety of basic deals. Contracts of sale include turnkey contracts and large-scale contracts on a compensation basis. There may also be barter deals and compensatory deals.

Licence agreements stand apart from all the above contracts because they do not deal with selling and buying physical goods but with the sale and purchase of ideas, scientific-technical knowledge in the form of licences, patents and know-how. As a rule there are practically no standard licence agreements. Each licence agreement is more or less unique in itself, i.e. has its own specific individual characteristics.

To ensure the fulfillment of the above basic contracts successfully and profitably, a number of auxiliary agreements (contracts) are to be concluded: Marine Insurance Policies or Certificates, Charter Parties, Agency and Distributorship agreements and so on.

Apart from marketing carried on regularly by special marketing departments at manufacturing works or branch ministries, which helps plan foreign trade, foreign trade activities proper comprise several stages:

1) market research work (analysis of the market conditions)

2) choosing proper methods of trade on this particular market

3) planning the foreign trade operation

4) carrying on a publicity campaign

5) preparation and conclusion of a contract of sale with a foreign counterpart

6) fulfillment of contract obligations.

Answer the questions:

1) What main activities does foreign trade comprise?

2) What is the principle in dividing all commercial activities into basic and auxiliary ones?

3) What are the types of foreign trade transactions?

4) What basic types of contract do you know? Describe them.

5) What auxiliary types of contract can you name? Can you describe them?

6) In what way can deals be concluded in capitalist countries?

7) What are the requirements to the conclusion of deals in our country?

8) Who is entitled to sign our contracts abroad and at home?

9) Do licence agreements belong to basic or auxiliary transactions?

10) What are the stages in foreign trade activities?