International Contracts: What You Need to Know

Introduction 

When an organization starts conducting international businesses, it gets into a couple of contracts with other business partners who may or may not be located abroad. International contracts are binding agreements between two or more parties from different countries that create a commercial-based legal relationship. These contracts can be written or implied, and they are such as a sale contract existing between an importer and an exporter, an insurance contract between these two parties, a contract of carriage which also involves the shipping company or line, one between the individual exporting and an agent, and another contract between an importer, an exporter, and the bank. These business contracts are formed under the guidelines of traditions in these countries, government agreements, local laws, and international treaties, whether ratified or non-ratified. The legal system in a country determines the laws by which a contract is established within that country. On the contrary, when the contract exists between parties in different countries, there no specifications of laws governing it besides a set of international laws and customs and international agreements that in most cases complement the domestic laws known as Lex Mercatoria. International contracts are essential because they are an official record; they provide security, increase business operational efficiency, mitigate risks, prevent conflicts, and encourage compliance. 

Creation of an International Contract 

For it to be considered a contract, it has to be accepted by both or all parties involved, and they all have to have agreed to its terms. The first step in creating an offer is when a seller makes an offer, which can be termed as the initiation stage. The second step is acceptance, where the buyer makes a response and agrees to the terms as presented. In most cases, an offer of a contract may contain a clause that indicates how long the offer is open for consideration. Then there is offer rejection, and this differs from the acceptance step in that the other party, whether buyer or seller, rejects the terms that have been laid out and makes a counteroffer for the contract to be established. The fourth step is known as the intermediary step. Here, the party declines the terms of the contract and instead asks that they be modified. When creating an international contract, both parties select a governing law they are all comfortable with, which helps in easing the understanding of contract provisions. 

When negotiating international contracts, parties are required to outline all their goals and expectations clearly. An international contract entails a dispute resolution section, and this part must clearly state the remedies and rights of the involved parties. It should involve an arbitration clause that gives specifications regarding how disputed should or will be resolved should they occur. In most instances, an arbitration clause states that an arbitration panel will settle all disputes. An arbitration panel is usually made of three members, and they are powered by the parties of a contract to resolve disputes. Their decisions are binding to all parties (Pierre, 2013). It should also include all the necessary steps to be taken during contract termination. A force majeure is involved in allowing either party of the contract to excuse themselves from the international business transactions owing to circumstances they cannot control. This offer must include all shipping fees and a section covering all legal requirements depending on the laws the contract is abiding by. 

Importance of International Contracts 

Contracts are essential parts of a business or business because they serve many different purposes. They enable the establishment of relationships between organizations and individual business persons in different countries and also contribute to the increase in revenue for these business ventures. One of the major importance of international trade contracts is that they serve as an official record of the commitment that both or all the parties involved in the business deal have made. At their core, international contracts are relationships. It is a situation whereby two or more parties come together in agreement to work with each other. The parties create a connection based on commercial foundations, a connection that, if well cultivated and fostered, can result in numerous benefits for all sides involved, and it can last for a long time and result in more profits. Contracts are binding documents. They hold every party involved in the agreement they made at the beginning of a business deal. For instance, if an exporter agrees to provide an importer with a given software for a given period, for instance, for two years, and the importer or buyer agrees to pay the exporter a given amount of money for these products for the same period, an international contract will hold each of these parties accountable for these terms from the beginning to the end of the relationship. 

International contracts are an important part of international businesses because they mitigate risks and prevents conflicts from happening between the parties involved in a business venture. This part is where it becomes apparent the essentiality of negotiations before a contract is sealed. International contracts often go through a negotiation stage at the beginning of their establishment. This process is purposed to ensure that every party involved in getting the best deal out of the business deal. When the negotiation process is good and resourceful, both or all parties end up having an outcome that is mutually beneficial. This then prevents conflicts from happening to see as there are no disagreements and proceeds to establish a stable foundation and a partnership that is remarkably strong and profitable for the business. In the case that a contract is managed as it should, an international contract ought to have an audit trail indicating any changes, edits, and comments that may have made. When business partners or parties involved are sending emails back and forth, it may be difficult for them to trace them and compare all the versions. However, an audit trail creates clarity of which changes were made and by who, thus mitigating risk while also preventing conflicts from happening. 

International contracts are also essential for international businesses and business entrepreneurs because they enable the organization, partners, and individuals to maintain compliance. People in business are unlikely to think about complying with legal guidelines if constantly unless they are provided with a legal background (Kaurakova, 2017). In some cases, business people conducting international business involve an international contract management system or parties to ensure that the legal foundations and guidelines are in place and being followed. When contracts are made upon legal requirements, they remind the parties involved of the importance of abiding by them. 

International contracts can also serve as collaboration and communication tools, which are important aspects of international business ventures. From the beginning, international contracts are relational and collaborative by nature. This means that both or all parties are able to work together and identify their needs by establishing a contract, establishing and maintaining positive and healthy communication, and ensuring there is a collaboration between all parties across their different countries, in the case that an international contract involves another different party, the process of collaborating starts again with them as the new business relationship starts. To enhance high quality and agreeable levels of collaboration, can both parties use negotiation when the contract is beginning? Thus, when there are collaboration and open communication between parties, they will all be confident and pleased with the outcomes of a contract after it is signed. 

International contracts are an essential aspect of businesses being conducted internationally because they help in the generation of revenue. Contracts once again are those binding documents that ascertain that while one party delivers products, the other will deliver payments as agreed. When and if international contracts are processed in an efficient manner, they help the parties involved, businesses, and even countries generate additional revenue. If an international contract fails to go through, then there is revenue being lost (Naghavi et al., 2018). The fast these contracts push through, the fast the parties can sign more deals, thus incur more profits. The aspect of generating additional revenue does not rely entirely on the international contract. It also comprises the process around the establishment of that contract. As such, it is also important that companies and individual business people assess the tools they are using in an international contract. An international contract management platform is also helpful when it comes to ensuring that contracts serve the purpose of incurring more revenue. 

International contracts increase the efficiency with which a business operates. While the involved parties are looking at the processes involved in the establishment of a contract, they may also evaluate the aspects of a business that requires improvements. This will translate to renovations and more efficient operations in the business. One of the best ways this can be achieved is through the automation of international contract management processes. Automatic process in the place of emails and letters makes it easier to achieve otherwise lengthy and tedious tasks faster. Furthermore, international contracts expand the values and brand of a business in foreign countries. When an organization or individual party sends the other party in a different country their contract terms, they say to these other parties that they are caring and accountable enough to have the terms of their relationship and commitment detailed. The wording, details, and negotiations in a contract are a depiction of each party in the contract, and this creates an understanding for each party how the other functions. 

International contracts are vital in dealing with and avoiding misunderstandings in business. Misunderstandings are a common occurrence in almost every business endeavor, international or local. Having a drafted contract is essential if parties from different countries are to avoid misunderstandings (Bagheri, 2000). When negotiating and before signing a contract, these parties are required to read the terms as well as the consented rules and either agree and abide by them or decline so that they can be changed or modified. International contracts are also important in this case because if one party breaches 'the terms of that contract, they can cause conflicts, and these will have adverse effects on the businesses. As such, parties are likely to avoid misunderstandings based on the consented rules, enabling a smooth environment for the businesses. 

An international contract also fundamentally provides security for all the parties involved. The contract ensures that both or all parties are secure by specifying the contract tenure as well as the set of responsibilities each party has. If it is an international contract between an importer and an exporter, the exporter is responsible for delivering the goods on time and in good shape, and the importer is responsible for making timely payments as agreed (Johnson et al., 2020). When either the party deviates from their responsibilities, they are considered having breached the contract, and each party has a right to take action should it come to it. If anything wrong happens during the period a contract stands, the affected party can provide the contract in court as a piece of evidence proving there were terms of the agreement to which the other party failed to comply. 

What Contracts Mean Future Transportation 

The shipping and transportation industry is so complex that it requires multiple parties to participate in every voyage. While international trade is increasingly growing in size and complexity, so are transactions, and that necessitates proper information so that all the involved wheels can remain operational (Salminen, 2020). When a seller from one country enters into an international contract with a buyer from a different country, information is as important as the agreement. When international transactions are involved, there arise numerous legal relationships between the parties. After the seller and buyer enter into an international contract, they may join other contracts such as that of insurance or a transport contract. Traditionally, two parties in a contract compose the goods carriage contract. These have been the person shipping the goods and the carrier. In the present and future of transportation and contracts involving transportation, this may change and involve more parties, such as while a shipper may be the cargo owner, they may also be representatives of the owner. The carrier can be the same one who will transport the goods or acting on behalf of the actual carrier. On the other side, a buyer may also be represented by a consignee, a freight forwarder, or a subcontractor. 

Market needs have been and will keep transforming over time. The role of freight forwarders will also change, from merely arranging the carriage of goods for shippers and buyers to carrying the goods, arranging for their storage, handling all shipping documents and local transportation, as well as customs, insurance, and packaging. As the global market and businesses are changing, so are the customer demands. To stay in a competitive position in the market, businesses sometimes have to simultaneously deliver multiple services or products simultaneously because clients seek to cut costs (Wang et al., 2018). Parties entering into contracts may have to change their terms and agreements to accommodate the growing needs of transportation and distribution. 

International contracts may create more futures for transportation in the future. With the growing needs and complexity of businesses, needs, and transactions, contracts will also be made ambiguous so they can accommodate all terms, parties, and agreements. The problem is that ambiguous contracts can be dangerous for the parties involved, clients, and businesses. For the individuals or companies shipping goods, in the event that a dispute occurs, they may not have a clear choice of who to sue between the person operating transport or the numerous intermediaries. The bigger problem is there may not be a legal framework for the intermediaries, which will cause more confusion. In the case of intermediaries, in the event that they are settled in one country and the principal in another, it may be difficult to determine the law applicably. Transporters may also be in danger of being liable for damages even without their knowledge. Having such many parties and aspects in the contracts may make it difficult to determine the law to govern the contract, thus paving the way for conflicts. Furthermore, the adoption of smart contracts, which are established through an online blockchain and automated so that third parties are not involved, may do away with many current key players in transportation (Korenga). 

International contracts are agreements between different parties from different countries that bide them legally to the agreed terms and rules. These contracts can be written or implied, and they are such as a sale contract existing between an importer and an exporter, an insurance contract between these two parties, a contract of carriage which also involves the shipping company or line, one between the individual exporting and an agent, and another contract between an importer, an exporter, and the bank. International contracts are essential because they are an official record; they provide security, increase business operational efficiency, mitigate risks, prevent conflicts, and encourage compliance. 

References 

Bagheri, M. (2000).  International contracts and national economic regulation: dispute resolution through international commercial arbitration  (Vol. 11). Kluwer Law International BV. 

Johnson, W. P., Volciuc-Ionescu, S., Dinu, C. S., Logunov, K., Lucio Furman, A., Rose, A., & Hertog, W. D. (2020). International Contracts. 

Kaurakova, M. (2017). Effectiveness of International Contracts as the Main End to Meet Public Interests of States Entering into Them.  Studii Juridice Universitare , 112. 

Korenga, K. USE OF SMART CONTRACTS IN INTERNATIONAL TRADE. 

Naghavi, S. R., Asadi, D. A., & Eslami, D. M. (2018). International Contracts and Global Developments.  Revista Publicando ,  5 (15 (2)), 346-372. 

Pierre, A. D., & David, P. A. (2013). International Logistics, The Management of International Trade Operations.  Berea: Cicero Books LLC . 

Salminen, J. (2020). Functional Contracting: Re-Conceptualizing Business Contracts in the face of New Forms of Production. Copenhagen Business School, CBS LAW Research Paper , (20-34). 

Wang, S., Yuan, Y., Wang, X., Li, J., Qin, R., & Wang, F. Y. (2018, June). An overview of a smart contract: architecture, applications, and future trends. In 2018 IEEE Intelligent Vehicles Symposium (IV)  (pp. 108-113). IEEE.