International trade operations – which law to apply?

An entrepreneur nearing the conclusion of an overseas trade deal must objectively answer a key practical question: which laws and rules will apply to the transaction?

Without the parties’ knowledge or manifested willingness, their commercial agreement may be subject to the rules provided in the United Nations Convention on Contracts for the International Sale of Goods – the so-called CISG. Unfortunately, not many people know the content and extent of these four letters.

CISG is a United Nations convention providing a set of default rules for international commercial transactions involving goods (not services). This convention is managed by UNCITRAL, the commercial arm of the United Nations.

For sellers and buyers with origin in adherent countries (and these are 97 today, among which the USA, Brazil, Canada, China, France, Germany, Italy and Japan, to list a few), CISG rules apply to their mutual international sales transaction, unless the parties expressly waive CISG’s application and defer to another set of rules or applicable law.

CISG default rules define contract formation, performance, breach, indemnification and termination, to list a few. My view out of own experience is that CISG is known to be relatively balanced between seller and buyer.

However, the tension lies here: the mandate I receive from my client is to seek the application of rules that best suit his operation and risks involved. Oftentimes it is convenient to play at our own turf and rely on the set of rules and decisions we constantly apply.

This logic means accessible language and legal repertoire available to educate judges or arbitrators to solve the next case. And CISG lies unfortunately behind as a practical choice in countries who recently adopted the convention, due to few or inexistent decisions available.

In my experience, considering a balance of powers in a negotiation process, CISG rules can indeed make sense and bring fairness to the table if seen from an equidistant perspective by the parties. It may become a good compromise, a neutral playing field in place of a party’s exclusive solution.

My take: it is undisputed that the parties must employ time and resources to define a set of rules for their international transaction, including the applicable law and venue for conflicts. The definition of the rules that apply are indeed just as relevant as those regarding product price, quality, and delivery, and they become a key priority if both parties come from a CISG jurisdiction.