(Tiểu luận FTU) letter of credit payment

TABLE OF CONTENT A INTRODUCTION: B CONTENT OF THE INTERNATIONAL SALES CONTRACT .2 I PREAMBLE OF THE CONTRACT: II CLAUSES OF THE CONTRACT: Commodity, Price and Quantity: .2 Quality: 3 Packing and Shipment: Payment: Insurance: .4 Other terms and conditions: C THE SHIPPING DOCUMENTS I COMMERCIAL INVOICE Definition Invoice Information: II BILL OF LADING Definition and general information: III PACKING LIST .11 Information 11 Comments 11 IV BILL OF EXCHANGE 11 Definition .11 Content of the bill of exchange 11 V CERTIFICATE OF ORIGIN 12 Definition .12 Types of C.O 12 The parts of C.O: 12 Comments: .14 VI LETTER OF CREDIT .15 Definition: .15 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Type of the LC in the contract: 15 Elements: .15 Process of Payment by LC: 16 VII HEALTH CERTIFICATE: 16 Definition: .16 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com A INTRODUCTION: Along with the development and integration of the world economy, Vietnam has also gradually cooperated in international exchange, creating many opportunities for cooperation with countries around the world Import-export sector plays an extremely important role in the development of the country's economy Import and export not only bring a large source of foreign currency to the country but also through that, create jobs for many workers In order to good import and export, we need to clarify the process of implementing an import and export contract as well as papers and documents related to the contract In daily life, we make contracts in all forms and in all fields, from sales contracts serving daily needs to contracts signed between corporations big, even between nations Many people think that the contract's strictness is the factor that maintains the stability and success of business activities these days The drafting of the contract should have sufficient skills as well as in-depth understanding of the relevant laws Not to mention the disagreements about language and cultural traditions between countries can also cause conflicts and disputes to occur between contracting parties In addition, no matter how carefully crafted a contract is, the parties to the contract cannot anticipate all the problems that will arise during the implementation Therefore, the team chose the research topic "Analysis and evaluation of export contract between Anh Minh Quan Corporation and Haedam Global Company Limited" to analyze some issues related to the content of economic contracts Analytical objectives include: Overall analysis to clarify factors that are the contractual conditions; Analyzing in detail the terms of the contract in order to define rights and obligations between the parties involved; Learn from experience in drafting contracts and analyzing an economic contract in general and a contract for the sale of international goods in particular The group would like to thank the lecturer of International Trade Transaction for her enthusiastic guidance and the knowledge that she has conveyed in class This knowledge has become a useful platform to help the group complete this essay Thank you for the active participation of the team members LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com B CONTENT OF THE INTERNATIONAL SALES CONTRACT I PREAMBLE OF THE CONTRACT: The preamble of a contract is the introductory paragraph that identifies the parties to the agreement It is typically followed by paragraphs known as recitals (also called the background section) Sometimes, these recital paragraphs are labeled “Whereas” Taken together, the preamble and the recitals tell the who, what, when, and why of the transaction In other words, they should tell the reader who the parties to the agreement are, the date of the agreement, and what the parties hope to accomplish by entering into the agreement One of the most common mistakes in these preliminary sections of a contract is to incorrectly name the owner of the business as a party, rather than using the entity name This mistake results in the owner being personally obligated as a party to the contract, which is clearly not the result an owner expects after taking the trouble to incorporate In the contract, it is written down as: -  The seller: Anh Minh Quan Corporation Address: 91C/12 Ngo Chi Quoc Str, Quarter 2, Binh Chieu Ward, Thu Duc Dist, HCMC, Vietnam Tel: 08-62-842-481 Fax: 08-842-581 Represented by Mr Truong Dinh Quan Director  The buyer: Haedam Global Company Limited Address: 90 donggureung-ro 136 Beongil, Guri si, Gyeonggi-do, Korea Tel: 0082-31-544-3150 Fax 514-3150 Represented by Mr Park Hark Ryong Director The preamble of the contract is fully detailed The entities have legal status in signing the contract The contract No HG/AMQ-030314 was signed on 15 March 2014 II CLAUSES OF THE CONTRACT: Commodity, Price and Quantity: - Name of commodity: FROZEN CUT POULP SQUID - HS code: 03074920 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com - Quantity: 11970 +/- 10% at seller's option Price terms: USD 4.73/kg CFR Incheon port, incoterms 2000 The very first clause of every contract shall be the name of commodities The contract goods should be specified at least to the degree that they can be identified Naturally, greater precision describing them reduces the potential for misunderstanding If the product is very complex (for example, machinery), a detailed description can be made in an annex of the contract In this contract, the name is only specified as commercial name which shall be added the origin of the goods as well as HS code The quantity is a compulsory term and expressed in metric system (11970 KGS) with generally accepted commercial tolerances (+/- 10% at the seller’s option) In general, this term is detailedly stated Depending on the nature of the product and the degree of precision that can be applied to quantity and delivery, the price may or may not expressed in fixed terms In situations where the price depends on other factors, all such factors and their relationship to the price should be clearly recited so as to leave no doubt Any applicable currency should be specified The price in the contract is quoted CFR Incheon port, incoterms 2000 The seller is required to arrange for the carriage of goods by sea to a port of destination and provide the buyer with the documents necessary to obtain them from the carrier Under CFR, the seller does not have to procure marine insurance against the risk of loss or damage to the cargo during transit Quality: Quality of the goods clearly defines main characteristic of contractual goods to distinguish the goods from other one and is a compulsory term However, this can be considered as the most complex term as it requires a wide knowledge on technical characteristics of the commodities It is stated that “as per export standard of Vietnam and meet to the buyer's standard” The term could be more improved with some major specification stated firmly and a copy of standard attached to the contract Packing and Shipment: The contract packing agreement constitutes the legal agreement made between the manufacturer and the packing company It doesn’t really matter what discussions have taken place beforehand – if the work isn’t detailed in the contract then you have no recourse to ensure it will happen LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com When it comes to the law, in most instances the manufacturer is legally responsible for all risks associated with a product, even if the co-packer has played a part in causing these risks, so you need to make sure your agreement is water-tight and explicit Furthermore, if your product is a cosmetic or food product that involves a specific recipe or certain blending, you may have to share this with your co-packer, meaning they are privy to trade secrets This is another reason why you must ensure your agreement is comprehensive The packaging clause is stated as “570 Gr/ Block x equal 3.42 Kgs/carton” This should be added with information such as the block is marked with buyer’s address, numbered from to 6, etc In contrast, the delivery term is clearly stated as 20 March 2014 Partial shipment is allowed but transhipment is prohibited Ports of loading and discharging are subject to the CFR incoterm Payment: Payment is to be made by an irrevocable letter of credit at 90 days after sight Letter of Credit (L/C or LC) is a document issued by the buyer’s bank in the buyer’s orders, in which the bank promises to pay the seller a specified amount under specified conditions The term also mentions place and date of expiry This field specifies the latest date for presentation under the documentary credit and the place where documents may be presented The issuing bank is Suhyup Bank Seoul while the advising bank is Vietcombank Song Than Branch with the address: 79 Binh Duong Street, An Binh Ward, Di An District, Binh Duong Province, Vietnam The required documents include: - Signed commercial invoice in three folds Packing list in three folds Full set of Clean on-board ocean Bill of landing Certificate of origin one-fold Sanitary Certificate original one-fold Inspection certificate The contract, however, does not mention about the kind of currency which is used to pay The more information on Letter of Credit is to be specified in the shipping documents Insurance: This clause is covered by the buyer so this kind of agreement is CFR LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com The agreement does not require the seller to purchase marine insurance against the loss, destruction, or damage to the goods during transit The risk to the goods passes once they reach the vessel, so the seller is not liable The receiver—or buyer—assumes responsibility once the ship has docked in the destination port All remaining costs including those for unloading and any further transportation costs are then assumed by the receiver or buyer Deliver happens in the port of loading, risk for seller ends at port of origin In addition to this, seller must arrange international freight transportation and provide all documentation to buyer Seller must also clear exports customs In summary, seller arranges transportation under buyers’ risk, therefore it is recommended that buyer gets additional insurance coverage Other terms and conditions: In general, the content and form of the document are quite coherent However, the main disadvantage of the contract is a lack of arbitration clauses Arbitration is an out-of-court proceeding in which a neutral third party called an arbitrator hears evidence and then makes a binding decision Arbitration is the most commonly used method of alternative dispute resolution (ADR), and people'll find an arbitration clause in the fine print of all kinds of contracts these days Arbitration can be binding (which means the participants must follow the arbitrator's decision and courts will enforce it) or nonbinding (meaning either party is free to reject the arbitrator's decision and take the dispute to court, as if the arbitration had never taken place) Binding arbitration is more common For simple contract disputes in which the matter can be heard in one day, arbitration is usually a good choice However, if in doubt, consider the following advantages and disadvantages: - - Advantages: Arbitration is usually faster, simpler, more efficient, and more flexible for scheduling than litigation Also, it avoids some of the hostility of courtroom disputes, perhaps because it's a private proceeding versus the public drama of the courtroom And if the subject of the dispute is technical for example, about a patent the parties can select an arbitrator who has technical knowledge in that field, rather than a judge who may not be familiar with the issues Disadvantages: Unlike a court ruling, a binding arbitration ruling can't be appealed It can be set aside only if a party can prove that the arbitrator was biased or that the arbitrator's decision violated public policy Unlike a court case, there is no automatic right to discovery (the process by which the parties have to disclose LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com information about their cases to the other party) The costs of arbitration can be significant; in some cases, they may even exceed the costs of litigation LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com C THE SHIPPING DOCUMENTS I COMMERCIAL INVOICE Definition Commercial invoice is one of commodity document that required in the transaction It is a legal document between the seller and the buyer that clearly describes the sold good(s), and the amount due on the buyer It is also one of the main documents used by customs in determining customs duties - Invoice Information: Invoice Number: HG-010414 Invoice Date:1 April 2014 Order Number: Not mentioned Seller’s Information: - Name: Anh Minh Quan Group Address: 91C/12, Ngo Chi Quoc, Quarter 2, Binh Chieu Ward, Thu Duc District, Ho Chi Minh City, Vietnam Telephone: +84862842461 Fax: F842581 VAT Number: not mentioned Country: VIETNAM Buyer’s Information: - Name: Haedam Global Co., ltd Address: Donggureung-ro, 136 Beongil, Guri Si, Gyeonggi-do, Korea Telephone: +82315543150 Fax: 31-514-3150 VAT Number: not mentioned Country: KOREA Notify Party: not mentioned Shipping information: - Port of loading: Ho Chi Minh port, Vietnam Port of discharge: Incheon port, Korea Payment Information: - LC No.: M05C01403NU00160 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com - Terms of payment: CFR (Incheon port, Korea) Total price: (in words) USD Fifty-six thousand six hundred eighteen and ten cents Collating this commercial invoice with UCP 600/2007/ICC, we can see that it satisfies the criteria: must appear to have been issued by the beneficiary; must be made out in the name of the applicant; must be made out in the same currency as the credit This commercial invoice is signed because the exporter (seller) needs this one for doing export clearance or keeping documents for accouting purposes II BILL OF LADING Definition and general information: A bill of lading is a document issued by a carrier (or their agent) to acknowledge receipt of cargo for shipment Although the term historically related only to carriage by sea, a bill of lading may today be used for any type of carriage of goods B/L is one of three crucial documents used in international trade to ensure that exporters receive payment and importers receive the merchandise A bill of lading must be transferable and serves three main functions: - it is a conclusive receipt, i.e an acknowledgement that the goods have been loaded; it contains or evidences the terms of the contract of carriage; it serves as a document of title to the goods This bill of lading is a non-negotiable FIATA multimodal transport bill of lading (FBL), issued subject to UNCTAD/ICC Rules for Multimodal Transport Documents (ICC Publication 481) In a report about Bill of Lading by secretariat of UNCTAD, “the sequence events in the life of a bill of lading maybe summarized as being”: a) The shipper’s description of the good, with his own name and that of the consignee inserted on the carrier’s form, particulaer of the total gross weight and measurement, for freight caculation purposes, and where necessary, the value of the goods is inserted by the shipper b) The lodging of the B/L at the office of the shipowner or his agent/broker c) The completion and checking of the contents of B/L of those people tallying details taken at the time of loading the cargo d) Caculation of freight e) The signature of the B/L by or on behalf of the carrier or the ship’s master and by such other parties as may by law required to so in some countries LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com f) The release by the ship’s owner or his agent of the signed B/L to the shipper against payment of freight if the freight is prepaid, and, where appropriate, a mate’s receipt or equivalent document g) The dispatch of the bill of lading by the shipper to the buyer or consignee or his lodgement with a bank when a L/C is involved h) The surrender of B/L by the consignee to the shipowner’s agent at the port of discharge in order that he may obtain delivery of his good The B/L we are analysing contains enough required parts in a multimodal transport document (as mentioned in United Nations Convention on International Multimodal Transport of Goods 1980): Commodity information: - Marks and numbers (for identification of the good): FCL/FCL WHLU7309604/WHL5059149 Number and kind of packages: 3500 CTNS (set at minus 18 deg.cel) Gross weight: 13,300 kgs Total net weight: 11,970 kgs Measurement: by CBM and some general information of the good Name of mutimodal transport operator (MTO): - Name of company: AAAS Logistics services Co., ltd (member of VIFFAS) Address: 45 Hoang Sa street, Dakao Ward, District 1, Ho Chi Minh City, Vietnam Tel: +84838209536 Fax: 4-8-38209637 Email: brighttlgor@hcm.fpt.vn Website: aaavietnam.com The consignor: - Name: Anh Minh Quan Group Address: 91C/12, Ngo Chi Quoc, Quarter 2, Binh Chieu Ward, Thu Duc District, Ho Chi Minh City, Vietnam Telephone: +84862842461 Fax: F842581 VAT Number: not mentioned Country: VIETNAM The consignee: Name: Haedam Global Co., ltd LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com - Address: Donggureung-ro, 136 Beongil, Guri Si, Gyeonggi-do, Korea Telephone: +82315543150 Fax: 31-514-3150 VAT Number: not mentioned Country: KOREA Regarding delivery: - Port of receipt (only exist in FBL): Ho Chi Minh port, Vietnam Port of loading: Ho Chi Minh port, Vietnam Port of delivery: Incheon port, Korea Port of discharge: Incheon port, Korea Ocean vessel: WAN HAI 205 V.N416 The place and date of issue of the multimodal transport document: Ho Chi Minh City, April 2014 The signature of the MTO or of a person having authority from him: The freight for mode of transport: - Freight amout: freight as arranged Freight payable at: Ho Chi Minh city Special statement: 10 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com - “Clean on board/ April 2014”: this is the date that all the goods are brought onto the vessel in a good condition, as far as the shipping company can see III - PACKING LIST Information Commodity packed by: carton Number of packages: 3500 CTNS Packing specification: 570gr/bl x 6bl = 3.42kg/carton Net weight: 11,970 kgs Gross weight: 13,300 kg and some general information of the consignor and consignee Comments The information of the good is coincident with that in bill of lading, sale contract and commercial invoice However, the consignor should add the information of dimensions of cartons, method of packing (because the frozen seafood needs a special package in order not to be spoiled) IV BILL OF EXCHANGE Definition A bill of exchange is a written order once used primarily in international trade that binds one party to pay a fixed sum of money to another party on demand or at a predetermined date Bills of exchange are similar to checks and promissory notes - they can be drawn by individuals or banks and are generally transferable by endorsements Vietnam is using "Uniform Law for Bill of Exchange" in order to unify the circulation of bill of exchange nationally and internationally Content of the bill of exchange The parties: - Drawer: Anh Minh Quan Corp - Drawee: NFFCKRSE – Suhyup Bank Seoul - Beneficiary: Anh Minh Quan Corp Contents of the bill of exchange: - According to the Geneva Uniform Law for Bill of exchange, these figures must be included: Name: Bill of Exchange 11 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com - Date of drawing: April 2014 Terms of payment: at 90 days after sight of the first BoE (second) of the same tenor and date being unpaid The holder (bearer): Joint Stock Commercial Bank for Foreign Trade of Vietnam – Ho Chi Minh City branch The drawee: NFFCKRE – Suhyup Bank Seoul The drawer: Anh Minh Quan Corp (Director Truong Dinh Quan signed) Place of payment: Korea Payment or acceptance of payment order (as image below): The amount of money that has to paid is written in words Other information: - This bill of exchange is drawn by folds with the same value, but only fold (1) has the value for payment The information in the BoE is coincident with those in other documents V CERTIFICATE OF ORIGIN Definition A Certificate of Origin (CO) is an important international trade document that certifies that goods in a particular export shipment are wholly obtained, produced, manufactured or processed in a particular country They also serve as a declaration by the exporter Virtually every country in the world considers the origin of imported goods when determining the duty that will be applied or, in some cases, whether the goods may be legally imported at all Types of C.O Non-Preferential Cos: which certify that the goods’ country of origin does not qualify for any preferential treatment These are the main type of COs that chambers issue and are also known as “ordinary COs.” Preferential Cos: which certify that goods are subject to reduced tariffs or exemptions when they are exported to countries extending these privileges COs may be needed to comply with Letters of Credit, foreign Customs requirements or a buyer’s request The C.O in our set of documents is the Preferrential C.O The parts of C.O: 12 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Form of CO: form AK - that is accepted as evidence of origin by preference-giving countries (member countries of ASEAN-Korea Free Trade Agreement) to obtain preferential treatment This CO is a kind of combined Declaration and Certificate, and has the following parts: Exporter: - Anh Minh Quan Group Address: 91C/12, Ngo Chi Quoc, Quarter 2, Binh Chieu Ward, Thu Duc District, Ho Chi Minh City, Vietnam Telephone: +84862842461 Fax: F842581 VAT Number: not mentioned Country: VIETNAM Consignee: - Haedam Global Co., ltd Address: Donggureung-ro, 136 Beongil, Guri Si, Gyeonggi-do, Korea Telephone: +82315543150 Fax: 31-514-3150 VAT Number: not mentioned Country: KOREA Means of transport: - Port of loading: Ho Chi Minh port, Vietnam Port of discharge: Incheon port, Korea Departure date: April 2014 Vessel’s name: WAN HAI 205.VN Information of the good to be shipped: - - Number of packages: 3500 CTNS Description of good:  HS code: 0307591020  L/C No.: M05C01403NU00160  Cont No.: WHLU7309604  Seal No.: WHL5059149 Origin criterion: “WO” (wholly obtained – the good originating in Vietnam shall be those wholly obtained or produced in Vietnam) Gross weight: 13,300 kgs Value (FOB): USD 55,618.10 13 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com - Number and date of invoice: HG-010; April 2014 Declaration by the exporter Certification Comments: This CO has required parts as mentioned in the Rules of Origin, and clearly state the form and enclosed document for reader’s reference The information stated in the CO is tatally coincident with those in other documents 14 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com VI LETTER OF CREDIT Definition: A letter of credit is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount In the event that the buyer is unable to make a payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase Due to the nature of international dealings, including factors such as distance, differing laws in each country, and difficulty in knowing each party personally, the use of letters of credit has become a very important aspect of international trade Because a letter of credit is typically a negotiable instrument, the issuing bank pays the beneficiary or any bank nominated by the beneficiary If a letter of credit is transferable, the beneficiary may assign another entity, such as a corporate parent or a third party, the right to draw Below are some of the advantages to using Letters of Credit including: - Risk is on foreign buyer’s bank A secure method of payment Build safeguards into the letter of credit such as delivery, quality control, etc But there are also disadvantages that come with Letters of Credit: - Costly Sensitive expiration dates Require amendments if there are any changes, hence delaying the transaction Reliability of payment under the Letter of Credit is dependent on the issuing bank Type of the LC in the contract: An irrevocable letter of credit is a LC that can not be canceled nor amended without agreement of all parties In this case, the seller is beneficial as it helps reduce the risk Elements: - A payment undertaking given by a bank (issuing bank): Suhyup Bank SEOUL - On behalf of a buyer (applicant) - To pay a seller (beneficiary) for USD 56,618.10 - On presentation of specified documents representing the supply of goods - Within 10 days after the date of shipment - Documents must conform to terms and conditions set out in the letter of credit 15 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com - Receiver Bank: Joint Stock Commercial Bank for Foreign Trade of Vietnam Process of Payment by LC: - Buyer and seller agree to conduct business The seller wants a letter of credit to guarantee payment - Buyer applies to his bank for a letter of credit in favor of the seller - Buyer's bank approves the credit risk of the buyer, issues and forwards the credit to its correspondent bank (advising or confirming) The correspondent bank is usually located in the same geographical location as the seller (beneficiary) - Advising bank will authenticate the credit and forward the original credit to the seller (beneficiary) - Seller (beneficiary) ships the goods, then verifies and develops the documentary requirements to support the letter of credit Documentary requirements may vary greatly depending on the perceived risk involved in dealing with a particular company - Seller presents the required documents to the advising or confirming bank to be processed for payment - Advising or confirming bank examines the documents for compliance with the terms and conditions of the letter of credit - If the documents are correct, the advising or confirming bank will claim the funds by: +Debiting the account of the issuing bank +Waiting until the issuing bank remits, after receiving the documents +Reimburse on another bank as required in the credit - Advising or confirming bank will forward the documents to the issuing bank - Issuing bank will examine the documents for compliance If they are in order, the issuing bank will debit the buyer's account - Issuing bank then forwards the documents to the buyer VII HEALTH CERTIFICATE: Definition: A health certificate is a document used in export import transactions, issued by the governmental organizations at the countries of origin, to certify that a food shipment is fit for human consumption, and meets safety standards or other required legislation for exporting 16 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com As indicated by its name, this certificate gives evidence of the health condition of the goods and is usually issued by a veterinary surgeon, by veterinary authorities or the agricultural ministry Health certificate is issued for the main fuctions as follows: - Certifying that governmental body of the exporting country has been examined this particular food consignment Certifying that food of animal origin or non-animal origin subject to exporting is fit for human consumption Certifying that the food consignment has been produced according to required food legislation Certifying that the food consignment has been produced by one of the legitimate manufacturing companies Health certificates are government to government declarations (exporting country’s government to importing country’s government), for this reason these certificates are issued by the authorized governmental organizations In the contract together with shipping documents, the health certificate is issued by Ministry of Agriculture and Rural Development – Socialist Republic of Vietnam, National Argo-Forestry-Fisheries Quality Assurance Department The health certificate comprises two main parts: a) - The consignment information: The consignor and consignee are the buyer and seller information The commodities to be exported and major specifications The health certificate is a required document for exported fishery products and goes with aforementioned documents It conforms with Bill of Lading, Place of dispath, Date of dispatch, etc as follows: 17 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com b) Quarantine/Health Attestation: The product meets the health standards to be readily exported to Korea 18 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ... Trade of Vietnam Process of Payment by LC: - Buyer and seller agree to conduct business The seller wants a letter of credit to guarantee payment - Buyer applies to his bank for a letter of credit. .. prohibited Ports of loading and discharging are subject to the CFR incoterm Payment: Payment is to be made by an irrevocable letter of credit at 90 days after sight Letter of Credit (L/C or LC)... difficulty in knowing each party personally, the use of letters of credit has become a very important aspect of international trade Because a letter of credit is typically a negotiable instrument, the