Export transactions generally involve international sales contracts, whose clarity of terms is crucial to avoiding disputes between parties.
To ensure consistent interpretation, the International Chamber of Commerce created a set of standard trade "Incoterms" in 1936, whose terms have been adopted as the language of international trade and are periodically revised to reflect developments in international trade. Incoterms 2000 where were drafted using legal language, were approved by the UN Committee for International Trade Law as a global “Rules”. Although they are not a law or regulation, the Incoterms have been recognised in most countries and have been adopted by courts of law as if it was a binding law.
The Incoterms Rules assist traders and prevent disputes over the rights and obligations relating to shipping goods, as well as cost and risk allocation and delivery obligation. The respective Rules are chosen according to the kind of goods shipped and the method of shipment.
On January 1, 2011, the International Chamber of Commerce (ICC)'s Incoterms 2010 will replace Incoterms 2000 as the authoritative text for determining the allocation of risks and responsibilities in the sale of goods.
It should be noted that the Incoterms Rules are binding in so far as the parties to a transaction have explicitly agreed and referred to the Rules. Parties may decide not to include them in the sale agreement however they risk possible dispute and disagreement on interpretation of the obligations of each of them.