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 export 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.

In accordance with commercial usage contracts of sale and other agreements may be concluded either verbally or by deed, i.e. in writing.

According to 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 are to be signed by an official specially authorized to sign agreements and contracts, or by directors of firms or their deputies. 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 safe 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 fulfilment 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 or a contract of sale with a foreign counterpart

6) fulfilment of contract obligations.

1. What are the main activities of foreign trade?

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. Who is entitled to sign contracts?

7. Do licence agreements belong to basic or auxiliary transactions?

8. What are the stages in foreign trade activities?

9. What can you say about a compensation (compensatory) transaction?

Read the texts and explain the underlined words and phrases. Give their Russian equivalents. Answer the questions below.