UN convention benefits RI trade

UN convention benefits RI trade

By Normin S. Pakpahan

JAKARTA (JP): Indonesia has both a Civil Code and a Commercial
Code that date back to the mid-1800s. Neither adequately deal
with international commercial transactions.

An international commercial transaction involves two or more
countries and therefore potentially involves the commercial laws
of both countries.

Normally, parties to an international commercial agreement
will select the law of a particular country to govern the
transaction, however, many international contracts fail to state
which country's laws will govern the transaction.

When the international contract does not specify that it is to
be governed by a particular country's contract law, both the law
of Indonesia and the law of another country could apply.

Indonesia needs to develop some method to determine which
country's laws should govern in this instance.

International agreements may set forth terms governing
international commercial transactions.

If the countries involved in an international commercial
transaction are members to such an agreement, the transaction is
not governed by the commercial law of either country but is
instead governed by the special provisions in the international
agreement.

The United Nations Convention on Contracts for the
International Sale of Goods (CISG) took effect in 1988 and has
over 30 participating nations.

The CISG provides contract provisions for the sale of goods
between parties who are doing business in different contracting
states. Contracts are then governed by the contract law provided
within the CISG rather than the contract law of either of the
contracting states, unless the parties specifically state they do
not wish to be governed by the provisions of the international
convention.

When do the terms of the convention apply to an international
transaction? And what are these terms?

Three conditions must be satisfied before the convention will
apply:

* Qualified Investors. The parties must have their places of
business in different member states of the convention. The
nationality of parties is not important. CISG looks at the
location of the businesses entering the contract.

* Qualified Transactions. The transaction must be a sale of
goods. The CISG does not apply to construction or labor contracts or
to lease agreements. The convention specifically does not apply to
the sale of stock or investment securities, ships, aircraft or
electricity. The sale of goods for personal use is also outside the
convention's scope.

* Not Opt Out. The parties must not have opted out of the
CISG. If the parties are silent the terms of the convention will
apply.

More specifically, the parties can choose to be governed by
the general terms of the convention but may opt out of particular
terms (CISG, Article 6). The substitution of particular terms may
be explicit. For example, the parties may agree to modify a
provision governing warranties, rejection or damages.

Alternatively, the substitution of terms may be implicit. For
example, the CISG provides that parties will be bound by
particular practices or usages to which they have explicitly
agreed or established by a course of dealing. To the extent that
these practices are inconsistent with terms of the CISG, these
practices and not the convention's terms will govern (article 9).

In its fullest sense, the CISG is a modern contract law whose
terms are, for the most part, acceptable to the international
trading community. For example, the CISG covers offer and
acceptance, terms and timing of delivery, what constitutes a
breach, election of damages, and obligations that arise after
breach.

In particularly, the CISG includes two provisions I have not
found in Indonesian contract law.

The CISG does not require a contract to be in writing in order
to be enforceable. An oral offer and acceptance will suffice to
form a contract. In this respect, the CISG departs from formal
(and old-fashioned) provisions which require contracts with a
certain value to be in writing.

Indonesia could, however, ratify the convention while entering
a reservation that requires all contracts to be in writing.
Argentina, Hungary and the China have all entered this
reservation. Some countries, an example is the U.S., have not
entered this reservation, even though their domestic contract law
requires written contracts.

The CISG requires the seller to deliver goods that are of the
quality, quantity and description found within the contract.
(Article 35).

Unlike Indonesian contract law, the CISG describes in detail
what is required in order to conform to the terms of the contact.
In particular, the CISG stipulates that goods must conform to the
following implied warranties:

* Can be used for any purpose for which goods of the same type
would ordinarily be used.

* Can be used for any purpose that the seller explicitly
told or implied to the buyer.

* Have the same qualities as a sample or model shown to the
buyer

* Are packaged in a manner usual for such goods or in a manner
to preserve and protect the goods.

Although I have not found these warranties in the Indonesian
contract law, they are consistent with its more general
provisions as well as the expectations of the international
trading community.

The convention does not address the effect of an express
disclaimer of these warranties. Consequently, the parties will
need to turn to domestic law in order to determine their effect.

This is one reason for the development of a new contract law
for Indonesia. Contract and trade law reform is timely given
Indonesia's commitment under the 1994 GATT and World Trade
Organization.

Indonesia would gain certain advantages from signing the CISG.
Many of its major trade partners (China, U.S., Germany, Sweden,
Australia, Singapore, France and Hungary) are members. Japan has
not yet become member.

The CISG would therefore help settle conflicts that might
arise when international sales agreements between businesses
operating in these countries fail to stipulate which contract law
will govern the transaction.

The Indonesian government's decision about whether to sign the
convention turns in large part on whether Indonesia wants to
allow international sales contracts involving Indonesian parties
to be governed by non-Indonesian contract law.

Indonesia should probably adopt the CISG if it, as do most
commercial countries, is going to allow international sales
contracts involving Indonesian parties to be governed by foreign
contract law.

The existence of the CISG would help settle disputes that
arise when parties fail to stipulate whether Indonesian or
foreign law will govern. The CISG would also provide a neutral,
modern law for international transactions.

For example, the foreign party may not feel comfortable with
the unsettled state of Indonesian contract law and the Indonesian
party might feel uncomfortable with the foreign contract law.
Both parties might therefore prefer to use the terms of the CISG.

For this reason, adoption of the CISG could be viewed as
supportive to international trade in general, and Indonesian
exports in particular. The CISG, coupled with revised Indonesian
arbitration law, would be a good means of creating a strong legal
framework for export transactions.

The writer is an observer of economic law reform residing in
Jakarta.

Window: Indonesia would gain certain advantages from signing the
CISG. Many of its major trade partners are members.