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.