18 Jan The incidence of international treaties in international trade

Nowadays, Spanish companies, and also the smallest ones, focus an important part of their business in export. In this sense, international trade operations are increasingly frequent.

This can involve many benefits and expectations but also implies greater complexity in the exchange of products and services: it transports more complexes -combination of road and maritime transport-, the possibility of different currencies, uncertainty in collection due to lack of knowledge of customers, and also of all this, the operation enters into the field of more than one legal system, which in turn means that you have to deal with different contracts, different taxes, customs…

The most important problem is that which affects the law applicable to the contract. If a Spanish company supplies a product to a French company, or Turkish, etc. What law will govern the rights and obligations of the parties? The Spanish, the French, the Turkish or another one?

 That is why in this post we are going to explain what kind of impact free trade or other EU treaties have on the most common international trade operations, such as international purchases and sales of goods. To do this, it is necessary to define, in a first place in an international trade operation, the customs aspects or entry into the country of a merchandise or provision of a service.

This is the response to the Treaties of the World Trade Organization (WTO): The Agreement on Trade on Tariffs and Trade and the General Agreement on Trade in Services. These treaties, together with everything that emanates from the WTO does not support the rules of contracts, nor by what order is determined, nor law applicable… These only apply in the sense of establishing the customs duties that each State can apply to each product or service by different categories. For example: if Spain can apply to the footwear coming from abroad a tariff of 4% or 20%, for example.

It must be said in this regard that all the EU countries are part of these Agreements jointly. In other words, it applies in the same way to all EU states since they have assigned sovereignty.

At the same time, in addition to these General Agreements that bind all the States that are part of the WTO, (more than 190), there are others that are more specific and that the States agree by proximity or commercial interest.

These are commonly called Free Trade Agreements.

They have spread a lot in countries of America for example. So NAFTA that brings together Canada, Mexico and UEA, or MERCOSUR to Argentina, Brazil, Paraguay and Uruguay.

The purpose of these Treaties is similar to the WTO General Agreement: to set tariffs that can be imposed on products from outside and to create a network free of tariffs and barriers among the members of the Agreement. We insist, these Treaties or Agreements do not help us to determine if such a law or this one is applied in a sale of merchandise.

This is what the so-called Rome I Regulation tells us for all the countries of the EU. This instrument does apply if one of the parties to the contract is a member of the EU and does determine the law applicable to the contract: rights and obligations of the parties, claims in case of non-compliance… The general rule is that the parties can choose which one they want to be applicable to the contract. In the previous example, it can be agreed that in the sale of the Spanish company to the French the law of any of the States applied or even the law of a third State shall apply.

In the absence of choice, the Regulation establishes a series of rules depending on the type of contract: services, distribution, franchising, etc.

In turn, for a very specific and specific type of contract such as the sale of goods, there is another very important instrument, such as the Vienna Convention of 1980. It was created in order to provide simplicity to this contract and create a uniform framework regarding the obligations of the parties: delivery of goods, terms, claim, payment, etc. It applies whenever there are companies from different States, although the parties can agree to their exclusion and set the rules according to the law of a State. These are the most important instruments in the international field. Therefore, it must be clear that there are international treaties or agreements between States that regulate issues of public scope: customs duties or tariffs, and that on the other hand we have instruments to configure international trade operations according to the interests of the parties, negotiating force, etc. to apply to private relations between them.

 We still need to explain the role played by the uses of trade, such as the INCOTERMS that we have referred to in the blog before and whose mission is to simplify specific aspects of a transaction, mainly transportation, insurance, freight and provision of goods. They only apply as we say when there are goods -not services- and do not exempt the parties from pointing out laws applicable to contracts -Reg. Rome I- since these uses do not determine them.

If you have any questions related to international trade and its legal framework, you can contact the team of Navarro Llima Abogados S.L.

Héctor González

Lawyer