Checklist: International supply of goods contracts (USA)

Introduction

This checklist provides guidance on some key areas to consider when reviewing or drafting international contracts for the supply of goods. These areas include, but are not limited to, anti-corruption rules, international trade terms (including Incoterms), import and export restrictions and laws, and general contract terms.

This checklist addresses the following steps:

1. Prepare for the review of the contract
2. Identify the governing laws for products in the sending country
3. Identify governing laws for importing products into the United States
4. Review the general terms of the contract
5. Review the key contract provisions

The checklist presents a list of steps to be followed by in-house counsel and private practitioners when reviewing or drafting a contract relating to the international supply of goods. Explanatory notes corresponding to each requirement in the checklist appear at the end of the document.

The checklist can be used in conjunction with the following How-to guide: How to supply goods internationally.

Step 1 – Prepare for the review of the contract

Step 2 – Identify the laws governing products in the sending country

Step 3 – Identify laws governing the importation of products into the United States

Step 4 – Review the general terms of the contract

Step 5 – Review the key contract provisions

Explanatory notes

General notes

Depending on the jurisdictions involved in the transaction, numerous laws may be implicated. These may include:

• The Federal Foreign Corrupt Practices Act, 15 USC section 78dd-1, a prohibition against US citizens and entities from bribing foreign officials;
• Federal export controls rules, including 15 CFR Subtitle B, which may limit the transmission of certain goods or information;
• Federal import control rules, including the Customs Modernization and Informed Compliance Act, which shifts the burden of insuring compliance with several import rules and regulations away from Customs and Border Protection (‘CPB’) and onto the importing entity; and
• Executive Orders implemented for particular situations, such as the Order of March 11, 2022, restricting imports from, and exports to, the Russian Federation or the Order of February 28, 2024, regulating the sale of large sets of sensitive personal data to foreign governments.

The default set of laws applicable to international contracts is the United Nations Convention on Contracts for the International Sale of Goods (‘CISG’); however, state and federal laws on contracts for the jurisdictions in question may also apply. The CISG will pre-empt state contract law when the parties are in different countries that have adopted the CISG.

Contracts for the supply of goods across national borders may be made verbally, by an exchange of emails, or by formal written documents, but simplicity in this context may be deceptive. Transnational contracts for the sale of goods are complex agreements, and many factors not implicated in ordinary domestic sales contracts must be considered. They are governed both by international law and by a complex patchwork of laws and regulations in both the importing and exporting countries.

Identifying the applicable laws

International sales of goods fall under the CISG. The CISG is a treaty that has been ratified by 97 contracting states, including the United States, Canada, China, and most member states of the European Union. However, the CISG has notably not been ratified by the United Kingdom, India, or South Africa—all of which are considered major trading countries.

The CISG fulfills a similar role to Article 2 of the Uniform Commercial Code (‘UCC’) in the United States for domestic sales of goods. It sets out the default rules for transnational sales, based on the principle that ‘the adoption of uniform rules which govern contracts for the international sale of goods and take into account the different social, economic and legal systems would contribute to the removal of legal barriers in international trade and promote the development of international trade’ (see CISG Preamble).

Step 1 – Prepare for review of the contract

1.1 Check the country where business will be conducted against the prohibited list

U.S. law prohibits exports to certain countries or restricts exports of certain products. Licenses must be obtained for any exports to countries on the prohibited list. Special restrictions or limitations are also in place for certain products, such a s encryption software. The United States currently implements certain sanctions against Russia, Cuba, Iran, North Korea, and Syria under the Encryption and Export Administration Regulations (EAR). The US government sanctions violators and maintains a list of businesses restricted from exporting.

This example illustrates how the sanctions regulations of three countries might apply to a single transaction and how complicated sanctions regulations can be:

A US-based software company, US Tech Corp, agrees to sell advanced encryption software to a Russian oil and gas company, RusOil, which has a subsidiary in Germany. RusOil is on the US government's sanctions list due to its association with a sanctioned individual. The software is to be delivered to RusOil's subsidiary in Germany.

The transaction involves a US company, a Russian company, and a German subsidiary, with the product being delivered to Germany. This scenario triggers sanctions regulations from all three countries:

• United States sanctions. The US company, US Tech Corp, is prohibited from exporting to the Russian company, RusOil, because it is on a US sanctions list. Furthermore, the product itself, encryption software, is a controlled item under the EAR, requiring a license for export. Even if RusOil wasn't on a sanctions list, a license would still be needed. Since RusOil is a sanctioned entity, the transaction is likely prohibited entirely. This is regardless of the fact that the final destination of the software is in Germany.
• EU (Germany) sanctions. The German subsidiary of RusOil is the intended recipient of the software. Germany has a separate set of sanctions against Russia by reason of Germany’s membership in the EU. These sanctions may include certain companies, individuals, or sectors, and they might mirror or differ from US sanctions. The German export control authorities would need to assess whether the specific transaction with the RusOil subsidiary falls under any of the EU's prohibitions or restrictions. Germany might also have regulations regarding the import of certain technologies, which could add another layer of regulatory scrutiny.
• Russian sanctions. While Russia is the sanctioned country in this example, it is also important to note that Russia has its own countermeasures and sanctions against foreign entities, including US and EU companies, in response to Western sanctions. Russia might have regulations prohibiting its domestic companies, like RusOil, from engaging in contracts with certain foreign companies or from importing specific types of technology. Therefore, the Russian government could also impose penalties on RusOil for attempting to import the software from a US company.

1.2 Check the parties to the transaction against the prohibited list

Determine if the other party to the transaction is on the screening list of entities barred from doing business with U.S. exporters. The screening list may include outright prohibitions, license application requirements, or other exportation rules that a listed entity or person must follow in order to export certain products to the U.S. If an entity or person who is a party to the contract appears on the screening list, it may be necessary to conduct extra due diligence before finalizing the contract.

1.3 Identify the applicable anti-bribery legislation

Several countries have adopted laws and regulations to tackle bribery and corruption in international business transactions. These may be similar to the Federal Foreign Corrupt Practices Act, but may have significant differences depending on which country is at issue. It is important to be familiar with the relevant laws in the countries in which you are doing business.

1.4 Review Incoterms as applicable to the transaction

Incoterms® are widely used in terms of sale in international sales contracts. They are a set of 11 internationally recognized rules issued by the International Chamber of Commerce (‘ICC’) that define sellers’ and buyers’ responsibilities in sales contracts. Incoterms include provisions on who is responsible for paying for and managing the shipment; insurance; documentation; customs clearance; and other logistical activities. Incoterms are generally incorporated in the contract of sale, but do not add ressall the conditions of a sale; reference the method or time of payment negotiated between the seller or buyer; state when title or ownership of the goods passes from the seller to the buyer; or address liability for failure to provide the goods in conformity with the contract of sale or delayed delivery. Incoterms also do not address dispute resolution mechanisms.

Incoterms are not compulsory terms and using them is optional. However, these terms are widely used and understood throughout the world and should be used by exporters unless there is a strong reason for not doing so. When Incoterms are used, the version being used should be identified because there are multiple versions. The first version known as Incoterms was published in 1936, with amendments in 1953, 1967, 1976, 1980, 1990, 2000, 2010 and 2020. The two most commonly used versions today are from 2010 and 2020, however any version may be used provided it is clear in the agreement and mutually agreed to by the parties.

Step 2 – Identify the governing laws for products in the sending country

2.1 Identify the export control provisions that are applicable to the sending company

Exports, imports and currency transfers are subject to numerous U.S. laws, as well as similar laws in other countries involved.

The US uses a series of multilateral mechanisms for the control of exports for purposes of national security and upholding important foreign policy objectives. For instance, the U.S. Department of Commerce’s Bureau of Industry and Security (‘BIS’) administers the EAR. The Export Enforcement division of BIS conducts end-use checks of exported goods and works alongside US embassies, trade organizations, and foreign nations to make sure exported goods reach the correct destination securely and that they meet any compliance requirements. Goods must meet the appropriate export provisions, and the exporter must be assured that the foreign company is considered reliable. Otherwise, the failure to do so may result in heightened regulatory scrutiny of all the parties involved in the transaction.

2.2 Identify the party responsible for obtaining appropriate authorizations and approvals

It is a good practice to include written requirements in sales contracts making one party responsible for obtaining the necessary approvals. This alerts the parties to their obligations and can be used to make compliance a material term of the contract. It must be clear which party is responsible for obtaining appropriate authorizations and approvals. The exporting party often, but not invariably, assumes this role as it is this party who is likely to face sanctions or other consequences if an unlawful or unauthorized export occurs.

2.3 Identify the party responsible for ensuring compliance with the relevant laws

The contract should set out which party is responsible for identifying and ensuring compliance with import laws that govern details such as safety, quality, and labelling of goods. Failure to comply with these laws could result in fines or penalties being levied against the importer or seller.

For example, US law requires that fish sold in the United States be labeled with the fish’s country of origin. A retailer that sells fish without the proper labeling may be fined up to $1,000 per violation; however, if the retailer relied on another party’s representations, it will not be subject to a fine.

Step 3 – Identify laws governing the importation of products into the United States

3.1 Identify the import requirements on goods, including quotas

The United States maintains import quotas for various commodities and manufactured goods. These quotas may be established by legislation, or by executive order or proclamation.

US law contains three types of quotas: absolute, tariff rate, and tariff preference. Absolute quotas are strict limitations on the quantity of certain goods that may be imported into the United States for a specific period. Tariff rate quotas allow a specified quantity of merchandise to be imported at a reduced rate of duty during the quota period. Once the tariff rate quota limit is reached, goods may still be imported, but at a higher rate of duty. Tariff preference quotas are similar to tariff rate quotas, except that a preferential lower tariff rate is set on goods imported from a certain country. Be sure you understand how any of these quotas might apply to the goods you intend to import.

3.2 Review the labelling requirements

US law requires the identification of the source of imported goods. Every article of foreign origin or its container must be marked in a conspicuous place, as legibly, indelibly, and permanently as the nature of the article or container will permit with the English name of the country of origin of the article at the time of importation. Products that fall into certain categories of goods may be covered under several different labeling and packaging statutes and regulations. Therefore, it is important to be familiar with all applicable labeling rules and regulations to ensure the goods remain compliant.

3.3 Review concerns regarding product liability and safety

Imported consumer goods may pose the risk of product liability claims. The US Consumer Product Safety Commission provides information on US product liability law for global manufacturers and exporters. Product liability law is set almost entirely by the states and is often based on a case-by-case determination following a trial about the injuries caused by a product. You should be apprised of any risks of injury posed by the products you want to import.

For example, in cases where product liability involves strict liability against a manufacturer or producer, and the company exporting the product does not have a US location, the importer may be treated as the manufacturer or producer for product liability claims.

3.4 Determine the legal status and/or authority to act within a country

A contract should not be entered into with a foreign entity unless you are certain that the entity is legally organized and authorized to do business with you. A failure to be legally organized or authorized could render the agreement void and unenforceable. If possible, request verification of legal status from the foreign entity. If public records are accessible, they may be reviewed to determine the organization’s legal status. It may be necessary to obtain the advice of local counsel. Check the laws of the exporting country to see if you are required to act through a local agent or partner when contracting for the export of goods. 

Step 4 – Review the general terms of the contract

4.1 Specify the language of the agreement

International agreements may involve parties who do not speak English or who speak it only as a second language. When deciding on which language should be used, consider what claims might arise, the venue for conflict resolution, and the collectability of judgments. Litigation will be easier if the contract is written in the language spoken by the court that will hear the case.

4.2 Consider designating authorized versions/translations

Depending on the importance of the contract and the costs involved, consider preparing a contract in multiple languages, with one or more regarded as official translations, and spelling out the extent to which weight (if any) should be given to variations in meaning between the official translations.

4.3 Specify the controlling language of the contract

If the parties do not all speak the same language, it will be necessary for at least one to use a translation of the contract. Because no translation can ever be exact and contract interpretations often depend on subtle differences in language, one version of the contract should be chosen to control in the event of a dispute.

4.4 Specify the currency in which payments will be made

Due to currency controls and exchange rate fluctuations, the currency in which a payment is made may significantly impact the actual cost for either party. The currency that will be used for payments must be designated explicitly. In addition, the designation must include the country issuing the payment currency. For instance, the United States, Canada, Australia and Hong Kong all call their currency the ‘dollar’, but the values of those different dollars vary widely.

4.5 Specify the payment transfer method and timing

International payments are more complicated than domestic payments, as they may use different currencies and banking systems. The method of payment (eg, wire transfer or letter of credit) must be laid out in the contract, and the specific documentary requirements for payment to be transmitted and received using the chosen method must be stated clearly.

Step 5 – Review key contract provisions

5.1 Consider intellectual property protections

Intellectual property disputes and claims of infringement can arise when a seller does not have the right to convey the right to use protected material, such as goods protected by a patent. This may be an issue in the case of international contracts that include an express warranty of noninfringement. You should obtain verification from the seller that the sale will not violate the intellectual property rights of another party, such as the manufacturer or inventor. Further, you may want to review the World Trade Organization’s (‘WTO’) Agreement on Trade-Related Aspects of Intellectual Property Rights (‘TRIPS’), which creates the minimum standards for the protection and enforcement of intellectual property rights as between WTO member countries. Currently, there are 164 member countries of the WTO, including all major trading countries.

5.2 Identify who is responsible for paying taxes/duties

Usually, import taxes or duties are the sole responsibility of the buyer, but the parties may agree otherwise. Incoterms provide for a type of contract known as ‘Delivered, Duty Paid’ (‘DDP’). Under a DDP agreement, the seller agrees to be responsible for all costs until the goods reach a mutually agreed destination. These charges include all transportation costs; any loss due to damage during transit; and the payment of customs duties, import tariffs or other relevant charges. If you intend for your contract to be a DDP agreement, be sure that term is set out explicitly and clearly.

5.3 Specify the delivery date

Every contract should include a due date that sets a deadline for completing performance. It is important to remember that international shipping can often present unexpected delays and difficulties. The parties should make clear that the promised delivery date is feasible.

5.4 Specify where the goods will be delivered

Parties frequently use shipping terms as a shorthand for allocating responsibilities between them about the transfer of risk of loss, obligations to pay for freight, arrangement of a carrier, insurance and so on. Outside of the United States, where these terms are defined by the UCC, contracts often use Incoterms promulgated by the ICC. The specific shipping terms you want to make applicable should be stated clearly and in mutually understandable terms. Incoterms provides specific terms for delivery of goods. For example, where the shipper pays for everything from their dock to the consignee’s dock with customs clearance and duties paid, this is called ‘Delivered, Duty Paid’, or ‘DDP’.

5.5 Specify how the acceptance of goods will be made

Under the UCC, the default rule is that unless otherwise agreed, the buyer is permitted to reject goods shipped or delivered to it if the seller’s tender of the goods is in some way imperfect. The CISG does not contain a perfect tender rule. If the default rules are applied, the buyer must accept goods as delivered unless they have a fundamental non-conformity. This can present a problem for an importer which must accept goods that are non-conforming, but upon reselling those same goods within the United States, is subject to the perfect tender rule and may find that its buyers have no obligation to accept the goods. The importer of goods should try to include a perfect tender rule allowing the importer to reject a non-conforming shipment. If such a clause is not feasible, include some language providing some other redress, such as a reduction in price for a non-conforming delivery.

5.6 Decide whether warranties will be provided

5.6.1 Express

Express warranties include any description of the goods; claims made about the suitability of the goods; samples provided; and anything else which constitutes a representation by the seller. They are not implied in any transaction. Instead, they are regarded as separate provisions to be negotiated by the parties.

5.6.2 Implied

Under the CISG, a seller must provide goods that:

• are fit for the ordinary purpose of such goods;
• are fit for any particular purpose made known;
• possess the same qualities of a model or sample; and
• are packaged in the normal manner for packaging such goods.

The CISG allows these implied warranties to be disclaimed.

5.6.3 Disclaimers/limitations

A valid disclaimer of warranties must be agreed-upon by both parties, but the disclaimer does not have to be in writing or conspicuous. However, it is best practice for a disclaimer to be in writing and to be made as conspicuous as possible, to avoid any disputes about the existence or terms of the disclaimer.

Here is a sample disclaimer clause:

5.7 Specify the remedies for breach

The CISG provides for certain remedies in the transactions to which it applies, including specific performance, refund or price reduction, avoidance, or damages.

5.7.1 Repair/replace

Specific performance is an allowable remedy under the CISG and is preferred in most jurisdictions outside the common law system. Under the CISG, specific performance enables a party to require the other party to fulfill their contractual obligations, rather than the traditional remedy of monetary compensation for a breach. Specific performance reflects the emphasis on honoring contractual commitments. It is particularly favored in civil law jurisdictions, where the focus of the laws and remedies is on ensuring that parties receive the exact performance they bargained for. While common law systems tend to prioritize damages as the primary remedy, the CISG aligns with the civil law principle that fulfilling the terms of the contract is paramount, thereby reinforcing predictable and reliable contractual relationships.

5.7.2 Refund

Damages, including refunds of payments, always supplement remedial measures such as specific performance under the CISG. Even when a party seeks specific performance to compel the fulfillment of contractual obligations, they may also claim damages for any additional losses incurred due to the breach. These damages can include compensation for delays, expenses incurred, or any other financial detriment resulting from the non-performance. The CISG emphasizes the importance of restoring the injured party to the position they would have been in had the contract been properly performed. This dual remedial approach enhances the flexibility and effectiveness of the remedies available under the CISG, providing comprehensive relief to aggrieved parties.

5.8 Specify the desired dispute resolution mechanism, if any

5.8.1 Forum

Forum selection allows the parties to designate the country whose courts will hear disputes arising from the contract. This clause is tremendously important in international contracts, given the expenses of international travel, jurisdiction and service of process, as well as the potential need to enforce a judgment obtained in one country against assets held in another (which may be difficult or impossible depending on the countries involved). There should be some relationship between the parties and the court selected, and the selected court should have jurisdiction to hear a potential dispute. Contracting parties usually designate a court in a city where one of them has its principal place of business. For example, a US importer headquartered in Los Angeles would probably seek to have a forum selection clause dictate that disputes be heard by the US District Court for the Central District of California.

5.8.2 Choice of law

The choice of law can be much more critical in international contracts than in domestic contracts, since the differences between the legal systems of two nations can be much broader than those between the laws of two states. This is especially true in the context of the sale of goods where, within the United States, the UCC will govern no matter which state law is applied. In most international contracts for the sale of goods, the CISG will apply by default.

5.8.3 Remedy

It is important to check that you have included appropriate remedies which reflect the CISG terms. Under Article 45 of the CISG, a buyer has four essential remedies for breach of a sales contract:

• The buyer may require performance. If the goods do not conform with the contract, it may require the delivery of substitute goods or require the seller to remedy the lack of conformity by repair;
• The buyer may fix an additional reasonable period of time for performance by the seller of its obligations. This remedy applies at the election of the buyer and is not ordered by a court or other tribunal;
• The buyer may declare the contract avoided; or
• The buyer may claim damages by reducing the price of the goods in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time.

If the buyer breaches the contract, under Article 61 of the CISG, the seller may:

• require performance;
• allow additional time for the seller to perform; or
• avoid the contract.

If the breach of contract is failure by the buyer to specify the form, measurement, or other features of the goods, the seller may make the specification itself in accordance with the requirements of the buyer that may be known to it. It is important to note that, while the CISG does not prescribe the manner in which damages are calculated, Article 74 of the CISG indicates the purpose of damages is to be compensatory to the aggrieved party. The goal is to put the party in the same economic position as if the contract had been fully performed.

5.8.4 Alternative dispute resolution

Alternative dispute resolution (ADR) allows the parties to avoid the potential difficulties involved in international litigation, keep the costs of a dispute to a minimum, and set everyone’s expectations upfront. If the parties do not agree on an ADR process in the contract, they cannot be compelled to use one once a dispute has arisen. The parties should also agree on the organization that will provide ADR services, such as the American Arbitration Association.

5.9 Include provision for force majeure, if desired

Force majeure clauses allow a party to be excused from its obligations in the event of unforeseen circumstances. In the international context, significant events such as war, terrorist attacks, piracy, shipping delays, and similar events are far more likely than in the domestic context and should be given more attention by a drafter. Force majeure clauses will set out the types of events considered to be force majeure. As a general rule, an event is not regarded as covered by such a clause unless it is listed or defined in the clause. A global pandemic, for example, could be considered as force majeure if referenced in the contract by such language as ‘a disease outbreak.’

Additional resources

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How to manage the risk of contracting with a company in financial difficulty
Maximizing the use of boilerplate clauses to limit the risk of unforeseen events
How to draft a confidentiality agreement and confidentiality clauses

Checklists:

Reviewing a confidentiality agreement (receiving party)
What to consider when terminating a contract
What to consider to ensure a contract is valid

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