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INTERNATIONAL SALE OF GOODS (CISG) A SUCCESS?
International sales law, whether coded or not, is there for a long period of time but lacked unification, standardization and harmonization among the laws and rules applied by various states for the international trade. Various efforts have been made in past for a better application of a uniform and widely accepted international sales law which were of no use and as a result, the conflict in matters of international contracts and trade used to go unresolved. The introduction and adoption of the United Nations Convention on Contracts for the International Sale of Goods (CISG) 1980 played a vital role to bring in a platform for the international sales law, by unifying the rules governing the contracts for international sales of good, which influenced not only the international sales law but also the domestic sales law.
EFFORTS FOR THE UNIFICATION OF THE INTERNATIONAL SALES LAW
The efforts for the unification of the international sales law are visible since the early part of the last century. Among the initiators, League of Nations put its efforts for the unification of the international law of sales which went into drain. Afterwards, an organization namely United Nations Commission on International Trade Law (UNCITRAL) was established under the United Nations for the reformation and unification of the trade law. The efforts of UNCITRAL led to the United Nations Convention on Contracts for the International Sale of Goods (CISG) in the year 1980. CISG is widely accepted as the code of international sales law and is implemented into the domestic codes by various states (Schaffer, Augusti, Earle 2009). Without any shadow of doubt, these efforts have shown a positive result in the international sales law and have removed the ambiguous sphere from the international trade. Thus, the efforts been made for the international sales law are to be highly appreciated.
CISG CONVENTION 1980
The 10th plenary meeting, on 10th April 1980, of Vienna Diplomatic Conference 1980 led to the United Nations Convention on Contracts for the International Sale of Goods, containing 101 articles, executed on 11th April 1980 at Vienna, having ratification by 76 countries up to date. The convention deals with the matters related to the trade transactions which take place at the international sphere.
PURPOSE OF THE CONVENTION
The bottom line of the convention was to promote friendly relations among states by growth of the international trade on the basis of equality and mutual benefits, as declared through the preamble of the convention under discussion. The convention also aimed to adopt uniform rules throughout the transaction of the international trade, keeping in view the social, political and legal systems, to remove legal barriers in international trade. (Preamble CISG 1980). The reformatory and non-forcible nature of the convention promotes a positive purpose of the convention for the uniformity and unification of the international sales law while giving a reasonable space to the domestic laws. The purpose of the convention serves multi-fold as it links to the laws and rules applicable within the states on their contractual connections internationally resulting in their friendly relations and also to its non-forcible applicability within the domestic law leaving discrimination with the states.
TERRITORIAL SCOPE OF CISG
The Article 1, mainly, covers the territorial scope of CISG, though Article 2 and 3 are relevant. It demands that the parties, at time of the conclusion of the contract, must have their place of business in different states. The term “Place of Business" has not been defined by the convention but has been defined under case laws. The bottom line is that the place of business of the contracting parties must not be in the same state even if their source of investment is from different states, (UNCITRAL Digest 2008). The aforesaid article reflects the international nature of the convention dealing with the contractual relations of different states in terms of sales law. Majority of the states have ratified the convention and have utilized it as their applicable law for the contracts for international sales of goods with other states.
SCOPE OF CISG
The scope of CISG has been marked with certainty to not to make the contracts of the international sales of goods a cumbersome process. The scope of the Convention on Contracts for the International Sales of Goods 1980 is covered under Article 4 and Article 5 of the said convention which declares ‘formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract’ (Article 4, CISG 1980) and exclusion of liability for death or injury as the scope of the convention. Effect of contract on the property in goods sold also has been discarded, in general, from the scope of the convention. Certain other matters were considered to be brought in the scope of the convention but were considered controversial in respect of the difference with the national laws. (Stefan Kroll, 2005-06). Apart from the territorial scope, the convention covers formation of contract of sale, obligations and remedies for the contracts of international sales of goods.
CISG STANDARDIZING INTERNATIONAL SALES LAW
Standardization of law is very helpful to increase its acceptability and remove the space of possible conflicts (with other laws and allied). The CISG refers to international contracts of sale, by virtue of its Article 1, and aims for the standardization of the rules of the international sales laws. It serves as a vital component for the international law of sales. The fact cannot be ignored that CISG observes only partial legal standardization but such standardization is warmly embraced and ratified by the states. Thus, CISG is a success in an endeavour towards the unification of sales law at international level (Enderlin, Maskow 1992).
UNIFICATION OF THE INTERNATIONAL SALES LAW
Unification of law implies that subject matter of legal rules functioning be entertained by various political entities concerned. CISG has been aimed with the unification of the laws concerning the international sales law which is necessary for the economic growth globally and for the development of the international trade. It is generally believed that unification is not possible because of the difference of policies, legal rules and concepts but it is possible by avoiding the extreme ends to which judicial or administrative cooperation is also helpful, (Andre Janssen 2009). International trade has a long history, therefore, it was badly required for the international sales law to be unified and this purpose was served very significantly by CISG. CISG is indispensable when it comes to the unification of the international sales law as it has given a bottom line to the international sales law and also has eradicated many of the missing links within the international sales law.
EQUALITY AS A CONDITION PRECEDENT
Equality among the states is the condition precedent for the application of the international sales law and distinction between equality of fact and equality of law is not easy to make. There must exist equality in fact and equality in law to eradicate the presence of discrimination. Equality in fact may resolve different situation but with different treatment with everyone and equality of law excludes discrimination completely. The condition precedent is that the equality, whether of law of fact, must be effective and genuine, (Permanent Court of International Justice 1923).
ACTION AND MEASURES
United Nations and United Nations Emergency Force operations in Congo and Middle East respectively gave birth to dispute concerning the finance under Article 17(2) of the Charter of the United Nations. The International Court of Justice (1962) considered that the special powers of General Assembly in no way derogate from its general powers but in case of the need of a necessary action, the General Assembly has to refer the matter to the Security Council as Security Council is the enforcing body of the United Nations and is not under any limitation of restrictive discretion under Article 43 and that is the appropriate hierarchy for the action and measures.
Expense incurred upon the action by a wrong organ does not make the organization liable for the payment. International and national laws make body corporate or politic to stand accountable before the third party for the wrong act of its agent. The court reached the decision, by a majority of nine votes to five, that such expenditures were in fact expenses within Article 17(2).
RIGHTS OF STATES
Under the resolution of General Assembly adopted on 12th December 1974, namely Charter of Economic Rights and Duties of States, following are the rights and duties of the states;
A state may take into account any irrelevant law or regulations on principle of free choice of means. A state also holds a right to associate to primary commodity producers for the economic development. States also hold a right to benefit from the advances and developments in science and technology.
On the basis of the judicial equality, states have right to participate in the process of international decision making concerning economic, financial and monetary problems. The states hold these rights and allied on equal terms in respect of each other and must respect these rights concerning every state. The observance of the aforesaid rights is the path towards the economic development.
DUTIES OF DEVELOPED STATES
Where there is a right, there is a duty and so there exist duties under the aforesaid convention which are as follows;
Developed states must take measures to eliminate colonialism and racial discrimination and all forms of foreign aggression. This is one of the most important duty of the developed states to bring in harmony among the international community and international trade for the economic development.
System of generalized non-reciprocal and non-discriminatory tariff preferences to the developing countries must be improved. The developed countries must introduce measures to promote economy through international trade and avoid taking such steps which result in negative.
Furthermore, the resources available at sea-bed and ocean floor must be explored only for the peaceful purposes for it is the common heritage of mankind. States also must figure out and implement environmental and development policies to protect environment. Co-operation among the states is necessary for this purpose as environment of own state as well as of the other states is to be protected.
Under Article 14 of the Charter of the Economic Rights and Duties of States (1974), every state must co-operate to promote liberalization of world trade and improve living standard of the people. For this purpose, the obstacles are to be removed from the path of the international trading for which measures are to be taking with co-operation. It would increase the foreign earnings of the states and also would be helpful to the developing states for their growth in the international trade.
The Declaration on the Granting of Independence to Colonial Countries and Peoples adopted by United Nations on 14th December 1960 declares that people being subjected to alien subjugation, domination and exploitation is inconsistent to the fundamental human rights and is not acceptable by United Nations. The same also denounces the world peace and co-operation.
The right of self determination, vested with everyone, enables him to determine its political status and adopt economic, cultural, social and developmental policy of its own choice. The right of self determination is recognized by the United Nations and violation of the right of self determination is the violation of the international law.
RIGHTS OVER THE NATURAL RESOURCES
The resolution of General Assembly on Permanent Sovereignty over Natural Resources (1962) recognized the right of the nation or state over the natural wealth and resources of the concerned state. It also is important that the sovereignty over the natural resources must be exercised for the welfare of the people of the same state. The state also has the right to explore and trade their natural resources in conformity with the domestic and international laws. The charter also permits the states to enter into agreement over the investment for natural resources among the states in good faith. This approach has been highly appreciated globally as the bottom line of the charter is to enable states to move ahead to development by utilizing the natural resources within their own territory.
CISG COVERS THE CONTRACTS NOT COVERED UNDER NOTION OF “SALES CONTRACTS"
Apart from the general application, of the convention over the contracts for international sales of goods, the convention also covers certain types of contracts which do not correspond to the notion of “sales" contracts under the domestic law. In such a case, it is not easy to identify the type of contract which would fall within the sphere of CISG, (Bonell, Liguori 1997). The positive side of this feature is that CISG is helpful in covering the missing links of the domestic law and broadens the scope of the CISG and makes it easily acceptable for the parties in conflict. This feature attached with the convention under discussion is generally not found with the other laws which make this convention of a great value.
ANALOGOUS INTERPRETATION WITH DOMESTIC LAW
Interpretation of the convention, at the first instance, is to be interpreted with regard to its international character and the matters not covered under the convention are likely to be in conformity with the general provisions of the convention. If any matter is not covered under the convention is supposed to be interpreted autonomously but there have been instances where courts have interpreted the convention in relevance with the domestic law. But otherwise the domestic law is not per se applicable (UNCITRAL digest on CISG 2004). Therefore, up to an extent, the domestic law is interlinked with the convention on contracts for the international sales of goods (1980) and it also reflects that states and courts do prefer to adopt the convention, without any grave objection, to their judgments and laws.
INTRODUCTION OF CISG INTO DOMESTIC LAW
China introduced the enforcement of CISG into its domestic law through the Chinese new contract law 1999 which has been revised later to keep it up to date with the international trends applicable. The Government of Singapore also declared the CISG to be the governing law concerning the contracts. CISG has also been recognized and applied in the courts of Germany. Thus, with a gradual process and with the passage of time, CISG is being introduced within the domestic law of the states and beyond any shadow of doubt CISG has played a vital role in change and reformation of the domestic law, (Bruno Zeller 2007). The aforesaid and other instances of introduction of the CISG into domestic law are the verification of the reformation of the sales law not only at international level but also at the domestic level. The number of states which have ratified CISG have increased rapidly through the last two decades which also is an approval by the states to introduce CISG into their domestic law.
CO-EXISTANCE OF CISG AND DOMESTIC LAW
The CISG and domestic law can be observed in a sound harmony with each other as CISG is not forcibly applied over the international contracts of sales of goods. Article 92 and Article 94 of the CISG provide the opportunity to the CISG and the domestic law to co-exist at the same time as the aforesaid articles equip the contracting states with the discretion to choose either of the laws applicable to their contracts. Therefore, neither CISG overcomes the domestic law forcibly, nor the domestic law overcomes the CISG forcibly and the co-existence and unification of the CISG and domestic remains intact, (Coetzee, Gama 2006). Generally, it is difficult for two laws on same subject matter to co-exist with each other but the nature of CISG is flexible to adjust easily with other laws on same subject matter as CISG gives priority to the intention and will of the parties in contract for international sales of goods.
INFLUENCE OF CISG ON DOMESTIC LAW
CISG has not only shown its influence on the international law but also has proved its influence on the domestic law by the evident enactment of the CISG rules and principles on the domestic law of majority of the states and this influence on the domestic law is not of a forcible nature. CISG has been implemented as not only the cross border sales law but as well as their domestic law of sales by various states, especially the Scandinavian countries. Sweden and Finland also have introduced their domestic law of sales on the concept of CISG. Norway and Tokelau (previously trust territory of New Zealand) enacted CISG as their law of sales for the domestic and international purposes, (Peter Schlechtriem 2005). The aforesaid facts reflect the evident influence of the CISG on the domestic law which also is a positive step because as soon as a state enacts CISG on their domestic law, the state impliedly accepts to follow the international law and maintain the harmony of the international throughout with uniformity.
CISG AND INTERNATIONAL COMMERCIAL EQUITY
The CISG was promulgated about thirty years back but it holds a landmark status in the unification process of the international sales law. Major of the trading nations have adopted CISG and it has not only been accepted as code for the international sales, but also has been the source of modernizing the domestic law, of various countries. Likewise, CISG, at international level, has made the International Institute for the Unification of Private Law (UNIDROIT) to formulate the principles of international commercial contracts, (Michael Joachim Bonell 2008). Though, CISG has not covered international commercial law in full, for which it is criticized, but has shown a great impact upon the commercial contracts of the international sphere which reflects that CISG is a success in an endeavour towards the unification of sales law on an international level and this fact has a sound acceptance.
PERSUASIVE NATURE OF CASE LAWS
The CISG has been criticized for its persuasive nature of case laws. The decisions made by the courts under the CISG are not highly entertained in foreign courts; therefore, they do have a persuasive nature, (Enderson, Mazotta, Zeller, 2010). The aforesaid criticism is correct but is not enough to denounce the value of CISG. CISG has played an important role to uniform the international sales law and has proven itself to resolve the conflicts as it provides a medium of legislation to rely upon. With the passage of times, as the number of cases decided would increase, the rules extracted from those decisions would interpret the convention much better and the decisions would get rid of their persuasive nature. Though, the fact can not be ignored that CISG is criticized for its lack of neutrality.
CRITICISM UPON CISG
Despite of the appreciation won by CISG, it also has faced criticism on various grounds out which interpretation, lack of neutrality and incompleteness of CISG are highly focused. These criticisms can be observed through various angles.
As far as the interpretation of the convention is concerned, CISG lacks definition of various terms used in the text of the articles of the convention. Furthermore, some vague terms such as “reasonable" have been used which removes the certainty of the interpretation of the convention. Thus, the job of interpretation of various issues of the conventions lies with the intention and will of the parties at time of conclusion of the parties or the courts in case of conflict between the parties.
Criticism upon CISG concerning the lack of neutrality is a two-fold criticism as the developing countries call it to be seller friendly and the rest, especially German practitioners, call it to be buyer friendly. The outcome of both of side of the criticism under discussion may regard CISG to be fair as this criticism depends upon the part of the convention favouring the party and part of the convention not in favour of the party concerned.
CISG is also criticized for being incomplete as it is not certain upon various issues and also does not cover the complete matters regarding the international sales law. In addition, rather than laying certain rules, CISG has left upon a major number of matters with the parties to decide for which CISG is referred as an incomplete code, (Schwenzer, Hachem, 2009).
The efforts from the time of League of Nations to the United Nations were well paid in 1980 by the execution of the United Nations Convention on Contracts for the International Sale of Goods (CISG). The purpose, reflected through the preamble, of the convention under discussion is generally and globally accepted in the international community but the ratification of the convention subjects to the interests of the states. The fact can not be denied that the uniformity of the international trade laws, as aimed by the convention, still lacks many steps.
The convention holds a two-fold scope as it covers the territorial scope in respect of different states linked with each other for trade and also the status of the contract in respect of the sale of goods between the states. The scope also has been broadened to the contracts not covered by other laws and thus, the convention has played an important role in removing the ambiguity of the application of the relevant law.
Only those of the states have adopted the CISG into their domestic laws as well which also have ratified the convention. This brings in conflict between the domestic laws of the several states, especially when they are linked with each other in respect of trade.
Problems arise when a ratifying state enters into a trade agreement with a state not ratifying CISG and the applicability of the law becomes the issue. For such instances, CISG stands helpless and of no use and is discarded from its application.
CISG has been helpful in interpretation of the domestic sales law as the international law prevails over the domestic laws; therefore some domestic courts have interpreted their domestic sale law under the light of CISG. It also has resulted into co-existence of international sale law with domestic sale laws.
An empty space prevailed over the international sales law for a long period of time which had been tried to fill various times. Many efforts were made at the international level concerning international sales law, which were well paid by the adoption of the United Nations Convention on contracts for International Sale of Goods (1980). CISG holds a great value in respect of international sales law because of which 76 states have ratified CISG. CISG mainly covers the international sphere of the sales law but also has been applied in many, of the domestic law, of the states which have ratified CISG. By the fact that ratifying states regard CISG for the international transactions and many of the ratifying states have formulated their domestic sales law on the basis of CISG, therefore, it has influenced, up to a reasonable extent, the international sales law, as well as the domestic sales law. Though, there are many reservations over CISG by many of the states because of their self interests but in general it has been appreciated. Hence, CISG is a success in an endeavour towards the unification of sales law on an international level.
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