1. Direct Sales: Two kinds of letter of credit: documentary letters of credit (also called documentary credits or commercial credits) and standby letters of credit. Documentary letters of credit A letter of credit is a conditional promise of a bank (= issuing bank) upon request of the applicant (= account party) to pay the beneficiary within the time limit given upon presentation of certain documents. The banks payment obligation is a primary, direct and completely independent obligation of any claim which may arise in the underlying sale of goods. The banks obligation is abstract. Uniform Customs and Practice for Documentary Credits (ICC). Rule of strict compliance. In case of a small discrepancy, the bank can ask to buyer to waive the discrepancy. The letter of credit, when it has been issued by the buyers bank (= issuing bank), is sent to the seller via a foreign correspondent bank in the sellers country (= advising bank/confirming bank). An advising bank is not liable on the letter of credit but only assists the issuing bank (distinguish: confirming bank). Maurice OMeara Co. v. National Park Bank of New York (additional reading materials) Courtaulds North America, Inc. v. North Carolina National Bank (additional reading materials) Standby Letter of Credit: Is a payment guarantee by the bank. Frequently, a standby letter of credit is issued by the buyers bank in the full amount of the purchase price and a second letter of credit is issued by the sellers bank for warranty claims in a lesser amount (5 %, 10 %, 20 % etc.). American Bell International Inc. v. Islamic Republic of Iran (additional reading materials) 2. Distributor: He buys and resells; issue of exclusive distributors. EU Regulation on Vertical Distribution (block exemption). Example Northern FranceNorthern GermanySouthern FranceSouthern Germany 3. Licensing: Right to use trademarks, patterns, know-how, etc. against payment of royalties. 4. Trade Agent: S/he makes the connection between the customer and the producer In the EU: generally has a claim to an indemnity payment upon termination. Foreign Corrupt Practices Act. Origin: Lockheed Scandal. 1977: The FCPA was enacted. It has two parts, the antibribery provisions and the record-keeping provisions. U.S. companies, and companies whose shares are listed on a U.S. stock exchange are prohibited from corruptly paying or offering to pay a foreign official for assisting in or retaining business. It also prohibits payments to a person (e.g. foreign agent) when the payer knows that a part of the payment will go to a public official. Consequences: Up to 5 years in prison and fine of US-$ 2 million. Amended to allow grease payments The accounting and record-keeping requirements provide that a U.S. company make and keep books, records and accounts as well as a system of internal accounting controls which in reasonable detail, accurately and fairly reflect its transactions and dispositions of its asset. This is intended to avoid slush funds.
Structure of International Transactions Foreign Sales
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