by Wang Shanlun

Notwithstanding the fact that China has become one of the largest trading nations, it appears that Chinese importers and exporters are showing much less interest in the latest Incoterms® 2010 than traders in other regions. This situation is unexpected and worrying.

According to statistics, the most popular terms used by Chinese importers and exporters remain FOB and CIF, and Chinese traders ignore whether or not the goods are transported by sea or whether they are or are not containerized.

If you tell Chinese exporters that they shouldn't continue to use FOB for container shipments, you might hear some of the following responses:

1. Why not? We have been using FOB for many years, and so far so good.

2. Muhh, are there better trade terms than FOB?

3. Our customers often ask that we use FOB. We are in a buyer's market, and we have no other choice.

4. FCA? A transport document under FCA is usually a simple cargo receipt instead of a bill of lading as required under FOB. How can we control our goods without a bill of lading?

Chinese traders' misunderstanding of Incoterms® 2010 frequently results in the rules being misused, especially in letter of credit settlements.

Example 1

A letter of credit in favour of a Chinese company requires an insurance policy showing the applicant as the insured party, while the trade term used in the underlying contract is DDP.

Unless the seller and buyer have a special arrangement in their contract, both parties, as well as the issuing bank, may fail to realize that it's for the seller to bear all the charges and risks before bringing the goods to the named place of delivery. It's not a must for the seller to effect insurance, although most of them do. Moreover, even if the seller decides to purchase insurance, it is for his interest, not for the buyer's. Therefore, it's in the seller's sole discretion whether or not to effect cargo transportation insurance. And even if he chooses to do so, he will generally retain the insurance document. If damages occur during transportation, it's for the seller to claim from the insurance company.

Example 2

A letter of credit requires a traditional bill of lading as evidence of delivery, while the trade term used in the underlying contract is DDP.

Again, the buyer and issuing bank do not realize that a bill of lading, which only indicates when the goods have been loaded on board a vessel at a port of loading and have left for a port of discharge, is not sufficient to prove that the seller has fulfilled its delivery obligation under DDP. Item A8 of DDP clearly says: "The seller must provide the buyer, at the seller's expense, with a document enabling the buyer to take delivery of goods as envisaged in A4/B4."

Promoting the new rules

Some efforts have been made by ICC China to promote Incoterms® 2010 in China, but the result has been far from satisfactory. Only a limited number of seminars were conducted before and after Incoterms® 2010 came into force. There have been no seminars since the second half of 2011, "official" or "unofficial".

In order to help local readers to easily understand the new rules, ICC China published its bilingual (English and Chinese) version. But readers here are asking where to buy the publication, as they cannot find it at nation-wide bookstores or online. The reason is that its distribution channel is limited to one company, and the only way to buy it is by traditional mail order from that company.

Moreover, because the Chinese version has been roughly translated, its reference value has been greatly reduced. Take the title of the book, for example. If it is translated back into English from the Chinese version, it reads something like this: "General rules for the interpretation of international trade terms", which deviates from its original English "Incoterms® 2010 - ICC rules for the use of domestic and international trade terms".

Before Incoterms® 2010 are fully understood and correctly used by Chinese traders - and further expanded for use in domestic trade - there is still a long way to go.

Wang Shanlun is a lecturer at Jiangxi University of Finance and Economics in China. His e-mail is