CARVALHO, MACHADO, TIMM & DEFFENTI

A D V O G A D O S
CRISTIANO ROSA DE CARVALHO RAFAEL BICCA MACHADO LUCIANO BENETTI TIMM FABIANO DEFFENTI RAQUEL STEIN RENATO VIEIRA CAOVILLA
SO PAULO - SP Avenida Nove de Julho, 4325 Jardim Paulistano - CEP 01407-100 Fone + 55 (11) 3889-0289 Fax + 55 (11) 3884-1706 www.cmted.com.br PORTO ALEGRE - RS Av. Carlos Gomes, 1340, Conj. 602 Auxiliadora - CEP 90480-001 Fone +55 (51) 3022-5550 Fax +55 (51) 3022-6650

INCOTERMS 2010 AND THEIR INTERPRETATION BY

BRAZILIAN AUTHORITIES
26 MAY 2011

By Fabiano Deffenti1 1. Introduction On 7 April 2011, Brazils Council of Ministers of Chamber for Foreign Trade (CAMEX) issued a new resolution2 (Resolution 21) relating to the application of the new Incoterms and other contractual provisions in international trade. 2. The Incoterms 2010 On 1 January 2011 the eighth edition of the International Chamber of Commerces Incoterms came into force. This latest version of the internationally recognised set of rules is known as the Incoterms 2010.The Incoterms are standard contractual rules most often used in international sales of goods. The key changes brought about by the Incoterms 2010 are: (a) Reclassification of the rules: The terms have been divided into water transportation, which are terms only to be used in transportation over sea and inland waterways, and any transportation, which are terms that can be used in all types of transportation; Application to domestic and international trade: While the Incoterms had been used extensively within national boundaries in many parts of the world, the rules themselves never expressly acknowledged this. Now the International Chamber of Commerce has expressly recognised that the rules have been drafted to apply to international transactions as well as transactions within a countrys borders; Electronic communications: The new rules now expressly give electronic and paper-based communications the same effect;

(b)

(c)

Fabiano Deffenti is a lawyer admitted in New York (attorney at law), Australia (legal practitioner), New Zealand (barrister and solicitor) and Brazil (advogado). He is a partner of Carvalho, Machado, Timm & Deffenti Advogados. 2 Resolution CAMEX Number 21 of 7 April 2011.
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(d)

Security-related assistance: With the increased issues relating to security clearance around the world, the International Chamber of Commerce chose to set out rules providing for the parties roles in relation to security-related matters; Terminal handling charges: The rules relating to terminal handling charges were modified to clearly allocate the responsibility for payment between sellers and buyers; and String sales: It is a well-known fact that commodities are bought and sold several times during transportation. This has led to substantial litigation around the world due to privity of contract issues. Now the rules provide an option for sellers to procure the goods shipped where the goods have already been shipped.

(e)

(f)

3.

The Incoterms 2010 as Interpreted by Brazilian Authorities CAMEXs Resolution 21 expressly spells out the parties right to negotiate terms different to those in the Incoterms 2010, and clarifies the application of certain transactions involving Ex Works and Delivery Duty Paid terms.

3.1

Sales conditions other than those provided in the Incoterms Article 1 of Resolution 21 expressly recognises that any sale conditions used in international trade are to be accepted by Brazilian authorities, for as long as they are compatible with the national legal system. The Brazilian system allows for the vast majority of commonly used international terms of trade and the requirement of compatibility is likely to impose minimal restrictions on buyers and sellers. The express recognition by CAMEX in Resolution 21 is important as up until now Brazilian customs practice and regulations have presumed that the Incoterms are applied in all international trades. For instance, Brazils Customs Regulations3 provide that the commercial invoice relating to the transaction must contain the Incoterm. Importers must also declare the Incoterm in import declarations.4 Customs authorities then use Incoterms for calculating import-related taxes, so customs brokers are often left with the task of trying to match the parties negotiated terms with the applicable Incoterm. When incorrectly applied, this matching process can lead to substantial tax overpayments (and obtaining refunds can take a long time). Until the regulations are changed to reflect the terms of article 1 of Resolution 21, it is recommended that advice be sought to ensure that the matching is correctly made.

3 4

Article 557 of Decree 6,759/2009. See, for instance, SRFs Normative Instruction 611/2006 and Normative Instruction 680/2006.

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3.2

EXW (Ex Works) Incoterm 2010s Ex Works rules provide that the purchaser is to collect the goods from a named place. This term has become increasingly applied in international transactions, as it does not require the seller to transport or clear the goods. Due to the internal Brazilian customs rules where foreign parties cannot undertake customs clearance, Resolution 21 provides that where the parties have chosen Ex Works for a transaction involving the exporting of goods from Brazil, the seller (i.e. the Brazilian exporter) will be presumed to be responsible for arranging customs clearance.

3.3

DDP (Delivery Duty Paid) Under Delivery Duty Paid rules, the seller is responsible for the transportation of the goods to the agreed destination in the purchasers country. However, foreign parties are not allowed to clear goods in Brazilian customs. Therefore, Resolution 21 expressly provides that Delivery Duty Paid cannot be used in any Brazilian importing transaction. If the parties wish to have an Incoterm to their transaction, they can opt for either DAT (Delivered at Terminal) or DAP (Delivered at Place), as both require that the importer carry out customs clearance.

4.

Commentary The Incoterms 2010 contain various improvements as compared to previous versions of the terms. These are likely to avoid confusion and disputes in international trade. While it is unfortunate that Brazilian customs still does not allow foreign parties to be responsible for the clearance process, Resolution 21 is an improvement as makes it clear that the parties are free to negotiate terms as they consider suitable. Brazilian law has long recognised this right, yet an express statement to this effect from CAMEX can go a long way in making this clear to customs authorities and brokers. Foreign purchasers should also be aware that Ex Works transactions will require Brazilian customs to be cleared by the seller and that Delivery Duty Paid transactions are not to be used in transactions where the importer is based in Brazil. Finally, parties involved in international trade may consider updating their standard agreements and amending their existing long-term contracts to ensure that in line with the Incoterms 2010.

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For further information, please contact Fabiano Deffenti at fdeffenti@cmted.com.br or on +55 (11) 3711-7173. CARVALHO, MACHADO, TIMM & DEFFENTI ADVOGADOS

DISCLAIMER This document does not constitute legal advice and professional advice should be sought before relying on its contents. All responsibility is disclaimed for any loss or damage resulting from any omission or action taken on the basis of information contained in this document.