THE CISG 17 Essay Example

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The CISG and the Process on Unification of Transnational Commercial Transactions

Abstract

The nuances of international commercial transactions continue to reverberate. While the necessity of international commercial transactions cannot just be dispensed with, challenges continue to be witnessed, especially with respect to the uniform law to provide an international legal framework within which international sale of goods may be conducted. This paper considers the international legal framework, The CISG, in place to govern the international sale of goods.

Key words: goods, international sale, CISG

The CISG and the Process on Unification of Transnational Commercial Transactions

Introduction

The entry point for this paper is the answer to the question: what is the scope of international sale of goods? The internationals sale of goods is constituted by international sale transactions consisting of five main subsistent. These are the contract of sale of the goods in question, the contract of the carriage of the goods, the contract of insurance, the mechanism of payment and finally, the dispute settlement mechanism whenever a dispute arises between the buyer and the seller.

The contract of sale is concerned with the actual negotiation of the contract for the purchase of the goods. During such negotiations, issues which need to be addressed are the governing law, the jurisdiction and the dispute settlement mechanism, i.e. the parties to the contract of sale must determine whether any disputes arising from the transaction are to go through a litigation process or Alternative Dispute Resolution (ADR).

The contract for the carriage of goods entails the reaching of an agreement between the buyer or seller, as the case may be, on the mode of transportation to be used to ferry the goods from the point of purchase to their relevant destination. On the other hand, the contract of insurance related to the agreement between the buyer or seller of the goods with an insurance company on the matter of insurance for the goods from the point of purchase to their destination. Finally, the mechanism of payment is the component which describes the mode through which the payment for the goods is to be effected.

The United Nations Convention on Contracts for the International Sale of Goods, CISG

Given the challenges that international commercial transactions underwent, there was thus need to formulate a uniform legal framework that could govern these transactions. Against these realities, the United Nations after several attempts, managed to develop a legal document for that purpose. The document, the United Nations Convention on Contracts for the International Sale of Goods, commonly abbreviated as CISG, came into operation on 1st January 1988.1

Historical Development of the CISG

The historical development of the body of law governing international commercial sale of goods may be traceable way back into 1930. Then, an institution known as the International Institute for the Unification of Private Law (UNIDROIT)2 made initial attempts to unify the then scattered pieces of the laws that governed international commercial transactions relating to sale of goods.

The initial attempts for the unification of the laws relating to the international sale of goods made by the UNIDROIT were held under the auspices of the League of Nations, the United Nations predecessor founded subsequent to the end of the First World War.3 These preparatory attempts towards the possibility of unification were spurned out of a presentation by a German comparativist, Professor Ernst Rabel, who suggested that a uniform law on international sale of goods was indeed feasible and even desirable.4

To lay the initial groundwork for this unification process, there was established a committee of experts to get the unification attempts’ ball rolling. The committee of experts comprised of representatives from France, Scandinavia, Germany and England. The primary responsibility for this committee was to develop a draft law to unify the international sales.5

The committee was able to complete a first draft on this task five years later, in 1935. The completed draft was subsequently circulated to various governments through the good offices of the League of Nations so as to invite the comments from the governments. A number of the said governments, it is noted, expressed support for the idea.6 However, some of the governments expressed their reservations towards the need for unification, arguing that their businessmen had no immediate need for the same.7 Out the comments and reactions received from the 1935 draft, the committee of experts was able to produce another draft document in 1939.8

In a complementary development and move, the UNIDROIT established a second committee, this time, in order to prepare a draft law on matters relating to international contracts. The committee membership was comprised of members from Great Britain, Austria, France, Peru, Sweden and Italy. This committee was able to complete its task on the first draft in 1936.9

The interruptions occasioned by the distractions of the World War II impeded the work for the various committees. UNIDROIT was thus unable to present both the final drafts on the uniform law on sales as well as the uniform law on the formation of contracts. Although delayed, the two draft laws were ultimately presented by the UNIDROIT’s successor, The United Nations at The Hague Conference in 1964.

The two uniform laws presented during The Hague conference were the Uniform Law of International Sales (ULIS) and the Uniform Law on the Formation of Contracts for the International Sale of Goods (ULFIS). Both the conventions were adopted on the 25th day of April 1964. Subsequent to their adoption, the two instruments came into force eight years later, in 1972. Until now, only nine countries have acceded and or ratified these two conventions. These are the United Kingdom, Gambia, Luxembourg, Belgium, Germany, Israel, Italy, San Marino and the Netherlands.10

This rate of ratification and accession is certainly dismal by all standards. What reasons may be attributable to this? Varied reasons have been proffered. The first of these has been noted as that the prevailing world political developments. Gichangi notes that the fact that the drafting process of the two conventions was dominated by the western capitalist bloc, the Eastern communist bloc members felt the process alienated them, hence their keeping off. Secondly, the developing world members also felt they were alienated from the entire process thus contributing to their apparent lack of interest. Lastly, the non-ratification of the conventions by the United States has also been touted as a possible reason for the same.11

Besides these reasons, another standalone reason has also been given as being responsible for the slow pace of ratification and accession. This has been the reason that the two instruments had certain material flaws within them. These flaws have been cited as including the documents’ scope of application, the imbalance in the rights of the buyers and sellers, and lastly, the complexity of the conventions. In fact, the United States is one of the countries which particularly cited the material flaws in the conventions as informing its non ratification and or accession.12

The efforts directed at harmonization received a fresh shot of blood hence a new impetus in 1966 when the United Nations’ General Assembly established the Commission on International Trade Law, UNCITRAL. The primary purpose for the establishment of the UNCITRAL was to promote the progressive harmonization, as well as the unification of the law relating to trade at the international arena.13

Taking cognizance from the pitfalls that impeded the success of the processes of drafting as well as ratification and accession of the ULIS and ULFIS conventions, the General Assembly opted to craft a broad based membership to represent the needs and interests of the various countries. The membership was carefully crafted to be able to take care of all the legal, political as well as the economic interests of the various countries.14

The UNCITRAL, at its first session, put in place a fifteen member Working Group. The Working Group was supposed to determine whether the uniform laws adopted in 1964 could in some way be modified so as to enhance their acceptability among various countries or in the event that first option was not possible, then to come up with entirely new texts in this area.15

Subsequent to initial studies the UNCITRAL’s Working Group arrived at the conclusion that an entirely new text whose structure was to be derived from the texts of both the texts of ULIS and ULFIS. The Working Group was able to table its first draft text on sales in 1977. This was followed soon thereafter in 1978 with a draft formation text in 1978. The UNCITRAL, upon its reviewing of the two drafts chose to consolidate them into a single one. The resulting text was presented before the UNCITRAL’s diplomatic conference between March-April of 1980 in Vienna.16

The Vienna diplomatic conference was attended by delegates representing sixty two countries. Of these countries, forty two of the sixty two countries adopted the unified text of the international sales. This unified text adopted is what became the United Nations Convention on the International Sale of Goods, CISG. The CISG came into force on 1st January 1988 subject to its provisions in Article 99 which requires that its operations come into force one year subsequent to the accession, ratification and or adoption by the tenth country.

Unlike the previous attempts at the unification of the international trade law, the UNCITRAL was relatively successful for the reason that the processes leading to the drafting of the document was broad-based. Further, to avoid the scenario of the earlier attempts, a number of countries waited for the United States of America to accede before they themselves acceded to the document.17

When it came into force in January 1988, there were eleven countries into which the CISG applied. The countries were Zambia, Yugoslavia, United States of America, Syria, Lesotho, Italy, Hungary, France, Egypt, China and France. Todate, the convention has been ratified and acceded to by up to seventy two countries.18 This is a commendable rate of accession as compared to the dismal accession rates to the ULIS and the ULFIS.

The Convention applies to those contracts of sale of goods between parties whose places of business are within different states either where the states in question are Contracting States or in circumstances where the rules of private international law lead to the application of the law of the Contracting State.19 The Convention does not however apply to such contracts as those involving auction, electricity, on execution otherwise if the same was by authority of law, aircrafts, ships et cetera.20

What reasons inform the push for the ratification of the CISG? Various reasons have been touted as being responsible for the drive by a number of persons, institutions and organizations to have every country to ratify and or accede to the CISG, more so those states which were formerly part of the collapsed Soviet Empire. Knieper21identifies and outlines three main reasons as to why the push for accession to this Convention is higher than it was the case with the ULIS and ULFIS, CISG’s predecessors.

Firstly, he says that CISG should be acceded to out of reasons of compatibility. Knieper argues that based on the consultative nature of the CISG’s drafting process, the resultant product was one that was compatible with different countries’ sale of goods legislations. In his view therefore, by the different countries acceding to the CISG, they would just be asserting the provisions of their own national legislations as captured within an international instrument.

The second reason that Knieper gives as being advantageous for a country’s accession to the CISG is because of the need to ensure stability in matters respecting international commercial transactions. The argument in this regard is that for most countries that have volatile political environment, the need to put in place a stable legal framework for transactions in international commercial transactions, the easier way to do the same is for those countries to ratify the CISG. In his observation therefore, the ratification of the Convention would be a boost to the confidence of international traders who may otherwise not have transacted if CISG were not to offer some kind of stability.

The final argument that has been fronted as necessitating the accession to the CISG is the need to have flexible legal framework to govern international commercial transactions. Knieper, while basing his submissions upon the provisions of Articles 92-96, argues that these Articles provide the requisite latitude for any Contracting State to restrict the application of the Convention. In his view, due to the fact that all that is required for either the provisions of Part II or Part III not to apply to any state is for the state in question to express a reservation. These provisions of the CISG are therefore apt to enable the states to accede to it without losing out where it feels its interests are threatened.

Has The CISG Succeeded In Unifying International Trade In Goods?

This is the fundamental question that needs to be answered so as to determine the effectiveness or otherwise of the CISG as a unifying legal framework for international commercial transactions. Granted, for the twenty three years that the convention has been in existence, the seventy two signatories that have acceded to it is a modest level of achievement. This is especially when looked at from the point of view that as compared to the earlier two Conventions which received nine accessions over a duration close to fifty years, the CISG has received seventy two.

Besides, the very document of the CISG is a forum that, no doubt, is a unifying forum for the conducting of international commercial transactions. This is because unlike in the past when before its drafting, the international trade transactions had no common and uniform document which could be used as an international legal framework and platform for such transactions. Due to that vacuum, the parties to an international commercial transaction could only rely on several disjointed pieces of laws as well as principles of customary international law to effect their transactions. Thus, the very drafting and adoption of the CISG has served to be an important unifying milestone for all international commercial transactions.

Based upon the provisions of Article 1 of the Convention, it is observed that the Convention is to apply only to international commercial transactions where the parties are in Contracting States. Thus, the CISG as a unifying Convention was primarily aimed at unifying the practice in international commercial transactions between all countries in the world. The question then is, how is this purpose to be achieved in such circumstances as when the operation of the Convention may be limited to just more or less seventy two countries? Consequent upon the non-uniform application of the CISG the world over, then it becomes apparently clear that it has to a great extent failed in its unifying attempts for all international commercial transactions as had been primarily intended during its drafting and ratification.

Other than the question of the low numbers of countries that have either ratified and or acceded, could the CISG of itself be a stumbling block to its very unification efforts? This very much seems to be the case, especially with respect to the provisions of Article 2. By virtue of this Article, the provisions of this Convention are precluded from applying to certain international commercial transactions. For instance, the CISG is not supposed to apply to transactions involving buying goods for family, personal, household purposes, goods bought by auction, sales on execution, sales of stocks, shares, sales of ships, aircrafts, sale of electricity et cetera.

With the removal of the operation of the Convention’s provisions upon these sales, it may be surmised that for the sales involving any of the aforementioned substances, the applicable law should be the law relevant law of the country where the sale occurs. As well primed as it may be, the Article does not enhance the uniform applicability of the CISG. This is because to the extent that it excludes the operation of the CISG in these sales and instead bringing the said sales to the operation of different countries, the Article makes the unification purpose of the CISG a whole nonsense. This Article, it can then be seen, has not served towards the enhancement of the unification purposes of the CISG.

The provisions of Article 3 also seem to undermine the unification purposes that the CISG had intended to be had for international commercial transactions. As a general rule, the Article provides that the supply of goods to be manufactured is to be considered sales for the purposes of the Convention. However,22 it excepts such supplies from the operations of the CISG in circumstances where the contract allows the party supplying the goods to supply labour or other services to the buyer.23

The proviso to the sub-article 1 and also sub-article two, like Article 2 have the overall effect of removing from the operation of the CISG international commercial transactions that should have otherwise been validly within the domain of the Convention. The corollary to this scenario is that the relevant laws relating to the sales of these goods from the different countries are called into play. Suffice it to say, there is therefore created a situation in which several other jurisdictional legal provisions are called into operation to govern international commercial transactions which should have otherwise been governed through the uniform provisions of the CISG as per its outlined purposes.

The effects similar to Articles 2 and 3 are also to be found in Articles 92-96 which allow for states to express any reservations to exclude the operation of either Part II or III of the CISG. The consequence of the exclusion of either of the two parts from the operation of the Convention is thus to invite the operation of the laws of the contracting states in al matters respecting the issues attended to by the two parts. This then defeats the purpose of unification of the international commercial transactions as is intended by the CISG.

However, the process of ratification and accession to the Convention is low. Todate, a whooping twenty three years after its adoption, the dismal number of seventy two countries that have acceded to it seem to suggest that most countries do not have CISG’s ratification a priority to their economic endeavors. Indeed, Moss24 alludes to this reason thus much. Moss says that only a few countries have ratified the CISG due to the fact that most ministers do not find it a legislative priority.

Why, it may be inquired, do most ministers find the ratification of the CISG as not being of priority? While giving the example of the United Kingdom, Moss points out that the reasons are varied. She asserts that most multinationals do not favour the Convention’s ratification. However more importantly, she notes that, most countries do not consider their respective economies as undergoing any adverse effects from the non ratification. In her view, the United Kingdom’s economy does not does not get battered through this apparent government laxity in bringing necessary legislation for the ratification of the CISG.25

To sum it up, this paper purposed to discuss the issue of whether or not the United Nations’ Convention on Contracts for the International Sale of Goods, CISG has been able to fully meet the overall purpose for which it was established. This purpose, as has been seen, is to enable the unification of the legal framework that guides international commercial transactions. It has been seen that up to this moment, there are seventy two countries have acceded to the Convention. The application of this Convention to the seventy two countries has served to unify the governing law to international commercial transactions. However, it is pointed out at various instances that the CISG has not been very successful in unifying the law on transnational commercial transactions respecting goods for the reasons already identified and explained.

BIBLIOGRAPHY

Kritzer, A. H. CISG: Table of Contracting States, (2011). Pace Law School Institute of International Commercial Law.

Arbetman, L. P., McMahon, E. T., & O’Brien, E. L., (1994) Street Law- A Course in Practical Law, National Institute for Citizen Education in Law

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D’Arcy Leo et al., (2000) Schmittoff’s Export Trade: The Law and Practice of International Trade, Sweet and Maxwell, London, p. 688.

E Gichangi, ‘The United Nations Convention on Contracts for the International Sale of Goods: A Case for Ratification by Kenya’ (2007) Kenya Law Reports Vol. 1 at p. 305 see: http://www.unidroit.org

Elisabeth Hayes Patterson, “United Nations Convention on Contracts for the International Sale of Goods: Unification and the Tension between Compromise and Domination” (1986) in 22 Stanford Journal of International Law, p. 278-279.

Ernst Rabel, “Draft of an International Law of Sales” (1938) in 5 University of Chicago LR, p. 546.

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http://www.uncitral.org/uncitral/en/about/origin.html

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K Amy, ‘Unification and Community: A Rhetorical Analysis of the United Nations Sales Convention’ (1988) in 8 Northwestern Journal of International Law and Business, p. 578-582

Kazauki Sono, “The Vienna Sales Convention: History and Perspective” (1986) in Petar Sarcevic & Paul Volken eds., International Sale of Goods: Dubrovnik Lecturers, Oceana, Ch. 1, 1-17, p. 14,

Kazauki Sono, “Uncitral and the Vienna Sales Convention, (1984) in 18 International Lawyer 7, p. 13.

Mo, J, International Commercial Law. (2009) Butterworths. Sydney. 4th Edition

P Winship, ‘International Sales Contracts under the 1980 Vienna Convention’ in (1984) 17 Uniform Commercial Code LJ, at p. 58

P Winship, ‘The Scope of the Vienna Convention on International Sales Contracts’ in Galston & Smit eds., (1984) International Sales: The United Nations Convention on Contracts for the International Sale of Goods, Mathew Bender

Pryles, Waincymer & Davies (2004) International Trade Law: Commentary and Materials. LawBook Co. Pyrmont, NSW. 2nd edition

R Knieper, ‘Celebrating Success by Accession to the CISG’ Journal of Law and Commerce

R Knieper, ‘Celebrating Success by Accession to the CISG’ Journal of Law and Commerce

Reczei Laszlo, “Area of Operation of the International Sales Conventions” (1981) in 29 American Journal of Comparative Law, 513-522.

Rosset Arthur, “Critical Reflections on the United Nations Convention on Contracts for the International Sale of Goods” (1984) in 45 Ohio State LJ, p. 270.

S Eiselen, ‘Adoption of the Vienna Convention for the International Sale of Goods (the CISG) in South Africa’ in 116 Part II (1996) South African Law Journal at p. 332

S Moss, ‘Why the United Kingdom has not Ratified the CISG’ Journal of Commerce and Medicine Vol 25 at p. 483

Sieg Eiselen, “Adoption of the Vienna Convention for the International Sale of Goods (the CISG) in South Africa” in 116 Part II (1996) South African Law Journal, p. 332.

Starmer, K. & Christou, T. (2005). Human Rights Sourcebook for Africa. London: British Institute of International and Comparative Law

Steiner, H. J., Alston, P. & Goodman, R. (2007). International Human Rights in Context- Law, Politics and Morals (3rd edition). UK: Oxford University Press

UNCITRAL Secretariat, Convention on Contracts for the International Sale of Goods

Uniform Customs and Practice for Documentary Credits issued by the International Chamber of Commerce.

1 E Gichangi, ‘The United Nations Convention on Contracts for the International Sale of Goods: A Case for Ratification by Kenya’ (2007) Kenya Law Reports Vol. 1 at p. 305

2 The UNIDROIT is a body that was founded by the League of Nations way back in 1926. UNIDROIT exists even today. For more information, see: http://www.unidroit.org

3 S Eiselen, ‘Adoption of the Vienna Convention for the International Sale of Goods (the CISG) in South Africa’ in 116 Part II South African Law Journal at p. 332

5 Gichangi supra

7 See: P Winship, ‘The Scope of the Vienna Convention on International Sales Contracts’ in Galston & Smit eds., International Sales: The United Nations Convention on Contracts for the International Sale of Goods, Mathew Bender

8 Gichangi supra

10 See Gichangi supra at p. 306

12 P Winship, ‘International Sales Contracts under the 1980 Vienna Convention’ in 17 Uniform Commercial Code LJ, at p. 58

13 See http://www.uncitral.org/uncitral/en/about/origin.html

14 See Gichangi supra

15 K Amy, ‘Unification and Community: A Rhetorical Analysis of the United Nations Sales Convention’ (1988) in 8 Northwestern Journal of International Law and Business, p. 578-582

16 See Gichangi supra at p. 307

17 The United States acceded to the CISG on 11th December 1986

18 A H Kritzer, CISG: Table of Contracting States, (2011) Pace Law School Institute of International Commercial Law

19 Article 1(a)and (b), CISG

20 Article 2 (a)-(f)

21 R Knieper, ‘Celebrating Success by Accession to the CISG’ Journal of Law and Commerce

22 Article 3(1)

23 Article 3(2)

24 S Moss, ‘Why the United Kingdom has not Ratified the CISG’ Journal of Commerce and Medicine Vol 25 at p. 483

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