24 July 2020

The crux of the "Ex Works" Incoterm clause from the perspective of export control

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The use of international trade terms such as Incoterms® 2020 offers parties to an international trade transaction a standardized way of handling their contractual relationship.

The use of international trade terms such as Incoterms® 2020 offers parties to an international trade transaction a standardized way of handling their contractual relationship.

When Incoterms® are contractually agreed, essential elements of the performance of an international goods delivery are defined, which includes transfer of ownership and risk, responsibility for transport, insurance, customs and costs. Deviations or individual rules are possible, but not necessary. Incoterms® create legal certainty in international and commercial transactions and prevent misunderstandings and disputes between the parties. Incoterms® clauses are generally recognized by international courts, but only become effective if the parties have reached a contractual agreement on their use.

EXW ("Ex Works") is one of the Incoterms® rules and means that the seller offers his goods for sale at his premise (literally, “ex works”). The buyer is obliged to collect the purchased goods from the place of sale, which is why the Ex Works clause is also referred to as the "collection clause".

By including this clause in the contract, the distribution of costs and risks between buyer and seller is clearly regulated. For the seller, it means that he only has to offer the goods at the agreed place at the agreed time ready for collection and is released from his obligations and risks from the moment of delivery. The buyer is responsible for the transport as well as the loading of the goods. The buyer's obligations also include the declaration of the goods at customs in the case of an international sale.

The fact that the "Ex Works" clause represents a simplification in international commercial law, but does not harmonize with all national regulations, was made clear by the decision of the Federal Criminal Court of 30 May 2017 (SK.2016.51). According to the facts of the case to be judged, a company sold two machine tools (classified as an export-controlled item, due to its dual use in both commercial and military applications) off the premises and took the view that the acquirer had to take care of the customs declaration on his own, in accordance with the significance from abroad. Subsequently, the company's representative was found guilty of attempted violation of the Goods Control Act (Art. 14 para. 1 lit. a GKG).

The conviction was based on the following grounds: In the case of a cross-border sale of dual-use goods, a SECO licence is required, Art. 3 para. 1 of the Goods Control Act (GKV). In principle, SECO only issues authorisations to natural or legal persons who have their domicile or registered office or branch in the Swiss customs territory or in a Swiss customs committee territory. In principle, it is not possible for the recipient abroad to obtain an export license for dual-use goods. In addition to new goods, the obligation to obtain a permit also applies to goods that are in used or defective condition.

The Swiss Goods Control Act (GKG) and the Goods Control Ordinance (GKV) thus do not impose any obligations on a foreign buyer. The standardized obligations are only directed at the exporter, exporter or consignor in Switzerland, as only the latter is subject to national legislation. For this reason, only the domestic contractual partner can obtain the necessary export permit.

Under goods control law, the Swiss exporter is therefore responsible for obtaining an export licence, irrespective of the agreement on the Incoterms® clause ""Ex Works"" or any other agreement under private law. As clearly stated in the above-mentioned ruling, the use of the "Ex Works" clause is irrelevant with regard to goods control law. Rather, the following applies: Anyone who exports goods without a corresponding licence is liable to prosecution under Art. 14 para. 1 lit. a GKG.

For these reasons, EX Works is not suited to international trade and should not be used when the buyer cannot complete export formalities. A more suitable alternative would be Free Carrier (FCA), which requires the Seller to complete customs declarations and obtain any authorizations necessary for the export of items, technology, software or know-how. However, for international trade transacted under existing agreements for which EXW is the applicable term of delivery, sellers shall provide, at a buyer’s request, risk and cost, “any documents and/or information which relates formalities required by the countries of export/transit/import such as permits or licences; security clearance for export/transit/import; pre-shipment inspection required by the export/transit/import authorities; and any other official authorizations or approvals.” A buyer responsible for export formalities under EXW may therefore clarify the responsibilities of the parties in a commercial order as it relates to the management of export licensing and authorizations.

MME Legal | Tax | Compliance supports its clients to align international commercial contracts with the actual organization or transaction. For support with this or practical Incoterm training, export controls and other cross-border matters, don’t hesitate to contact us.