U.S. Grants Trade Preferences to Nepal
On February 24, 2016, U.S. President Barack Obama signed into law the Trade Facilitation and Trade Enforcement Act of 2015. This new law presents new opportunities for Nepali traders. The law authorizes certain trade preferences for Nepal, allowing duty-free benefits for up to 66 different items, such as carpets, headgear, shawls, scarves, and travel goods. The package of trade preferences is part of the continuing U.S. response to the 2015 earthquakes. A few administrative procedures remain before the law takes effect. President Obama must certify that Nepal is eligible based on the same requirements as the African Growth and Opportunity Act of 2000 (“AGOA”) and the U.S. International Trade Commission must decide whether the law poses any negative implications for the U.S. economy. This article examines two of the most important laws on the international sale of goods in the U.S. and what these laws mean for traders in Nepal.
The UCC
In the U.S., most sales of goods are governed by one of two laws: a domestic code or an international treaty. The domestic law is Article 2 of the Uniform Commercial Code, or the “UCC.” The UCC was initially proposed by the Uniform Law Commission and the American Law Institute in 1952 and since that time, 49 of the 50 United States of America have adopted Article 2. The U.S., a common law jurisdiction, has several decades’ worth of legal precedent and state court interpretations of this law. The UCC applies by default between U.S. parties, but as you will soon see below, Article 2 can also apply to many international sales of goods as well.
The CISG
The international law for sales of goods is the United Nations Convention on Contracts for the International Sale of Goods, the “CISG” for short. In 1969, the United Nations Commission on International Trade (UNCITRAL) began drafting what became the CISG in 1980. It came into force in 1988 after the first ten countries ratified the treaty. Currently, there are 84 signatory countries, including the United States. Trade between CISG countries, a list that also includes China, Russia, Australia, Brazil, and most of the European Union, represent three-quarters of the world’s trade.
To call this law an “international law” in the U.S. is misleading. It is true that many countries negotiated this law and have since ratified it. But when the U.S. ratified this treaty, it automatically became part of U.S. domestic law. Yet this is hardly the end of the story. The CISG, by its terms, applies to transactions of goods between parties of contracting states (unless the parties choose a different law in their contract). And, according to CISG Article 1(1)(b), the CISG also applies “when the rules of private international law lead to the application of the law of a Contracting State.” Private international law is another term for the “conflict of laws.” In plain English, these are the laws that decide which law a court or tribunal will apply when more than one law could apply. In practice, the CISG will apply to many transactions of goods when at least one party is from CISG country.
The United States, however, is special. The U.S. only agreed to sign the CISG treaty on the reservation that it would not be bound by CISG Article 1(1)(b). This was a necessary concession that the other CISG countries made so that the U.S. would ultimately sign the treaty. Effectively, this reservation allows U.S. courts to apply the UCC in disputes between a U.S. party and a party from a country that has not ratified the CISG, such as Nepal or India. Furthermore, U.S. courts, lacking the decades of experience with the CISG, often look to UCC cases to help them decide even CISG disputes. This home field advantage for domestic laws is hardly unique to the U.S., but this is why the UCC should always be kept in mind when making a deal with a U.S. based trading partner.
What does this mean for Nepal’s Traders?
What does this mean for a Nepalese trader who wants to take advantage the new U.S. trade preferences? It means that Nepal law could apply to their contract (though it seems unlikely that an American party would willingly agree to this), but so could U.S. law: either the UCC or the CISG. One law is not necessarily better than the other; both can offer a client strategic advantages depending on the terms and structure of the deal. American attorneys often prefer the UCC over the CISG (just a Nepalese attorney might prefer Nepali law), but this is often due to the individual attorney’s own familiarity with the UCC rather than the client’s strategic interests. An attorney who is well-versed in both legal regimes can show his or her client the practical effects of including or excluding the default provisions of each statute. More importantly, such an attorney can pick the best law and draft a contract minimizing the legal risks that a client engaged in overseas trade may face. Whether the UCC or the CISG governs a contract can affect not only the negation, formation, terms, and interpretations of the parties’ contract itself, but also affects what remedies are available to either party should something go wrong and what steps a wronged party may have to take before they can take advantage of those remedies.